The Truth About the Reagan-Thatcher Economic Miracle

My good friend Joe Weisenthal has put up a couple of charts that supposedly show that the Reagan-era reforms didn't really result in the U.S. economically outperforming the rest of the world.

President Ronald Reagan watches as British Prime Minister Margaret Thatcher speaks November 16, 1988 in Washington, DC.
Brad Markel | Liaison | Getty Images
President Ronald Reagan watches as British Prime Minister Margaret Thatcher speaks November 16, 1988 in Washington, DC.

"It turns out that Great Britain, Japan, and Australia have all grown faster than the US on a per capita basis. And Germany is very close. Bottom line: Anyway you slice it doesn't it look like anything special happened starting in 1980," Joe writes.

That's only true, however, because Joe starts his charts at the wrong point. Reagan was not president in 1980. He was a Republican candidate running against a Democratic incumbent in 1980.

Reagan didn't take office until 1981. The key piece of legislation, the Economic Recovery Act of 1981, was not passed until August of that year. The tax cuts were phased in over the next three years.

So a better way to chart the relative performance of the economies is to measure them from 1982 on. Once you do that, you find that the facts of economic performance are more complex.

The U.S. initially outperforms both Great Britain and Japan. Japan has explosive growth from the mid-1980s through the mid-1990s and then enters its lost decade. The U.S. and Great Britain track each other almost in parallel until the end of the Clinton era. Australia doesn't top the U.S. until the most recent recession.

So what's the take away from this? Basically, the Reagan and Thatcher revolutions worked. They set the U.K. and the U.S. on long term paths of economic outperformance relative to the rest of the world.

The real mystery, to my mind, is why the U.S. and the U.K. show such different results beginning in 1999. The U.S. per capita growth levels off for a couple of years while the UK keeps right on the global outperformance trend.

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