Term Paper: Reagan Era Economics and Uses

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[. . .] Interest rates, inflation, and unemployment fell faster under Reagan than they did immediately before or after his presidency.

The only economic variable that was worse in the Reagan period than in both the pre- and post-Reagan years was the savings rate, which fell rapidly in the 1980s. The productivity rate was higher in the pre-Reagan years but much lower in the post-Reagan years (SUPPLY-SIDE TAX CUTS AND THE TRUTH ABOUT THE REAGAN ECONOMIC RECORD by William A. Niskanen and Stephen Moore (http://www.cato.org/pubs/pas/pa-261.html).

There were four key elements to the era which is now referred to as Reaganomics. These factors were the foundation for the rest of the policy and included:

restrictive monetary policy designed to stabilize the value of the dollar and end runaway inflation;

25% across-the-board tax cut enacted (The Economic Recovery Tax Act of 1981) designed to spur savings, investment, work, and economic efficiency;

promise to balance the budget through domestic spending restraint;

an agenda to roll back government regulation (SUPPLY-SIDE TAX CUTS AND THE TRUTH ABOUT THE REAGAN ECONOMIC RECORD by William A. Niskanen and Stephen Moore (http://www.cato.org/pubs/pas/pa-261.html).

All of these factors worked in tandem to set the stage for the coming decade. "A common ploy of Reagan's critics is to measure the economy's performance from 1979 to 1989 and falsely describe the record over this period as "the Reagan years." For example, in 1991 the Democrats on the Joint Economic Committee of Congress released a report entitled "Falling Behind: The Growing Income Gap in America," which purportedly proves that the victims of Reaganomics were the least affluent Americans. The report concluded that "families in the lowest forty percent of the income distribution actually had lower real incomes on average in 1989 than they did in 1979." Upon closer inspection, however, what the income data really show is that when Jimmy Carter's economic policies were in effect, family incomes plummeted by 9%, but that after Reagan's economic policies took effect (1982-89), family incomes rose by 11% (SUPPLY-SIDE TAX CUTS AND THE TRUTH ABOUT THE REAGAN ECONOMIC RECORD by William A. Niskanen and Stephen Moore (http://www.cato.org/pubs/pas/pa-261.html).In the Joint Economic Committee report, Reaganomics is blamed for the poor performance of the economy under Carter. Ronald Reagan had many seemingly magical qualities, but his policies were never able to influence the economic direction of the nation at least two years before they took effect. Some of Reagan's supporters, on the other hand, define the Reagan years as only the seven years of economic expansion, 1983-89, while conveniently omitting the recession years of 1981 and 1982(SUPPLY-SIDE TAX CUTS AND THE TRUTH ABOUT THE REAGAN ECONOMIC RECORD by William A. Niskanen and Stephen Moore (http://www.cato.org/pubs/pas/pa-261.html)."

The Reagan era has been argued for years as to when it officially started and ended. " Again, Reagan's political foes often describe the entire 12 years of the Reagan and Bush administrations as the "Reagan years (SUPPLY-SIDE TAX CUTS AND THE TRUTH ABOUT THE REAGAN ECONOMIC RECORD by William A. Niskanen and Stephen Moore (http://www.cato.org/pubs/pas/pa-261.html)." [7] At first blush this seems logical: two Republican administrations in succession would normally suggest a continuation of policy from one to the other. Yet the real and dramatic shift in economic policy in Washington occurred not in 1993, with the start of the Clinton administration, but rather in 1990, with George Bush's repudiation of his "no new taxes" pledge that led to both the enactment of a large anti-supply-side tax increase and a flurry of legislation -- from the Clean Air Act amendments, to the Civil Rights Act of 1991, to the Americans with Disabilities Act -- that began the reregulation of America in the 1990s. [8] Indeed, the Clinton economic program in most respects has been closest to that of George Bush, particularly with respect to the direction of fiscal policy (SUPPLY-SIDE TAX CUTS AND THE TRUTH ABOUT THE REAGAN ECONOMIC RECORD by William A. Niskanen and Stephen Moore (http://www.cato.org/pubs/pas/pa-261.html)."

There are several strong changes that occurred during Reagan economics that prompted the explosive boom of the 1990's. One was the economic growth that occurred. "The average annual growth rate of real gross domestic product (GDP) from 1981 to 1989 was 3.2% per year, compared with 2.8% from 1974 to 1981 and 2.1% from 1989 to 1995. The 3.2% growth rate for the Reagan years includes the recession of the early 1980s, which was a side effect of reversing Carter's high-inflation policies, and the seven expansion years, 1983-89(SUPPLY-SIDE TAX CUTS AND THE TRUTH ABOUT THE REAGAN ECONOMIC RECORD by William A. Niskanen and Stephen Moore (http://www.cato.org/pubs/pas/pa-261.html).During the economic expansion alone, the economy grew by a robust annual rate of 3.8%. By the end of the Reagan years, the American economy was almost one-third larger than it was when they began That rate was higher in the 1980s than in the 1950s and 1970s but was substantially lower than the rapid economic growth rate of more than 4% per year in the 1960s. The Kennedy income tax rate cuts of 30% that were enacted in 1964 generated several years of 5% annual real growth (SUPPLY-SIDE TAX CUTS AND THE TRUTH ABOUT THE REAGAN ECONOMIC RECORD by William A. Niskanen and Stephen Moore (http://www.cato.org/pubs/pas/pa-261.html)."

The economic growth that affected working adults was also noted by leading economists. The adult workforce between 20 and 64 years of age had vast improvements in their standard of living because of increased income and income opportunities. This continued into the 1990's riding on the coat tails of the 1980's which the Reagan administration implemented. "When we adjust the economic growth rates to take account of demographic changes, we find that the expansion in the Reagan years looks even better and that the 1970s' performance looks worse. GDP growth per adult aged 20-64 in the Reagan years grew twice as rapidly, on average, as it did in the pre- Regan years (SUPPLY-SIDE TAX CUTS AND THE TRUTH ABOUT THE REAGAN ECONOMIC RECORD by William A. Niskanen and Stephen Moore (http://www.cato.org/pubs/pas/pa-261.html)."

The 1990's boom has been touted in history books already but it actually began during the Reagan era and continued. Reagan had inherited an enormous debt and financial stagnation and had to work to get it turned around. He was successful with his trickle down policy as well as the supply side policies, and the benefits began before he left office. However it was not until the 1990's that the true benefit of his economic policies showed themselves. He straightened the economy out, set it on the right track and the nation enjoyed the next decade of strengthened financial gains. The actual beginning of the 1990 recovery was started in the 80's. The analysts are quick to discuss the ramifications and benefits that led the 1990's into history economically, however the beginning upward swing began under the watchful eye of Reaganomics. Evidence of the Regan policies "Real median household income rose by $4,000 in the Reagan years -- from $37,868 in 1981 to $42,049 in 1989. This improvement was a stark reversal of the income trends in the late 1970s and the 1990s: median family income was unchanged in the eight pre-Reagan years, and incomes have fallen by $1,438 in the anti-supply-side 1990s, following the 1990 and 1993 tax hikes (SUPPLY-SIDE TAX CUTS AND THE TRUTH ABOUT THE REAGAN ECONOMIC RECORD by William A. Niskanen and Stephen Moore (http://www.cato.org/pubs/pas/pa-261.html)."

There were 17 million new jobs created through the use of Reaganomics, which translated into an approximate 2 million jobs per year. The 1990 employment rate was assisted by the work of the Reagan administration. Reagan walked into his job with an inherited unemployment rate of 7.6%. It peaked at 9.7% during the 1982 recession. For the next seven years the unemployment rate fell steadily which lead the nation into the next decade in which economic success was made. "This reduction in joblessness was a clear triumph of the Reagan program." It also set the nation up to enjoy the following decade of economic success and booms. According to studies that have been done on the Reagan administration policies and how they affected the 1990s and several things have been concluded including the fact that under "Reagan, productivity grew at a 1.5% annual rate (SUPPLY-SIDE TAX CUTS AND THE TRUTH ABOUT THE REAGAN ECONOMIC RECORD by William A. Niskanen and Stephen Moore (http://www.cato.org/pubs/pas/pa-261.html).This was lower than in the 1950s, 1960s, and 1970s but much higher than in the post-Reagan years. Under Clinton, productivity has increased at an annual rate of just 0.3% per year -- the worst presidential performance since that of Herbert Hoover." Reagan inherited a tremendous debt in many areas of this country's financial stage. The previous administration had given him three years of double-digit inflation. The administration worked to send the inflation rate downward and provide the nation with a climate of economic growth that was… [END OF PREVIEW]

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