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Reaganomics Essay

1822 words - 8 pages

What caused the positive economic changes for the United States during the 1980s? In the years prior to the Reagan administration, the United States’ economy experienced something called stagflation. In the 1980s the economy saw positive changes. The policies enacted by the Reagan administration, or ‘Reaganomics’, are responsible for the positive changes in the United States’ economy.
In the years prior to the Reagan administration the United States experienced a suffering economy. For around 10 years stagflation had grown rampant. Stagflation is the combination of a stagnant economy due to rising unemployment coupled with increasing inflation. Before stagflation, the United States ...view middle of the document...

Without tax income to pay for these things, naturally, the national debt exploded. After Lyndon Johnson there was Richard Nixon, Gerald Ford, and Jimmy Carter. Numbers retrieved from Pbs.org confirm that President Jimmy Carter had poor economic policies. President Carter left the presidency with 13.5 percent inflation and 7 percent national unemployment (Source 2). Nixon and Ford did little for the economy, but inflation and unemployment worsened most during Carter’s tenure. Lyndon Johnson exploding the national debt, and the presidents after doing nothing to improve it, along with the tired 70s economy warranted a new man with a new plan. That man was Ronald Reagan.
In 1981 Ronald Reagan became the 40th President of the United States. President Reagan designed a plan to uplift the exhausted economy and beat the stagflation that riddled it. His policies became known collectively as Reaganomics. As for the reasons behind the poor economy, Reagan claimed that a large tax burden, excessive government regulation, and massive social spending programs restricted growth (Source 3 // Reaganomics). He then crafted a plan to ameliorate the economy. The theory that backed President Reagan’s plan is supply-side economics, also commonly known as trickle-down economics. Supply-side economics is based almost completely on the ideas of John Maynard Keynes. Keynes is one of the most brilliant economists in history, having lived through both world wars and the worldwide economic depression that led up to World War 2 (Source 9). He was a brilliant economist pushed by the economic struggles of his time.
Supply-side economics in a basic sense is this: production or ‘supply’ is responsible for consumption of goods and the standards of living. In order to have high living standards there must be high output (Source 6). Output being the production (supply) of goods and services. Income levels mirror the ability to produce goods and services so basically without supply the economy cannot grow. Increasing supply increases income levels, which benefits the economy as a whole. Supply-side economists believe that increasing supply is achieved by lowering marginal tax rates. A marginal tax rate is the margin of an individual’s income that must be turned over as taxes. If a marginal tax rate were 35 percent, then the individual would turn over 35 of every 100 dollars they earn (Source 6). If a consumer must turn over a high percentage of their income as taxes, they have less incentive to go out and stimulate the economy. With consumers being discouraged to spend money, businesses make less money. If businesses make less money, then they cannot produce more supply. With lower output of supply there are lower standards of living. So in review, high marginal tax rates discourage good capitalism, which lowers output of supply lowering living standards. In contrast, lower marginal tax rates gives consumers more incentive to buy which increases supply, augmenting living...

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