Economist Says 1980s Weren't So Terrible
ECONOMIST Richard McKenzie acknowledges that statistics lately have begun to blur in his mind. That's because he's just finished writing the text for a book about the economy in the 1980s - the Reagan era - 400 pages heavy with numbers about growth in output, income distribution, and so on.
The professor at the University of California, Irvine, came to this general conclusion: "The 1980s was a more prosperous decade than people generally give it credit for."
Such a conclusion may delight Republicans in the current election atmosphere. But Professor McKenzie says he's neither Republican nor Democrat, contributes money to neither party, and hasn't even decided which presidential candidate he will vote for in November. In other words, he claims to be striving for nonpartisan analysis. Since many of his numbers end in 1989, they may not be too relevant to the Bush presidency, with its problems of a recession and subsequent slow growth.
Nonetheless, some of his findings are notable:
* National output after inflation grew by nearly a third in the 1980s. That's the equivalent of the entire output of the German economy or two-thirds that of the Japanese economy.
* Real manufacturing output rose 38 percent. The number of manufacturing jobs declined 1.2 million. But that drop is because productivity rose around 4 percent a year and because many firms "outplaced" some jobs, such as truck-driving, to firms in the service sector.
* United States output relative to that of the remainder of the world was about the same in 1989 as in 1980 - 34 percent. That share did decline for much of the postwar world, but not in the 1980s.
* The rich got richer, but so did the poor and the middle class in the 1980s.
On this last point McKenzie is getting into the area of distribution of income, where the statistics can get really complex. Conclusions may vary according to factors selected by the analyst: individual or household income, hourly wages or total income, the time frame, adjustment for family size, and so on.
McKenzie, in a Washington University study, uses two federal surveys of "consuming units" done in 1984 and 1989, in which the people were asked about both income and spending, including a diary of expenditures. (He couldn't track down compatible data for an earlier year.) A unit could be a single person living alone, a household of unrelated people, or a family.He found that the inflation-adjusted before-tax income of the lowest fifth, or quintile, of consumer units jumped dramatically between 1984 and 1 989 - a period of economic expansion. In fact, it increased by a far greater percentage than the before-tax income of the other fifths of the income distribution.
Also, in 1984 the lowest income group spent, on a per-capita basis, more than three times its reported income. In 1989, per-capita expenditures by the lowest quintile were higher than they had been five years earlier, but spending declined relative to the group's before-tax income. Nevertheless, this group still spent more than twice its per capita income that year.
How can the poor or near-poor spend more than they earn?
McKenzie has several explanations. Some are students subsidized by higher-income parents. Others are elderly supported by children and friends. Many are retired people, spending their savings. Some of the spending money comes from income that is not reported for fear of tax and legal repercussions. Some people simply habitually underreport their income - perhaps by as much as 20 percent for the poorest fifth, according to one study.
Further, notes McKenzie, poverty is often temporary. People lose their jobs and eventually get new ones. Or they move up the income ladder gradually or suddenly.
McKenzie does note that not all prospered in the 1980s. Those with high school education or less, especially men, were hit hard in that decade. Patrick Corcoran, an economist with Prudential Economics, says this shift is the result of heightened global competition from low-wage workers abroad, not benign neglect under President Reagan. McKenzie says spending on lower-income, disadvantaged people rose in the 1980s.
Because of the complexity of income-distribution numbers, different statistical twists - probably mostly accurate if one-sided - will be given in the campaign. They may be hard to sort out.