In Defense of Reaganomics

President Ronald Reagan was the 40th President of the United States. Originally an Actor, Democrat and Union Man, Ronald Reagan became a Republican and one of the greatest Presidents we have ever had in my opinion.

Reagan's 1981 Program for Economic Recovery had four major policy objectives: (1) reduce the growth of government spending, (2) reduce the marginal tax rates on income from both labor and capital, (3) reduce regulation, and (4) reduce inflation by controlling the growth of the money supply.

Reagan delivered on all 4 of his objectives, but not to the extent he wanted. Defense Spending went from an annual increase of 4.5 percent under the Carter Administration to 2.5 or 22% of GDP. This in spite of record defense spending during peacetime.

The Income tax was much more impressive with the top income earners paying 70% in income tax dropping down to 28%. The Corporate income tax went from 48% to 34%. The income tax rates were adjusted for inflation and the poor were exempted from income tax.

Reagan eased or eliminated price controls on oil and natural gas, cable TV, long-distance telephone service, interstate bus service, and ocean shipping. Banks were allowed to invest in a somewhat broader set of assets, and the scope of the antitrust laws was reduced.

Real GDP per working-age adult, which had increased at only a 0.8 annual rate during the Carter administration, increased at a 1.8 percent rate during the Reagan administration. The increase in productivity growth was even higher: output per hour in the business sector, which had been roughly constant in the Carter years, increased at a 1.4 percent rate in the Reagan years. Productivity in the manufacturing sector increased at a 3.8 percent annual rate, a record for peacetime.

Most other economic conditions also improved. The unemployment rate declined from 7.0 percent in 1980 to 5.4 percent in 1988. The inflation rate declined from 10.4 percent in 1980 to 4.2 percent in 1988.

For those who believe Reaganomics was a failure, they are simply ignoring the facts.

Information in this blog was drawn from:
William A. Niskanen, "Reaganomics." The Concise Encyclopedia of Economics. 1993. Library of Economics and Liberty. 11 August 2010.