Reaganomics Jessica Brown December 6, 2012 Cassandra L. Clark - American Civilization
The era of Reagan is one that is marked by many different events and ideas. Most often discussed, even to this day, are Reagan s economic policies. Reagan s ideas towards the economy became famous enough to have their own nickname: Reaganomics. Success or failure, it was a set of ideas and programs that worked to create a sustained growth period in our nation for years. Reaganomics entailed tax rate reductions, and relied heavily on a capitalist approach and the private enterprise system. This can contrast with the current political climate. There seems to be a huge redistributive push, which would indicate a move toward a more socialistic state. What the US needs now, is someone a little more like Reagan to help the country out of its economic rut. Reagan s view on taxes is what shaped his economic plans. He thought that a general tax decrease, which put the highest tax bracket at 28%, 1 would boost the economy through a Supply-Side system. This is based on the thought that the problems of the American economy were due to over taxation, which left investors with not enough money to stimulate growth. The solution, therefore, was to reduce taxes, with particularly generous benefits to corporations and wealthy individuals, in order to encourage new investments. 2 Even with a Democratic House and a Republican Senate, he secured a tax reduction of 25% across the board in 1981 that would take place over the course of the next three years. After a slow start through 1982-83, the stimulus effect of the cuts was extraordinary, sparking the longest peacetime expansion in U.S. history. 3 The economic situation in which Reagan came in to office was bleak to say the least. His plans sent the economy quickly out of that recession and into economic boom. 1 Kengor, Paul G. "No Contest: The Reagan Stimulus vs. the Obama One." USA TODAY. 15 Aug 2011: A.9. SIRS Issues Researcher. Web. (accessed 05 Dec. 2012). 2 Alan Brinkley, The Unfinished Nation: A Concise History of the American People 5 th Edition, (New York: McGraw-Hill, 2008), Page 900. 3 Kengor, Paul G. "No Contest: The Reagan Stimulus vs. the Obama One." USA TODAY. 15 Aug 2011: A.9. SIRS Issues Researcher. Web. (accessed 05 Dec. 2012). 1
Today s economy is not as bad as it was at the beginning of the Reagan administration, but there still seems to be a slow recovery in the near future. In the current economic situation, on the surface it would appear the economy is much better situated for a strong recovery. Tax rates are low, interest is low, but the situation is languishing in a debt spiral and no one seems to be able to correct it. The government is split between people that want to raise taxes and put strong redistributive structures in place in an attempt to return capital into the hands of Americans who would spend the country into prosperity, and those that want to replicate the Reagan experience but lack the courage and conviction to pull it off. The next big part of Reaganomics has to do with the government s role in the economy. Many were concerned with the shocking deficit of the time, higher than ever before. Reagan s solution to this problem is what Olivier Jean Blanchard called The political bet, which he defined as, The bet that cuts in taxes would create, via deficits, the political pressure to reduce government spending. 4 The unfortunate thing about Reagan's bet is that time has proven that it did not work entirely. There has been no political will to reduce spending. Even though an amendment was presented to mandate a balanced political budget, it was not passed by Congress. 5 As a result, the country is now carrying a national debt in excess of sixteen trillion dollars, and spending in deficit each year an additional 1.5 trillion. 6 That means that a child born today is born with hundreds of thousands of dollars in debt. When Reagan realized he may have lost the bet, he made an attempt at cutting government spending on discretionary programs, like welfare. 7 Sadly, the current administration seems to think they can borrow their way out of 4 Blanchard, jstor Olivier Jean Blanchard, William Branson and David Currie Economic Policy, Vol. 2, No. 5, The Conservative Revolution (Oct., 1987), pp. 15-56 5 Alan Brinkley, The Unfinished Nation: A Concise History of the American People 5 th Edition, (New York: McGraw-Hill, 2008), Page 903. 6 http://www.usdebtclock.org/ 7 Alan Brinkley, The Unfinished Nation: A Concise History of the American People 5 th Edition, (New York: McGraw-Hill, 2008), Page 903. 2
debt. Promising continued benefits that are not in the national budget, the folks in Washington DC have built a voter base of people reliant on the government for their sustenance. Instead of encouraging the economy to grow from within, the current situation is killing it slowly. Less people are working, because the benefits of laziness are easily accessible. The country needs a leader that realizes this crisis will not come to its end through spending more money that they do not have access to. To be fair, Reagan was not being frugal with the federal money spent on defense. He was pouring money into the Cold War, where he believed he was defending the world from the Evil Empire of the communist Soviet Union. He was also investing in Third World countries which had movement fighting against their communist governments, like Nicaragua and Lebanon. 8 His mission was to make the world a safer place, and he succeeded in a lot of ways. His Star Wars missile protection program may have been the biggest bluff in world history, but it angered the Russians enough to lead to them to the end of the Cold War, the destruction of the Berlin Wall, and the end of the Soviet Union. The leadership Reagan displayed in the world crises during his administration was phenomenal. Everyone knew what he stood for, and everyone knew what he was against. Even if you didn t agree with the man, you had to respect him for his courage and stamina. He was, after all, the oldest man to ever be sworn in to the Commander and Chief position. Even though he had a divided congress, he got much accomplished in his time because he knew how to talk to his people. The government of America today lacks this leadership quality. The divided congress of today is just that, divided. They do not make many decisions and they are unable to compromise and work together. The capitalist system struggles because of the government s inability to help each other find solutions 8 Alan Brinkley, The Unfinished Nation: A Concise History of the American People 5 th Edition, (New York: McGraw-Hill, 2008), Page 904. 3
to the problems. The tendencies of today s economic planners are sadly leaning towards the organization that Reagan so valiantly fought. With welfare exploding, unemployment skyrocketing, and redistribution a common topic of discussion; the country is leaning towards a more socialist economy than a capitalist one. What is the opposite of Reaganomics? The answer is Socialism. To examine the merits and pitfalls of socialism, there are plenty of examples: The Soviet Union, Nazi Germany, present day Greece, and Chinese communism, to name a few. In every case, not only did the rich get poorer, but so did the poor. Socialism doesn t work in a large scale because there are always lazy people. If the government is redistributing wealth so that the lazy man gets the same income as the hard working one, the hardworking man will eventually become lazy as well. Why work harder when he will get the same reward for being lazy? Reaganomics encouraged people to work for their livings. The idea of the supply-side economics, along with budget cuts on welfare and other similar programs, would get every worker back in the workforce and making sufficient money for their needs. That was the goal, at least. It worked for nearly two decades, keeping the unemployment rates low and the economy experienced steady growth into the nineties. Some even claim, The American dream had been restored. 9 Isn t that what the American dream is, after all? The colonists wanted freedom, so they travelled across the ocean to partake in the freedoms that could be here in the New World. Americans should be free in their own economy, to earn and spend and save their money any way they please. That is the restoration of the American dream, at least economically. Today, this American nation is in need of the restoring of The Dream once again. The people are in need of a ruler that can take this nation by the hand and lead it out of economic 9 Ronald Reagan Presidential Foundation and Library, Ronald Reagan, The Second American Revolution: Reaganomics, http://www.reaganfoundation.org/ (accessed 5 Dec. 2012) 4
distress. This person would need to be budget-savvy and intelligent. The country needs a Total Money Makeover, perhaps. 10 Dave Ramsey is a candidate that comes to mind. He is conservative, and obviously has a lot to say about money and budgeting. The author and radio talk show host is widely known and accepted as a financial genius. Isn t that just what the country needs? A man whose expertise involves getting people out of debt and on to the path to riches? Indeed, it is exactly what the country needs. Ramsey himself says in his book, My promise to you is this: If you will follow the guidelines of this proven system of sacrifice and discipline, you can be debt-free, begin saving, and give as you've never given before. 11 If he can promise this to individuals and families in debt, he is a man that should be given the chance to grant this wish to the entire nation. This man, or one like him, is what America needs in the White House. Whether he (or she) be the president or some kind of financial adviser does not matter, as long as they are being heard. It is obvious that a change needs to be made. Government spending needs to end. The national debt needs to be dealt with. The nation cannot afford for the government to continue trying to spend its way out of debt. It isn t working. This country may even need another version of Reaganomics back on the table. The analysts have all figured out what worked and what didn t work, so why not get someone in the oval office that will fix the economic plans of Reagan and put them back in use? This country needs it. When it comes to the economy, every candidate has his or her own idea about how they can fix it. The reason Reagan s ideas and policies became so famous is because they worked for the American people. They were not perfect, as it goes with any plan when it is starting out, but they could be perfected. Reaganomics is a term that is familiar to the American people because it was mostly a success. His tax program led to a long-term economic expansion in the United 10 Dave Ramsey, The Total Money Makeover (Nashville, TN: Thomas Nelson, Inc. 2003), cover. 11 Ibid. Page 8. 5
States. The people of America were working and living freely, as they should. The government spending and the national debt may have been a fault in Reagan s economic plans, but he was fighting for Capitalism and to keep the freedoms of America safe. He tried to compromise for the spending the best ways he knew how. By cutting funding to programs like welfare, he further encouraged people to get back into the workforce. The American economy today needs someone like Reagan, with his attractive personality and bold economic plans, to get the country back on its feet. 6