Ronald Reagan got busy on the economy right away when he got in office. He listened to Nixon about dealing with tough economic issues within his first 6 months and set things in motion quickly. He operated from the ‘supply’ side of economic theory, which meant the country’s economic struggles were all about too much taxes.
Reagan’s belief was that when big companies were paying out too much in taxes, it cut into their investment money, which stunted growth. So cutting taxes would enable companies to invest more and stimulate the economy. This was known as the ‘trickle down’ theory. However, with this came yet another problem, which was the government losing revenue, and that called for ‘budget cuts’. Reagan proposed his budget plan in 1981. Out of these problems Reaganomics was created and some decisions were made that carried both pros and cons.
List of Pros of Reaganomics
1. Reagan was able to reduce inflation from 12.5% when he took office, to 4.4% when he left.
2. The country experienced a growth of 8% in private wealth.
3. When Reagan’s time was up, the U.S. economy was nearly 1/3 larger than when he began.
4. Interest rates fell by 6 full points.
5. There were 8 million jobs created while unemployment took a dive. When Reagan came into office the unemployment rate was at 7.6%, peaking during the recession of ’81 to ’82, with a rate of 5.5% when he left.
6. Reagan took action against Major Corporations that had been paying little to nothing in taxes due to loopholes. He put them back on tax rolls and they saw their taxes increase by over $100 billion over 5 years.
7. The tax rates for capital gains got raised up to the same level as our other income.
8. Most family taxes were lowered.
9. The earned-income credit gave millions of average American earners a tax relief.
10. When Reagan began family income began to grow by as much as $4,000 after seeing NO growth during the pre-Reagan years.
List of Cons of Reaganomics
1. The U.S. Statistical Abstract of 1996 showed that the number of people below poverty level (Black, White, or Hispanic), increased nearly every year between the year 1981 and 1992.
2. The United States was in debt by $994 billion in 1981, and when Reagan left that figure for 1989 was $2,867 billion.
3. The U.S. trade deficit quadrupled.
The above lists are only short lists, but they tell the story well. There were many more pros than cons for Reaganomics. Ronald Reagan’s policies did have a positive effect while he was in office, and would have for years to come.
Many economists believe that the Reagan administration was the catalyst for the kind of economy information technology needed during the 1990’s to grow and expand. On the other hand, there are also many who believe the opposite. The opinions are mixed as to the extent of the good or bad of Reaganomics, but what we had was real change at a time when it was needed.