The first year of the Reagan Administration has been widely regarded as a crucial turning moment in American economic history. While Reagan’s impact has been widely praised, recent fears surrounding rising inequality in the US have linked Reaganomics to current trends feeding the issue. This post seeks to briefly outline the major components of Reaganomics and draw upon links that can be applied to the situation today.
Reagan implemented various economics measures soon after assuming office in 1981 citing economic affairs as one of his top priorities. His sense of urgency was determined by the US’ persistent inflation, sluggish growth and troublesome post-war recessions. In line with the goals of Nixon, Ford and Carter, Reagan was eager to stimulate investment and reduce unemployment and inflation by emphasizing traditional values such as hard work, independence and freedom of choice. However, many economists have noted that Reagan’s strategy received such significant attention because ‘prior presidents Lyndon Johnson and Richard Nixon had expanded the government’s role’. [1] Reagan’s campaign had been fuelled by promises to ‘get the federal government off the backs of the American people, to put Americans back to work, and to place America back on the road to economic prosperity’. [2] The keys to economic prosperity were perceived as major cuts on income taxes, significant deregulation for businesses and expanding the money supply. In contrast with Keynesian doctrines which focussed on demand, the origins of supply-side economics exhibited the view that regulations were having a negative impact. Reagan’s “clean bill” proposal entailed ‘personal tax reductions of 10% each year for three consecutive years and, second, a major business tax reduction which greatly shortened the depreciation period during which companies could claim tax credits for such costs as buildings, vehicles, and equipment’.[3]
The extent to which Reaganomics was a success has triggered significant debate. Furthermore, the discussion has been ongoing with contemporary critics and current writers offering a variety of analysis. One of the most common criticisms associated with Reaganomics was undoubtedly suggestions of the policies’ contribution to inequality. Charles Jacob claimed in 1985 that ‘the Urban Institute in 1982 concluded that Administration programs provide modest income gains for the average household. However, the gains to families in the upper-income brackets are quite large’ which underlines the prevalence of inequality fears even in the initial stages of implementation.[4] Another observer writing in the 80s, Marilyn Power, shared a similar verdict by suggesting that free market ideology does not deem poverty as a problem. She supports this statement by arguing that ‘society may choose to prevent the poor from outright starvation, but any attempt to lift them out of poverty breaks the rules of the competitive game: there must be both winners and losers’.[5] Inequality under Reaganomics has frequently been discussed with regard to specific minority groups including black Americans and women. The nature of inequality for minority groups is demonstrated by the poverty levels between 1980 and 1988 which for black families ‘increased from 35.5% to 37.3% … for white families it increased from 11.2% to 12.4%’.[6]
Interestingly, Reaganomics still features regularly in financial news today which has become especially notable with rising inequality discussions (see post on T-Mobile & Sprint). The godfather of supply side economics Arthur Laffer was recently awarded the Presidential Medal of Freedom by Trump for his appraisal & writing on Trump’s economic policy. Reagan had relied heavily on Laffer’s policies of low-tax & low regulation supported by the Laffer curve which predict boosts in incentives to work, invest and subsequently economic growth. Writers such as David Jacobs have expressed extreme disapproval of Reaganomics and argues that people ought to look to political causes for the inequality issues today. He adamantly links the anti-union stance with sympathy for ‘policies that advantaged his political party’s affluent base…these citizens wish to avoid higher taxes and often profit from cheap labor’.[7]
[1] ‘Reaganomics: Why It Wouldn’t Work Today’, https://www.thebalance.com/reaganomics-did-it-work-would-it-today-3305569
[2] Maurice A. St. Pierre , ‘Reaganomics and Its Implications for African-American Family Life’, Journal of Black Studies, Vol. 21, No. 3 (Mar., 1991).
[3] Charles Jacob, The Revolution in American Political Economy, Law and Contemporary Problems, Vol. 48, No. 4, Tax Legislation in the Reagan Era (1985).
[4] Charles Jacob, The Revolution in American Political Economy, Law and Contemporary Problems, Vol. 48, No. 4, Tax Legislation in the Reagan Era (1985).
[5] Marilyn Power, ‘Falling through the “Safety Net”: Women, Economic Crisis, and Reaganomics’, Feminist Studies, Vol. 10, No. 1 (Spring, 1984).
[6] Maurice A. St. Pierre , ‘Reaganomics and Its Implications for African-American Family Life’, Journal of Black Studies, Vol. 21, No. 3 (Mar., 1991).
[7] David Jacobs, ‘Rising income inequality in the U.S. was fuelled by Ronald Reagan’s attacks on union strength, and continued by Bill Clinton’s financial deregulation’. : http://bit.ly/1poBh64
Financial Institutions 1850-2020 