Reaganomics

Economic Policies of the 1980s

Issues at the Time

• Inflation• Unemployment• Stagflation• Oil Crisis• Iranian Revolution

Ronald Reagan (1980)http://www.youtube.com/watch?v=loBe0WXtts8

AD/AS Stagflation

Reaganomics

• Four Pillars1. Reduce

Government Spending

2. Reduce Tax Rates on Capital & Labor

3. Reduce Government Regulation

4. Control the Money Supply to End Inflation

Reduce governm

ent Spending

Reduce M

arginal Tax R

ates

Reduce govt. R

egulation of Econom

y

Control $ supply to reduce inflation

Why & What

• Campaign Promises1. Lower Taxes2. Smaller Government

• Reduce Income Taxes:– Top Down Cuts– Benefited the Wealthiest Most

• Deficit Spending:– 8 straight years of deficit

spending

The Economy Grows

• Income Taxes dropped from 70% to 28% in 7 years (1981-1988)

• Unemployment reached 10.7% in 1982, but lowered as the economy improved

• Inflation decreased during the 1980s

• Jobs were created as the economy continued to grow

Trickle Down Economics

• Massive tax cuts for the top tax bracket

• Drastic increase in defense spending (“Window of Vulnerability” & Star Wars)

• In order to function, someone needed to spend (either the wealthy or the government)

• Vice President George Bush called it “voodoo economics”

Effects

• Wealthiest Americans became wealthier

• 8 years of Deficit Spending• Reduced Tax Revenue• Budget Deficit• Trade Deficit (enter China)• National Debt tripled during

Reagan’s 8 years (from 1 to 3 trillion dollars)

• No reduction in size of government (afraid to cut Social Security & Medicare)

Reagan’s Achievements

• Improved Economy• Lowered Unemployment• Lowered Inflation• Interest Rates Decreased• Average Household Income

rose by $4000 per year