Naomi Zimmermann
Reaganomics Explained
Reaganomics was the economic policy of 1980s president Ronald Reagan. Reagan is widely known as the father of modern conservatism(although his predecessor Goldwater can correctly be credited) and his model of fiscal conservatism is championed by conservatives today.
The 1970s were plagued by stagflation, a combination of a stagnant economy and inflation. Carter tried to combat the unemployment but thereby increased inflation, but Reagan decided to attack inflation instead.
At the core of Reaganomics is side-supply economics, or trickle-down economics as it was coined by his critics, which was Reagan’s economic policy which he surmised would result in economic growth. By cutting taxes on the rich and businesses, the assumption was that they would invest more in the economy which would stimulate economic growth. He also reduced government spending on domestic programs, including Head Start, Welfare, and Medicare(military spending was the only sector which increased). This played into his “government is the problem” ideology, which also entailed the deregulation of businesses.
While it did stimulate economic growth, Reaganomics was not nearly as effective as Reagan had prescribed it to be. Under the leadership of Federal Reserve Chairman Paul Volcker, Reagan attacked inflation using contractionary monetary policy, which is when the Federal Reserve slows economic growth in order to reduce inflation. The result was the recession of 1981-82, which led to an increase in unemployment, staying at 10% for eight months. Reagan’s reduced regulations also did not result in a flourishing economy. The Savings and Loan Crisis in 1989 can be accredited to his regulation of banks, and inflation on domestic oil and gas increased because his deregulation created a laissez-faire economic situation which didn’t serve to prevent it. Furthermore, government spending still increased by 2.5% per year, which was lower than Carter’s 4%, but still did not live up to his promise to decrease it. His cuts on programs(mainly domestic) occurred only in his first year, and he didn’t cut spending for Medicare or Social Security whatsoever.
Sources:
Chapter 26
https://www.thebalance.com/contractionary-monetary-policy-definition-examples-3305829
Interesting overview of Reagan's economic policies and its many shortcomings in response to the economic conditions of the 1980's. In light of Reagan's response to stagflation of the United States, I wonder about the causes behind stagflation and how it specifically differed from other economic crises faced by the United States.
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