What Is Reaganomics?

Reaganomics refers to the economic policies of Ronald Reagan, the 40th U.S. president who served from 1981 to 1989. His economic policies called for widespread tax cuts, decreased social spending, increased military spending, and the deregulation of domestic markets. These policies were introduced in response to a prolonged period of economic 澳洲幸运5官方开奖结果体彩网:stagflation that began under President Gerald Ford in 1976.

How Reaganomics Worked

The term “Reaganomics” was used by both supporters and detractors of Reagan’s policies. It was based on the principles of supply-side economics and the 澳洲幸运5官方开奖结果体彩网:trickle-down theory. Reaganomics proposed that decreases in taxes, especially for corporations, would stimulate economic growth. The savings would then “trickle down” to the rest of the economy, spurring overall growth, if tꦿhe🤡 expenses of corporations were reduced.

Reagan believed that individuals would be incentivized to invest, innovate, and generate economic growth if the tax burden on individuals and corporations was reduced. This approach was rooted in the belief that a strong 澳洲幸运5官方开奖结果体彩网:private sector would ultimately benefit all levels of society. Reagan also pursued deregulation across various industries, believing that reducing government intervention would spur competition, innovation, and efficiency.

Objectives of Reaganomics

The country suffered through several years of stagflation as Reagan began his first term. High inflation was accompanied by high unemployment. The 澳洲幸运5官方开奖结果体彩网:Federal Reserve Board increased the short-term interest rate to fight high inflation, reaching a peak in 1981. Reagan proposed a four-pronged 澳洲幸运5官方开奖结果体彩网:economic policy ཧintended t🍰o reduce inflation and stimulate economic and job growth:

• Reduce government spending on domestic programs
• Reduce taxes for individuals, businesses, and investments
• Reduce the burden of regulations on business
• Support slower money growth in the economy

Measures Introduced by Reaganomics

Reagan was a proponent of 澳洲幸运5官方开奖结果体彩网:supply-side economics. He regarded government intervention as a dཧamper on economic growth that reduced economic incentives and distorted market signals. He introduced several measures to reduce government interference and spur the free market.

Domestic program spending cuts

Reagan cut or reduced funding to multiple domestic welfare programs to curtail government intervention. They included Social Security, Medicaid, food stamps, education, and job training programs. He also ordered th🌌e Social Security Administration to tighten enforcement on disabled recipients in a deeply controversial move, ending benefits for more than a million recipients.

Reagan ordered government spending cuts to domestic programs but he increased defense spending by 35% at a pace of 7% a year for five years. He aimed to achieve "peace through strength" in his opposition to Communism and the Soviet Union.

Reduced corpora🍰te, individual, and investment taxes

Reagan lowered taxes significantly in the first year of his presidency. Income taxes at the top marginal tax bracket dropped from 70% to 50% in 1982 along with sharp cuts to corporate and estate taxes.

The unemployment rate was at 6.6% in December 1986. The 澳洲幸运5官方开奖结果体彩网:gross domestic product (GDP) stood at 3.46%. Reagan cut the tax rate to 38.5% in 1987 and unemployment fell to 5.7%.

The goal of these reforms wasn't only to reduce tax burdens but to simplify the tax code as well. Some of Reagan’s reforms eliminated write-offs, exceptions, and other loopholes for favored businesses. They also changed the way companies accounted for expenditures, encouraging them to invest in equipment.

Decreased government regulation

Reagan removed price controls on oil and gas, reduced restrictions on the financial services industry, and relaxed enforcement of the Clean Air Act. The Department of the Interior opened large areas of public land for oil drilling.

Congress passed the Garn-St. Germain Depository Institutions Act in 1982. It helped savings and loan banks to deal with rising inflation and interest rates by further deregulating deposit rates.

Tight monetary policy

President Reagan encouraged the Federal Reserve to tighten the money supply as Federal Reserve Chairman Paul Volcker steadily raised the federal funds rate to 20% by 1980. These high interest rates helped end double-digit inflation. The Reaganomics monetary policy was developed to co💫mpleme✅nt the Federal Reserve’s policy of raising interest rates to reduce borrowing and spending.

Advantages and Disadvantages of Reaganomics

“From December 1982 to June 1990, Reaganomics created over 21 million jobs—more jobs than have been added since,” wrote Arthur Laffer whose work heavily influenced Reagan’s tax cuts. The top marginal tax rate on individual income was slashed from 70% to 28% and the corporate tax rate was reduced from 46% to 34%. Inflation was reduced to 3.2% and the unemployment rate fell to 5.2% in March 1990.

The 澳洲幸运5官方开奖结果体彩网:Dow Jones Industrial A💮verage (DJIA) grew nearly 14-fold from 1982 to 2000. Nobel laureate Paul Krugmཧan downplayed the success of Reagan’s policies, however.

“Yes, there was a boom in the mid-1980s, as the economy recovered from a severe recession,” Krugman wrote for The New York Times. “But while the rich got much richer, there was little sustained economic improvement for most Americans. By the late 1980s, middle-class incomes were barely higher than they had been a decade before and the poverty rate had risen.”

Reagan reduced the economic regulation that began under President Jimmy Carter and eliminated price controls on oil and natural gas, long-distance telephone services, and cable television but critics argue that the deregulation of the financial services industry during the Reagan administration played a part in the 澳洲幸运5官方开奖结果体彩网:Savings and Loan Crisis as well as the 澳洲幸运5官方开奖结果体彩网:financial collapse of 2008.

The Bottom Line

Reaganomics was regarded as a common sense approach to the perception of stagflation and over-regulation that prevailed at the end of the Carter presidency. President Reagan hoped to incentivize economic activity and reduce dependence on th💞e government by reducing government spending and taxes and making it easier to do business.

T♈h🅘ese policies garnered reduced inflation, lower unemployment, and an entrepreneurial revolution that later became synonymous with the 1980s. Detractors of Reagan’s policies claim that federal deficits grew, however, and that the increased wealth gap increased the divide between the rich and the poor.