Economics 101; R. Reiland

THEFREEMAN IDEASON LIBERTY Economics 101: A True-False Test by Ralph R. Reiland H ere's a quiz. Which of the following statements about the American econ omy during the 1980s are true? 1. From 1982 to 1989, 19 million net new jobs were created in the United States (more than the number of jobs created in Europe and Japan combined), two-thirds of them high-or middle-paying, resulting in the low est unemployment rate in 16 years. 2. The economic growth unleashed by tax cuts increased federal tax revenues in the 1980s by $1.1 trillion. 3. These additional federal tax revenues contributed to the reduction of the federal deficit from 6.3 percent of GDP in 1983 to 2.9 percent in 1989. (A Congress loaded with pork peddlers blocked greater spending cuts.) 4. Presidents Kennedy and Reagan both enacted supply-side tax cuts on top income earners and job creators and produced the two longest economic expansions in Amer ican history.

5. The Reagan tax cuts "trickled down" to produce a 76 percent jump in new busi ness investment in real (adjusted for infla tion) dollars in the 1980s and tripled the rate of productivity growth. 6. Real per capita after-tax income rose by 19 percent in the 1980s, nearly double the rate of the 1970s. Professor Reiland, associate professor of eco nomics at Robert Morris College, owns Amel's Restaurant in Pittsburgh. 7. Real family income increased each year from 1983 through 1990 in every in come group (from the poorest fifth of house holds to the richest fifth), while median family income fell by 1.9 percent in 1993. 8. The real income in the bottom fifth of the income distribution increased by 12 percent in the 1980s, reversing a 17 percent slide between 1979 and 1983. 9. Eighty-six percent of the tax filers in the poorest fifth of families in 1980 moved out of that bottom quintile by 1988 (16 percent moved all the way to the top fifth of income earners).

10. Looking at income distribution as an individual matter, not as a group compari son, real median income increased by 5 percent between 1982 and 1988 for those who started in the top fifth of income earn ers, and increased 77 percent for those who started in the bottom fifth (primarily by moving out of that bottom quintile). 11. Real family income declined each year from 1979 until 1982, and has declined each year since 1991-the years sandwiched between these two periods of shrinking income, produced a real increase of $4,877 in median family annual real income. 12. Since 1988, the typical American household has lost $2,344 in real annual income, and the degree of income inequality is now at a post-World War II high. 13. After growing nationwide by 7 million people during the late 1970s, the poverty 451 452 THE FREEMAN • JULY 1995 population declined by 4 million during the 1980s: reversing the downward trend, pov erty in the '90s is rising again with over a million Americans falling into poverty in 1993.