Fox News distorted economic history to criticize President Obama's record on jobs creation, using what Nobel Prize-winning economist Paul Krugman has called “a stupid comparison” to President Reagan. But Reagan was aided by an increase in government spending and public sector employment, as well as drastic cuts to interest rates.
The Labor Department* released its monthly jobs report on Friday showing that the U.S. economy added 163,000 jobs in July, compared with 64,000 the previous month. According to the report, unemployment increased by .1 percentage point to 8.3.
In response to those numbers, Fox Business analyst Stuart Varney compared the current recovery with that of Reagan, saying that “it is a very negative comparison for President Obama.”
However, Krugman has noted that the two recoveries are not comparable, explaining:
If government employment under Mr. Obama had grown at Reagan-era rates, 1.3 million more Americans would be working as schoolteachers, firefighters, police officers, etc., than are currently employed in such jobs.
And once you take the effects of public spending on private employment into account, a rough estimate is that the unemployment rate would be 1.5 percentage points lower than it is, or below 7 percent -- significantly better than the Reagan economy at this stage.
One implication of this comparison is that conservatives who love to compare Reagan's record with Mr. Obama's should think twice. Aside from the fact that recoveries from financial crises are almost always slower than ordinary recoveries, in reality Reagan was much more Keynesian than Mr. Obama, faced with an obstructionist G.O.P., has ever managed to be.
In the words of the Economic Policy Institute, “the current recovery is the only one [of the last four recessions] that has seen public-sector losses over its first 31 months.” EPI continued:
If public-sector employment had grown since June 2009 by the average amount it grew in the three previous recoveries (2.8 percent) instead of shrinking by 2.5 percent, there would be 1.2 million more public-sector jobs in the U.S. economy today. In addition, these extra public-sector jobs would have helped preserve about 500,000 private-sector jobs.
Chief economist at Moody's Analytics Mark Zandi found that job losses at the state and local government levels have “the most serious weight on the job market." And when the public sector cuts jobs, it significantly affects private sector employment, as economist Joel Naroff noted:
Behind those government job losses are budget cuts, particularly from states and local governments, many of which have lost revenues as lower incomes and lower property values lead to lower tax income. Those budget cuts mean fewer government contracts, which also leads to pain in the private sector. The winding down of the stimulus package also contributed to these losses, as federal assistance to state governments for things like extra Medicaid funding has disappeared, leaving many states with substantial budget gaps.
Altogether, the strain on the national economy is considerable. “There's no such thing as a free budget cut.” says Naroff. “If the public sector trims [20,000 to 25,000] jobs a month, then the private sector has to create those jobs before the economy can add one job. That's the hole that the public sector puts the economy in at this particular point,” he says.
The Obama administration's jobs bill would have given about $35 billion to state and local governments to prevent many of these public sector job losses, but because of a Republican filibuster, the bill has languished. Since then, the public sector has lost 124,000 jobs.
The Reagan recovery is also owed to a large increase in government spending and the Federal Reserve lowering interest rates.
The Congressional Budget Office explained that because the 1980s recession was caused “by monetary restriction aimed at bringing inflation under control,” "[l]ower interest rates after mid-1982 permitted the recovery to begin." Today's Federal Reserve does not have this same ability, because the interest rates are already nearly 0.
What's more, President Reagan greatly increased government spending to aid the economic recovery. In contrast, government spending under President Obama is falling at a rate of 1.4 percent, the first decline in real spending since the 1970s, as The Wall Street Journal noted:
*Updated for accuracy.