FREE ESSAY ON REAGANOMICS

REAGANOMICS

Reganomics
The election of the Regan-Bush Republican ticket of 1984 brought many unprecedented and
controversial policies to the US economy. Many of these policies,including Reganomics
still affect our economy as a whole and are still major points of debates today.
Reganomics was not solely based on economics, but rather the included a sense of having
moral foundations. Government intervention and regulation of the economy were seen as
economically harmful and furthermore morally wrong. It was believed that economic affairs
should be left to the wisdom of God and his guidance would produce a successful market
and economy.
The moral obligation together with extreme Kenseyan theories were the guide to the basic
principles of Reganomics. Their objective was to follow a laissez faire attitude,or a
hands off government policy. They also wanted to rely on the wisdom of the of the market,
meaning that the market is smart enough to take care of and troubleshoot itself,and they
tried to use a policy of deregulation which would allow companies to make their own
economic decisions with out the government limiting their choices. The administration was
also weary of anti-trust laws which did not allow for monopolies in our society.
The "deregulation of businesses" mentality was simple and encompassed two major points.
The points were to lower taxes and allow businesses to make their own decisions without
fear of government intervention. Their idea was that if you lowered taxes in general,
business would have more money to produce more, to more they would hire more workers, and
consequently due to the surplus of money, their would be more spending, investing, and
saving. This proves that individuals would gain along with the business. Ronald Regan
said, "Lower takes would spur business to invest, and send Americans rushing to stores to
spend" (Regan). In the short run deregulation produced greater competition and lower
prices for consumers. The long term effects were that the savings and loan industry
collapsed due to fraud and mis-management. Regan knew that deregulation could possibly
have adverse effects if there was no degree of regulation at all, so preventative
measures were set in place. One such preventative measure was the Office of Information
and Regulatory Affairs (O.I.R.A) which insured that deregulation
adhered to cost benefit principles to the maximum extent possible. "If government is the
problem, not the solution, you do not solve problems by applying a bigger problem to
them" (Regan).
Another notion behind Reganomics was the Laffer Curve, which conveyed the idea that tax
cuts would increase tax revenue. The Laffer Curve is based on the ideology that
government should provide a climate in which the incentives for individuals to pursue
their own economic progress wouldn't be hindered by governmental taxing, spending,
regulations, and/or monetary policies. It is also based on supply side economics. Supply
side economics was an economic policy
designed to stimulate output and lower unemployment by increasing production in the
economy. It allowed the free market to play a greater role in the economy while the
government took on a lesser role. "If government is the problem, not the solution, you do
not solve problems by applying a bigger problem to them" (Regan). The Regan
administration believed tax and spend policies led to a weak economy. Accordingly, they
passed the Tax Reform Act of 1986 (TRA86) which reduced individual income tax liabilities
and raised corporate income tax liabilities. They also passed ERTS. ERTA gave a 25% cut
in individual marginal tax rates over a three year period. It set an indexing of
individual brackets, personal exemptions, and standard reductions; it reduced all
individual taxpayers taxes, and gave percentage reductions for lower and middle class
incomes exceeding those given for the rich. Bill Clinton said, "For 12 years the driving
idea behind American economic policy has been cutting takes on the richest individuals
and corporations...". This is true, with the exception of ERTA, all the tax changes
during the eight years of Reagan's administration were unmistakably pro-business and
pro-rich-individuals.
When Reagan cut the taxes for wealthy individuals and business' he believed that it would
contribute to a stronger base economy, in turn the benefits of a strong base economy
would "trickle down" to reach everyone, even the poorest Americans. Ronald Reagan said,
"Lower taxes would spur business to invest, and send Americans rushing to stores to
spend" (Regan). The Reagan Administration believed lower taxes were beneficiary in this
manor and high tax rates only further darkened the lines on how our society was typecast,
rather than break down those barriers. Furthermore high tax rates inhibited social
mobility into the upper class. "The real losers from soak the rich tax are not the rich,
but the would be rich." This is true because there would be no trickle down effect if tax
rates were high.
Major elements in the initial Regan policies were spending slow downs aimed at
eliminating budget deficits in 1984 and producing budget surpluses thereafter. As well it
was aimed to slow down the growth of federal outlays and change their composition.
However the initial policies of the Reagan administration coupled with stock market
changes were so bold and dramatic that it caused the 1981 - 1982 recession.
After be in a state of recession, things did get better. Within 18 months of Reagans
term, poverty began to decrease. The U.S also experienced an unprecedented export boom in
the 1980's which turned out to be the longest economic boom in U.S history. Along with
this came 20 million new jobs and it was the first time the electorate had an intensely
satisfied voting majority. " Reagan was the only U.S. president since WWII to reduce both
inflation and unemployment while expanding the total number of jobs for all Americans"
(Dunn)
However when this great prosperity was acquired in such a short period of time, people
got nervous and began to make false accusations against the Reagan administration which
were called myths.
Myths were created by economists that either did not look at all the statistics or made
assumptions before they had all of the statistics. Some of the myths that came from these
economists were that Reaganomics caused Americans to divest and de-industrialize. There
were also presumptions that every dollar of taxes that were cut would lose a dollar of
revenue. They also offered that record deficits were caused by the reduction in marginal
tax rates. There is no basis for insisting that tax policy developments were responsible
for the budget deficits of the Reagan years. (Ture 35) Some myths created even went so
far as to say that the deficits were deliberate in order to reduce social spending while
increasing defense spending. In fact the contrary is true. Transfer payment spending for
social services rose 19.7%, from $344.3 billion to $412 billion, on programs that
provided income, food, healthcare, housing, education and training, and social services
to poor families. (Ture 39) This is proving that social programs were not hurt under
Reagan. Economists also gave the impression that Reagan policies favored the rich at the
expense of the poor and that the rich only paid a larger
shave of taxes because they had a larger share of income. This is not entirely true. Even
though the rich may not have seemed to have paid more taxes they actually did buy
investing in more taxable securities and fewer tax exempt securities. This produced more
tax revenue. 
Rather than being a tax and spend economy, the Reagan administration lended itself to a
borrow and spend economy that produced many deficits. What was the cause of these
enormous debts? Many factors added to the accumulation of the debts. Buying and thus
building up the U.S. dollar to an artificiallyhigh level made U.S exports more expensive,
U.S imports cheaper and it added to the
trade deficit and the foreign debt. This was also known as "Mexicanization" of the
economy. (Galbraith 3) Large budget deficits from the loss of tax revenue, was brought
about by the loss of real output during the 1981 - 1982 recession, and unanticipated
disinflation. That fiscal year (after adjusting for inflation, tax collections did not
increase) brought high interest rates which attracted foreign money. This pushed up the
dollar and caused the trade deficit. The deficit was also caused by large defense and
consumption spending.
The Reagan administration had little responsibility for the budget deficits. The bills
for spending that the Reagan administration originally proposed were altered by congress.
The deficit was therefore caused by congress' permitted spending excess and not excess
tax cuts. It seems that through supply-side economics savings didn't increase but allowed
for a huge growing debt that nearly tripled during Reagans administration. On the good
side of things, deficit spending helped to stimulate demand and trigger economic
recovery. It also stimulated a growth of employment in non-investment grade firms by 17.3
million which was due to junk bonds.(Zycher,43)
On the down side, the U.S is presently the worlds largest debtor. Public and Private
debts carrying over from the past decade weigh heavily on the government,business',
household's and financial institutions' well being.
Reganomics could have been greatly successful if government spending would have been
checked. "If government had borrowed in order to fund public capital, rather than
military spending and tax breaks for the wealthy, the debt burden would be greatly
reduced" (Sawicki). Looking back now we can truly understanding the full effects of
Reganomics on our economy.
Works Cited
Galbraith, John K. "The Price of Comfort."
Los Angeles Times 6 Jan. 1991: pp.1-5.
Roberts, Paul C. and Ed Rubenstein. "Debt, Lies, and Inflation."
National Review 14 Dec. 1992: pp.41-43. Vol. 140.
Tarshis, Lauren. "The Legacy of Reaganomics."
Scholastic Update 6 Mar. 1992: pp.10-12. Vol. 124.
Ture, Norman B. and Ed Rubenstein. "To Cut and to Please."
National Review 31 Aug. 1992: pp.35-39. Vol. 44.
Wills, Gary. "The End of Reaganism."
Time 16 Nov. 1992: pp.73-77. Vol. 140.
Zycher, Benjamin. "Debt, Lies, and Reaganomics."
National Review 14 Dec. 1992: pp.41-43. Vol. 44.
Bibliography
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