June 8, 2004
Ronald Reagan's economic achievements were among the most important accomplishments of his presidency, says Bruce Bartlett. When he took office in January 1981, the U.S. economy was suffering from many ills, including slow growth, high inflation, rising unemployment and unprecedented interest rates.
To appreciate the magnitude of Reagan's achievement, it is important to recall just how bad the economic situation was in 1980:
- There was a recession that year, beginning in January and ending in July; as a consequence, real growth for the year was negative, with the national unemployment rate averaging more than 7 percent and inflation remaining dangerously high.
- By December 1980, the consumer price index was 12.4 percent higher than a year earlier; inflationary expectations, combined with monetary tightening by the Federal Reserve, caused interest rates to hit the highest levels in U.S. history.
- The prime rate went above 20 percent at mid-year and was still above 15 percent when Reagan took office.
Nevertheless, by 1986 the U.S. inflation rate was down to just 1.1 percent and real gross domestic product was rising at a healthy pace. The unemployment rate and interest rates were still stubbornly high, but on a downward trend. Although the U.S. economy had suffered a sharp recession from July 1981 to November 1982, it was far less severe than most economists expected, given the drop in inflation.
Source: Bruce Bartlett, "Reagan's Legacy," National Center for Policy Analysis, June 7, 2004.
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