Ronald Reagan and Reaganomics
Reaganomics was an economic policy that was advocated during the 1980s by President Ronald Reagan and is still widely practiced to date. This essay will discuss Reaganomics in details. The work will also state the advantages and disadvantages of Reaganomics. The importance of the policy was to lower the increase in government spending, to reduce taxes such as capital gains and federal income. The policy also aimed at decreasing inflation through tightening the money supply. The other pillar of the policy was also to reduce government regulation.
President Reagan believed that through addressing the above-mentioned issues the country would experience an economic growth. The policy led to the most successful financial or economic experience in history, which made the economy grow by one-third. Although there were some problems experienced with this strategy it had its upside to it (Book Caps 90). This policy was based on two principles, which are the trickle-down theory and that of supply-side economics. These theories suggest that if taxes are reduced, particularly in corporations will ultimately lead to an economic growth.
This was done because it was anticipated that through reduction of expenses, saving would go up and the economy would grow. The President claimed that heavy tax burdens, a lot of government regulation as well as social spending programs were the cause of the economic distress. Reagan suggested creating tax reliefs for rich people in order to provide them with a chance to invest in more businesses. The businesses would create new jobs and in this way to stimulate the economy. He was confident that through such tax cuts the government would gain more revenue.
During the first term a 25% cut was imposed despite the fact the Congress was not as confident as he was. The policy changes were anticipated to increase the levels of savings and investments, which would increase the economic growth through the use of a balanced budget. A healthy financial market was expected to be restored through reduced interest and inflation rates (Bartlett 57). There were several benefits that are associated with the Reaganomics. Median income earners were saved off tax burdens. This enabled citizens to have more money to afford other services like healthcare.
Taxes that were imposed on the citizens were cut by a huge margin, which increased the demand of the consumers. This led to increased productivity and competition, which ensured that customers had good quality products. The policies also led to the creation of new jobs, which reduced the unemployment rate. Also, the jobs were not just limited to a particular segment in the society. This helped to improve the citizen’s standard of living. The cost of government spending also went down. This was achieved through cutting the cost of other programs.
However, the President did not cut social security and other health-related payments. Through reduced cost of government spending, money was allocated only in important sectors (Niskanen and Cato Institute 50). The plan led to the decrease of some regulations that were there. Reagan ensured that there was no control over long-distance telephone services, cable TV, and many other services. Bank regulations were also relaxed, which enabled people to save and acquire loans. Reduced regulations enabled people to increase their business, which created employment.
Through this policy the government was able to tame inflation and hence reducing it. Reagan ensured that the tax brackets were cataloged in order to compare it with the inflation. Through Reaganomics the economy grew by approximately 0. 4%. The income of real median families increased. Interest rates during this period reduced as compared to the past. There were also disadvantages related to the Reaganomics policy. Despite the fact that the President created restraints in the various businesses it gave rise to capitalism where one business dies, and another one emerges.
The policy led to a savings and loan crisis later because of the few restraints over the economy. Lack of government intervention created an unstable financial institutions that later collapsed. In the late 1980s there existed an economic crisis. Through this policy trade barriers increased because the market then was practicing free trade between countries. The aim of increasing the trade barriers was to try and improve the American economy. There are speculations that the economic growth experienced was due to the rise in competition and imports from other countries.
The saving rate also went down rapidly and the level of productivity also reduced. The cut in taxes were offset by the rise in other types of taxes such as Social Security payroll tax (Ackerman 99). Another disadvantage with this policy is that it favored the rich people more. Being a trickle-down theory, the policy only works if the people in the economy are already wealthy. The tax cuts led to the increase of debt within the federal government and the consequences for this debt continued when President George Bush became president.