What did Reaganomics Do?
Reaganomics is a popular term coined by Paul Harvey, American radio broadcaster and supporter of Ronald Reagan. The term refers to the conservative economic policies of the 40th U.S. president Ronald Reagan. These economic policies were introduced in response to the prolonged period of stagflation and they called for decreased social spending, increased military spending, widespread tax cuts, and deregulation of domestic markets. But was Reaganomics successful? What did Reaganomics do?
Read on to find out how much of the Reaganomics effects were realized and how well has Reagan’s economic policy achieved its own goals.
When did Reaganomics begin?
When Ronald Reagan took the oath of office as America’s 40th president on January 20, 1981, the country was experiencing some economic issues. Taxes and interest rates were high and unemployment was also high, so Reagan announced a plan to fix the nation’s economic mess. Reagan claimed an undue tax burden, excessive government regulation, social spending programs and he proposed a gradual 30% tax cut for the first three years of his Presidency.
What are some of the principles of Reaganomics?
The four pillars of Reaganomics were: to reduce the growth of government spending, to reduce both income taxes and capital gains taxes, tighten the money supply in order to reduce inflation and to reduce government regulation.
What is Reaganomics based on?
The economic policy of Reagan was based on “supply side” or also known as “trickle-down” economics with monetarism in order to build economic growth. This means that his policy was based on the theory that if he allows companies the opportunity to make profits, boost production, and encourage investment, this will lead to economic growth and higher standards of living for all people. The theory behind monetarism was to control the supply of money by providing tax cuts for wealthy investors which would encourage them to save and then invest more, producing economic benefits such as stimulating the economy and creating new jobs.
Did Reagan’s Economic Policies Actually Work?
The economic policy of Reagan promised to reduce the government’s influence on the economy. But did Reaganomics work? Over the eight years of the Reagan administration unemployment fell from 7,6% to 5,5%, 20 million new jobs were created, real gross national product rose 26%, inflation dropped from 13,5% to 4,1% and the prime interest rate was cut more than half. Let’s take a look at some of the biggest pros and cons of Reaganomics.
Pros of Reaganomics
Reaganomics created lower taxes for many people which helped to provide a little extra personal income that could be used to support the GDP (Gross domestic product). Also, many of the economic problems that happened in the 1970s were because of inflation, and Reaganomics helped put an end to it. Reaganomics encouraged the government to be more reasonable with their spending habits just as the American households were. So, many social programs and services that weren’t really needed were simply cut off. Reagan’s economic policies also helped to create many investment opportunities so that everyone could become richer. The idea behind Reaganomics was that if the rich people invested into more wealth, this would create more jobs, increase salaries and provide a higher standard of living for everyone in the country. By 1983 the U.S. economy began to recover and the financial crisis known as Stagflation finally came to an end.
Cons of Reaganomics
Even though there were certainly some benefits of Reaganomics, for some these advantages came at a price too high. Reaganomics created higher levels of national debt and larger deficits. In fact, the national debt tripled from one to three trillion dollars during this period of American history. The spending deficits during the Reagan years were massive and they threatened to put the country back into another recession. Also, Ronald Reagan assumed that those companies and individuals who will receive the tax cuts would willingly agree to invest their money into the future of the country, but his assumption was completely wrong. Many of those who received an economic benefit from the Reaganomics simply held onto their additional cash.
Reaganomics also created an unrealistic economy – over the eight years that President Reagan served, the defense budget was increased six times. This led to an unstable sector that provided temporary jobs and temporary benefits, but no long term gain. During Reagan years inflation was tamed and dropped down below 5%, but this was only due to monetary policy, not fiscal policy. Reagan’s tax cuts did end the recession, but government spending wasn’t lowered and just changed from domestic to military programs. The biggest failure of Reaganomics was probably the inability to control spending and reduce the federal deficit.