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Was Reaganomics Successful?

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Reaganomics is a term that describes the economic policies established by President Ronald Reagan. Four major policy points contained in his economic framework include reducing government spending and its growth, marginal tax rates, regulation, and inflation, the latter through strict management of the nation’s money supply. The success of Reaganomics carries much debate when analyzed through the annals of time. Successes include lower marginal tax rates and inflation. Other issues, however, such as the savings and loan problem, size of federal government, and tax revenue did not see much change.

President Reagan was a strong believer in free economic enterprise. His beliefs of lower taxes and less regulation of business were two significant tentpoles of Reaganomics. The reduction of marginal tax rates allowed individuals to keep more of their money. The president’s belief most certainly came from Adam Smith’s view of individual self interest, as defined in Smith’s text A Wealth of Nations. By limiting taxation, it allowed for individuals and businesses to reinvest their capital, resulting in a higher GDP than the previous presidential administration.

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Placing restraints on the regulation of business helped spur new growth in the American economy. Classic economic theory defines government regulation as an external factor against business growth. Reaganomics heavily supported the idea of limited Congressional action in private industries. A result was the creative destruction that often defines capitalism, where one industry dies and another emerges. For example, the typewriter industry was taken over by the personal computer firms.

The limited restraints on the economy were one factor that may have led to the savings and loan crises of the 1980s. Because Reaganomics did not believe in heavy-handed government intervention, banks were allowed to grow through any means necessary. This led to unstable financial institutions that eventually failed, causing an economic crisis in the late 1980s. Earlier Congressional intervention may have had an impact on stopping this problem or prevented it altogether.

Another issue related to Reaganomics was the increase in trade barriers. While free market capitalists typically believe in free trade among countries, the Reagan Administration increased these barriers in an attempt to improve the American economy. Though internal economic growth increased, no one is sure of the exact cause-and-effect relationship of these policies. In some cases, re-regulation of trade may have limited the overall economic growth of the country. The growth experienced may have been higher through the increase in competition and advancement of outside suppliers from international countries.

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stevetalbert
Post 7

Great discussion. But it isn't worth the increase in income inequality because everyone should be benefiting from the public investment in infrastructure that allows increased productivity.

Anyway, Forbes recently concluded, "The numbers are clear that the upside of a tax cut for the wealthy will produce little to nothing in economic growth that the rest of us can hope to benefit from—while producing greater deficits that every American will, ultimately, pay a high price to maintain."

Even the American Enterprise Institute refers people to an article that concludes it's unclear if what people think of as the success of Reaganomics was actually due to increased productivity from computers.

And a study reported by Business Insider and conducted by Congressional Research

Services, said that low taxes do not spur economic growth and do cause greater economic inequality. They compared 1948-1979 and 1979-2007. The earlier period saw significantly higher average top tax rates and significantly faster productivity growth. They concluded that many variables will affect productivity growth besides top tax rates, but the data makes clear that magical growth bonanzas cannot be had simply by slashing top tax rates.
anon994221
Post 6

Well @Charred, I definitely respect your view on Reaganomics but do keep in mind that when you say the "economy" grew, some definitions need to be explicitly stated. Yes, our GDP grew, but that growth went to the top 1 percent and significantly widened the gap between the rich and the (now disappearing) middle class.

SkyWhisperer
Post 4

@allenJo - All I know is that a rising tide lifts all boats. If you want to call that trickle-down economics or whatever, be my guest.

We all need to keep more of our money. Government needs to get smaller not bigger. We’re mortgaging our future on the backs of our kids. This is not hype. That’s what’s happening now.

I will admit that Reagan engaged in a lot of deficit spending. That was not a good thing. But let’s not throw out the baby with the bathwater.

allenJo
Post 3

@Charred - You can’t argue that relaxed regulation is a good thing. What do you think caused the subprime mortgage crisis that began in 2006?

Mortgages were being doled out like candy, all in the name of capitalism. Even people with lousy credit were getting mortgages. I hope we learn our lesson instead of going back thirty years to another era of deregulation to get our inspiration.

David09
Post 2

@Charred - The real question is whether Keynesian fiscal policy works, whatever defects may exist in Reaganomics.

To date I have not seen any evidence that it does, whether you are talking about the efforts by FDR, or the Japanese stimulus bubble of the 1990s, or current efforts with massive stimulus programs.

Where’s the beef? I think it’s clear that this approach to economic policy does not work, either in terms of promoting strong economic growth or in reducing unemployment.

People talk about how wonderful infrastructure spending would be. Japan tried that in the 1990s and the effects were no economic growth and a mountain of debt. We don't need to follow their example, but it appears that we are.

Charred
Post 1

Well, no economic theory is perfect, but I am a strong believer in Reaganomics. There is no disputing the fact that the reduction in marginal tax rates brought about a dramatic increase in revenue to the federal treasuries.

In simple terms, that means that the economy grew. When you take the shackles off the private sector, it will grow. People will want to start businesses and they will hire.

As for the downsides of Reaganomics, that is open for the debate. Did the relaxed regulation really contribute to the savings and loans crisis? I really don’t know. If it did then we need to find a delicate balance between government regulation and encouragement of the free market.

I certainly don’t believe that we need heavy handed government regulation in any sense of the term. All that does is strangle the private sector and slow economic growth in my opinion.

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