"Reagan Did It"

In yesterday's Times, Paul Krugman argued that Reagan was responsible for the recent housing crisis.

A response at Commentary Magazine:

First, he attributes the results of the Garn-St. Germain Depository Institutions Act of 1982, and thus the S&L crisis of the late 1980’s, entirely to Ronald Reagan, as though Reagan was ruling by decree. It was Democrat Fernand St. Germain, Congressman from Rhode Island, who dropped into the bill in the middle of the night the provision that raised the government guarantee on bank deposits from $40,000 to $100,000 and assorted other goodies for the powerful S&L lobby. It passed both houses with veto-proof majorities.

Second he lies with statistics, especially the “savings rate,” which measures only family income versus outgo. Mortgage payments, for instance, which add to net worth, are not counted, nor are capital gains, unless realized. In the great boom of the 1982-2007 period, families saved more by increased housing and investment gains than by old-fashioned savings.

Third, he writes, “traditionally, the U.S. government ran significant budget deficits only in times of war or economic emergency. Federal debt as a percentage of G.D.P. fell steadily from the end of World War II until 1980. Translation: Reagan began running up the debt to unsustainable heights.

What he doesn’t say is that while the debt remained fairly steady in dollar terms in the late 40s, and in 50s and 60s (it increased by roughly a third in the 1960s though), it declined as a percentage of GDP thanks to strong economic growth. But in the 1970’s, with Congress firmly in the hands of Democrats and with weak Republican presidents Nixon (after Watergate broke) and Ford, the debt tripled in dollar terms. It declined slightly as a percentage of GDP only because of the roaring inflation of that decade.