Reaganomics Definition

Reagan’s policies tried to curtail taxes, decrease government spending, reduce inflation, reduce unemployment, and deregulate industrial policies. The success of the policy is still debated. Reagan did manage to bring the US out of stagflation. On the other hand, Reaganomics is blamed for the 1986 savings and loan crisis.

Key Takeaways

  • Reaganomics is a set of conservative economic policies first implemented by America’s 40th President, Ronald Reagan. It was a response to the 1981 stagflation and recession faced by the US.In hindsight, Reagan’s trickle-down effect failed. The tax savings offered to the rich did not lead to job creation. The savings were accumulated, and the rich became richer.The policies created a wide divide between the wealthy and economically challenged sections of the US.

Did Reaganomics Work?

In 1976 the United States of America faced stagflationStagflationStagflation is an economic scenario where stagnation coincides with inflation.read more under the presidentship of Gerald Ford. As a result, the nation was trapped in excessive unemployment, economic stagnation, and high inflation.

In 1981, Ronald Reagan took charge; he came up with Reaganomics—a unique four-point economic plan. The idea was to control stagflation by bringing down tax rates, relaxing government regulations over businesses, and curtailing government spending.

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Many economists and politicians claim that Reaganomics can be applied to the present-day economy—to correct the recession. At the same time, the policy has its doubters. For starters, prevailing individual tax rates are already low (compared to 70% tax in the 1980s). It is difficult to lower it any further—which would lead to a decline in Federal revenue.

Objectives

Reaganomics triggers the following key areas to increase job opportunities, subside inflation and reduce interest rates:

Reaganomics Effects

In the 1980s, Reagan’s economic program tried to rejuvenate the US economy. The results were mixed:

#1 – Positive Impact

  • The government’s tax revenue rose from $517 billion in 1980 to $909 billion in 1988.From 13.5%, inflation was brought down to 4.1%.Twenty million new jobs were created in the US.US GDP increased by 26%.From 7.6%, unemployment was brought down to 5.5%.From 21.5%, interest rates were brought down to 10%

#2 – Negative Impact

  • Rich became richer—lower tax liabilities.The trickle-down effect was not seen—the affluent did not utilize tax savings to create more jobs.Poverty increased in the US.The policies did not improve the economic condition of the middle class.The after-effects caused the 1986 savings and loan (S&L) crisis.

Reaganomics Pros and Cons

It has the following advantages:

  • It encouraged common folks to invest more.The US inflation level dropped significantly.US standard of living and economic conditions improved.It promoted a free market economyFree Market EconomyA free market refers to an economic system free from government interventions and controlled by privately owned businesses.read more to enhance productivity.The individual, corporate, and investment taxes were reduced considerably to benefit everyone.The government developed a sense of fiscal responsibility—to spend judiciously.

Following are the disadvantages:

  • Reagan invested more into defense instead of domestic services—public welfare expenditure fell.The US became the world’s largest debtor—hindered its image.On average, US income levels dropped—the middle class could not save much.The annual deficit rose to 4.2% of the US GDP, and the national debt also went up tremendously.High-income groups accumulated wealth—the rich-poor divide widened.

This article has been a guide to Reaganomics & its Definition. We explain Reaganomics pros and cons, meaning, economics, failures, trickle-down effect, & policies. You can learn more about economics from the following articles –

It is a set of economic policies imposed by Ronald Reagan—the 40th President of the United States. It was an attempt to control America’s 1981 stagflation across-the-board. When Reagan took charge, the US faced high inflation, massive unemployment, and economic stagnation.

Reaganomics implemented various corrective measures—tax reduction, curtailed government spending, decreased government regulations, and contraction of money growth (inflation).

The success of Reagan’s policies is heavily debated. The US experienced mixed consequences. On the one hand, the real GDP improved by 26% (above 1980 figures), from 13.5%, inflation was brought down to 4.1%, and unemployment dropped from 7.6% to 5.5%. But, on the opposite spectrum, the rich became richer. Tax savings were not used for job creation. Reagan’s trickle-down effect was unsuccessful.

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