Reaganomics In The 1980's Palm Beach State Microeconmics Research Paper

1492 words - 6 pages

The state of the economy prior to Reagan implementing supply side economics was one of inflation and surging unemployment. He blamed the sickly economy on the decrease in capital spending and a tax system that inhibited employment and productivity. In order to remedy this his administration stressed lower taxes, deregulation, cuts in social services and an increase in military spending.

In terms of specific policies, he signed the Economic Recovery Tax Act of 1981 and the Tax Reform Act of 1986. The new laws eliminated many loopholes while cutting the top marginal tax rate. This resulted in an expansion of the taxable base and ultimately an increase in government revenue. Overall, GDP grew with both inflation and unemployment dropping significantly by the end of his second term.

Where deregulation was concerned the results were mixed. Reagan did away with with numerous price controls across the oil/gas, banking, communications and the airline industry. He felt as though such controls inhibited free-market equilibrium that would've of prevented rising inflation. The outcome was more competition in the short-term for the marketplace. However, over the long-term it caused more consolidation within industries and an increase in business failures with smaller firms unable to keep pace.

In addition to tax reform and deregulation, the Reagan Presidency cut funding for various welfare programs ranging from food stamps to housing assistance. The outcome was billions saved and in his view the relief of the transfer payments burden on the American taxpayer. Many however felt it left of our nation's must vulnerable worse off then before.

Lastly, Reagan in the area of defense spending was very hawkish and doubled spending on the military. This put more Americans to work and increased government revenue where payroll and corporate taxes were concerned. Many foreign policy experts as well claim his military expansion was the final nail in the coffin for the Soviet Union.

By the conclusion of his presidency the economy was expanding its fastest since WWII. Disposable income had risen significantly with both unemployment and inflation lower then when he initially took office. Critics however argue such prosperity was simply an illusion by pointing to the national budget deficit under Reagan, which had increased three-fold in comparison to all his predecessors combined.

The state of the economy prior to Reagan implementing supply side economics was one of inflation and surging unemployment. He blamed the sickly economy on the decrease in capital spending and a tax system that inhibited employment and productivity. In order to remedy this his administration stressed lower taxes, deregulation, cuts in social services and an increase in military spending.

In terms of specific policies, he signed the Economic Recovery Tax Act of 1981 and the Tax Reform Act of 1986. The new laws eliminated many loopholes while cutting the top marginal tax rate....

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