Reaganomics
We have all heard the phrase Reaganomics. But what is this economic philosophy? Reaganomics is based on the tenet that the government is not the solution to economic problems, rather it is the problem and the economy will succeed when the government allows greater economic freedom. Acting on this, Reagan implemented numerous changes: lowered taxes, reduced union power, reduced federal regulation of industry, and closed numerous programs. The Reagan administration lowered the top tax rate from 70 to 50% in 1986. Congress additionally passed the tax reform act which allowed the income tax rate down to 28%. The thought process behind these actions was that these tax breaks and the extra money will lead rich people to spend and invest more in private enterprises. This creates new jobs and encourages people to work harder since they will keep their money. Numerous economists thought that lowering taxes would spur on economic growth, a theory known as trickle-down economics. In the beginning, there were signs of success. There was a consistent rise in GDP under Reagan era and the stock market boom. It was much easier for people to buy and merge companies. However, wages didn’t rise at all and these policies raised economic inequality. In addition, the top 1% controlled 40% of the nation’s wealth. This was two times larger than what it was 20 years ago. Additionally, the government spending actually went up and the national debt to 2.7 billion.
Although the thought process behind Reaganomics made sense: if one does not have to pay high taxes, then they will spend more on the economy. However, this economic movement has lead to greater income inequality. Currently, the top 1% owns more than the bottom 90% of the population in terms of wealth. This has meant that poverty is rising while the income for middle-class workers is not holding. Furthermore, Reagan’s economic policies were furthered by subsequent presidents. Clinton further deregulated wall street by taking away the Glass-Steagall act. While Bush Jr. gave further tax cuts to the rich. Even though Ronald Reagan has been idolized as a conservative model, his economic policies of trickle down economics and deregulation has been incredibly detrimental to our economy.
This is an awesome, concise take on the Reaganomics economics approach. It is very true that much of this economic approach has led to a greater income inequality across all socioeconomic statuses. Much of what his beliefs are based on the work of famous economist Friedrich August Hayek, who was known for his opinion that free markets need to exist in order to allow for the greatest growth. Later on with Barry Goldwater and the conservative movement, the free market opinion only grew and became the main focus of the Republican party.
ReplyDeleteSource: https://www.econlib.org/library/Enc/bios/Hayek.html
I enjoyed reading this blog and it gave detailed insight into the popular term that is Reaganomics. I did not realize in previous history classes just how detrimental Reaganomics were to society. I think that it is crazy that the top 1% owns more than the bottom 90% of the nations wealth. That is a huge jump as compared to what it used to be and I am curious as to how responsible Reagan is for this. I believe it was foolish of Reagan to believe that if he cut people a tax break, that in return this would end up helping government through the citizens spending more on private enterprises. I would think that if people were spared money on taxes, they would use it for other purposes as opposed to helping the government.
ReplyDeleteYour approach in deconstructing the economic approach taken by the Regan administration was very interesting. I really enjoyed reading about the specifics addressed in his policy making, lines such as "The Reagan administration lowered the top tax rate from 70 to 50% in 1986". I especially liked how after describing the politics and how it worked you then talked about the reasoning behind it. More specifically the idealistic reasoning and then why that falls apart and does not work in actuality.
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ReplyDeleteI really enjoyed reading this post-- Reaganomics was a concept that I have not really thought about since last year, in US History, and was a concept that I did not fully understand as I did not know a lot about economics. However, approaching Reaganomics with an economic background felt very different than it did last year. For example, Reagan's mindset of retracting government involvement in the economy, especially by lowering income tax, had an effect of furthering the wealth inequality in America, which is something that we studied earlier this semester in economics.
This is a great post that gave me a new perspective on Reaganonmics. Reading the first part of the post, it seemed like it was Reagan's plan to try and create a more competitive economy, hopefully benefiting the smaller companies. Clearly this did not happen. I wonder if some of the same tax cuts had been applied but the government required an increase in wages, if the economy would have fared better in the long run. Thanks for a great post!
ReplyDeleteI liked seeing this analysis of Reaganomics. It was a good summary of the effects of Reaganomics, which I've heard a lot about, but also a good explanation of what exactly Reagan did. It also caught my attention that, 20 years before Reagan, the 1% only owned 20%. Reaganomics seems to be a good historical example to look to to remind us that the economy prospering doesn't mean the people prospering. Although money can bring some amount of happiness,or utility, especially for those who have very little of it, the more money a person has the less utility it brings (by law of diminishing returns). This means that having more money in an economy might not be a positive if it isn't distributed correctly.
ReplyDeleteInteresting post, Peter! It's always cool to see events we covered in other classes show up again. I would agree with your point about Reaganomics being contentious. Certainly, it was. Trickle-down economics, or voodoo economics, was flawed. It hinged on the rich getter richer and spending more as a result, which as history has shown, isn't always going to happen. However, Reagan's years as president did show a significant growth in the US economy and a departure from the era of stagflation. Whether or not this was due to Reagan's policies is debatable, as President Carter certainly had a hand in it. But, while the growth may have been unequally distributed, the American economy did grow. From a macroeconomic perspective, it was somewhat of a success. I'm certainly not arguing for a return of Reaganomics. However, I would like to make the point that economic policy is incredibly difficult to manage, as there will certainly be a party that ends up being disadvantaged, and it depends on the economy at the time.
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