Government spending helped Reagan

We hear from the Republicans that there has been too much government spending in the Obama years and this 'over-spending' has been a primary reason why the recovery has been so slow. Things improved much faster under Reagan because he cut spending is another oft-heard trope. The problem with these assertions is that they are not true.

Frank Lysy, a former World Bank executive, seems to me to have the numbers (from the Department of Commerce) that prove his point, namely, that the Reagan recovery was due to massive government spending. The primary reason for for the slowness of the Obama recovery is due to limited government spending.

Lysy's conclusions:

In summary:

1)  The recovery of GDP in the recent economic downturn has been slow, with unemployment still high.  Not only is a vast amount of potential output being lost, but long periods of unemployment is particularly cruel to the lives of those who must suffer this.

2)  Prominent Republican leaders have repeatedly asserted that the slow recovery has been due to an explosion of government spending under Obama.  This is simply not true.  Growth in government spending since the onset of the recession in December 2007 has been slower than in any other downturn of the last four decades in the US, and has been far less than the growth seen following the 1981 downturn during the Reagan years.

3)  Growth in government spending following the 1981 downturn during the Reagan period was in fact the highest by a substantial margin of any of the six downturns.

4)  If government spending had been allowed to grow in the recent downturn as it had during these Reagan years, the economy by the end of 2011 would likely have been at or close to full employment.

5)  Residential investment has also collapsed following the housing bubble that reached its peak in 2005/6, and has contributed substantially to the current downturn.  Its impact, while significant, is however quantitatively less than the impact of slow government spending, since residential investment is normally (and even at its peak) well less than government spending as a share of GDP.