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In retrospect, did Reaganomics Work?
Question inspired by one of the photos submitted here...
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Yes, I believe it did. The 80's were prosperous. The 70's had been disastrous--sitcoms had unemployed characters because they were people everyone could relate to. In the 80's, we had Alex P. Keaton and J.R.
In my own family, people with their own businesses struggled under an increasing load of red tape and punitive government policies during the 70's. In the 80's, it was just the opposite, at least for those who'd managed to keep their businesses open.
I found a good article that helps explain why people talk about the "tripled deficits" during the Reagan era. At then end of his presidency and into the first Bush presidency, they were shrinking. They'd continued to grow at the beginning of his first term because of the effects of Carter-era policies. We certainly can understand how policies from the last couple of years effect the economy right now, don't we? Economies don't turn on a dime.
"For starters, let's remember what things were like when Reagan took over. In 1980, inflation was running at 13.5 percent, the prime lending rate stood at 21.5 percent, unemployment and poverty were rising, real income and productivit were falling, and real economic growth had ceased.
Enter Reagan, who implemented deep, across-the-board tax cuts, curbed Washington's regulatory bureaucracy, and instituted sound monetary policies tha restrained inflation. The results: the largest peacetime economic boom in U.S. history and nearly 20 million net new jobs.
How did Reagan accomplish it? Was it because his policies allowed people and businesses to keep more of their own money, thereby shifting power away from government and toward the people? Or did the Reagan administration deplete the federal treasury through tax cuts and then borrow its way to a sham prosperity, leaving the bill for future generations, as liberals contend?
The former, of course. "Issues '94: The Candidate's Briefing Book," prepared by my colleagues at The Heritage Foundation for the upcoming elections, reveals that in 1984, at the end of Reagan's first term, his tax-rate cuts stimulated economic activity enough to boost federal revenues by nearly $150 billion (in current dollars) more than their level in 1980 when he took office. At the end of his second term in 1988, revenues reached nearly half a trillion over the 1980 level. Throughout the 1980s, federal revenues exceeded all the projections of the naysayers.
So where did those incredible deficits come from? Overspending.
Although Reagan's economic strategy coupled tax and spending cuts, Congress fought the spending restraints every step of the way. As a result, federal spending far outpaced revenues during the 1980s, more than doubling from $590.9 billion in 1980 to more than $1.25 trillion (current dollars) in 1990. Congress only allowed Reagan to implement half of his program--the tax cuts--and then went on a spending spree that outpaced even the higher revenues his policies produced.
By fiscal 1986, the deficit reached its highest level under Reagan: $221.2 billion. And what happened after that is something you'll never read in The Washington Post: The Reagan economic program started wiping out the deficit."--Chief Executive, The , Sept, 1994 by Edwin J. Feulner
Lots more in a great article.
In my own family, people with their own businesses struggled under an increasing load of red tape and punitive government policies during the 70's. In the 80's, it was just the opposite, at least for those who'd managed to keep their businesses open.
I found a good article that helps explain why people talk about the "tripled deficits" during the Reagan era. At then end of his presidency and into the first Bush presidency, they were shrinking. They'd continued to grow at the beginning of his first term because of the effects of Carter-era policies. We certainly can understand how policies from the last couple of years effect the economy right now, don't we? Economies don't turn on a dime.
"For starters, let's remember what things were like when Reagan took over. In 1980, inflation was running at 13.5 percent, the prime lending rate stood at 21.5 percent, unemployment and poverty were rising, real income and productivit were falling, and real economic growth had ceased.
Enter Reagan, who implemented deep, across-the-board tax cuts, curbed Washington's regulatory bureaucracy, and instituted sound monetary policies tha restrained inflation. The results: the largest peacetime economic boom in U.S. history and nearly 20 million net new jobs.
How did Reagan accomplish it? Was it because his policies allowed people and businesses to keep more of their own money, thereby shifting power away from government and toward the people? Or did the Reagan administration deplete the federal treasury through tax cuts and then borrow its way to a sham prosperity, leaving the bill for future generations, as liberals contend?
The former, of course. "Issues '94: The Candidate's Briefing Book," prepared by my colleagues at The Heritage Foundation for the upcoming elections, reveals that in 1984, at the end of Reagan's first term, his tax-rate cuts stimulated economic activity enough to boost federal revenues by nearly $150 billion (in current dollars) more than their level in 1980 when he took office. At the end of his second term in 1988, revenues reached nearly half a trillion over the 1980 level. Throughout the 1980s, federal revenues exceeded all the projections of the naysayers.
So where did those incredible deficits come from? Overspending.
Although Reagan's economic strategy coupled tax and spending cuts, Congress fought the spending restraints every step of the way. As a result, federal spending far outpaced revenues during the 1980s, more than doubling from $590.9 billion in 1980 to more than $1.25 trillion (current dollars) in 1990. Congress only allowed Reagan to implement half of his program--the tax cuts--and then went on a spending spree that outpaced even the higher revenues his policies produced.
By fiscal 1986, the deficit reached its highest level under Reagan: $221.2 billion. And what happened after that is something you'll never read in The Washington Post: The Reagan economic program started wiping out the deficit."--Chief Executive, The , Sept, 1994 by Edwin J. Feulner
Lots more in a great article.
At its core, Reaganomics boils down to cutting taxes in order to stimulate economic growth. In some ways, this can work. The more money people have in their pockets, the more they will spend.
However, where the argument breaks down is with government spending. Tax cuts have left us with crippling deficits and a massive national debt. And there has been no empirical evidence that the tax cuts in fact stimulated the economy that much. In fact, Bill Clinton's 1993 economic plan, which raised some taxes, helped stimulate a massive increase in economic activity throughout the 1990s.
However, where the argument breaks down is with government spending. Tax cuts have left us with crippling deficits and a massive national debt. And there has been no empirical evidence that the tax cuts in fact stimulated the economy that much. In fact, Bill Clinton's 1993 economic plan, which raised some taxes, helped stimulate a massive increase in economic activity throughout the 1990s.
Reaganomics was a disaster long term. It created a temporary prosperity through ill conceived tax cuts mainly for the wealthy and a huge amount of government spending, mostly on the military. Ross Perot explained and documented it all in detail during his campaigns. We were left with a 7 trillion dollar debt, unheard of in those days, and a 600 ship navy (for instance) that we didn't need and that just rusted away. Clinton made a good start at tackling the debt, but Bush introduced more tax cuts and vastly increased military spending for wars which led to the economic crisis of today. President Obama and congress will need every ounce of skill and will they possess to turn things around.
Since the Reagan years, free-market cliches have passed for sophisticated economic analysis. But in the current crisis, these ideas are falling, one by one.
Reaganomics = "Regulation is the problem and deregulation is the solution. The distribution of income and wealth doesn't matter. Providing incentives for the investors of capital to "grow the pie" is the only policy that counts."
We are in a worldwide crisis now because of excessive deregulation. We let investment banks get into a much wider range of activities without regulation. This helped create the sub prime mortgage mess and the current crisis in banking.
Reaganomics = "Regulation is the problem and deregulation is the solution. The distribution of income and wealth doesn't matter. Providing incentives for the investors of capital to "grow the pie" is the only policy that counts."
We are in a worldwide crisis now because of excessive deregulation. We let investment banks get into a much wider range of activities without regulation. This helped create the sub prime mortgage mess and the current crisis in banking.
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