05-26-2004, 07:38 PM
Join Date: Oct 2001
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<h2><font color=#003399>Reaganomics - Its Remarkable Results</font></h2>
- A spate of books and articles on Ronald Reagan has revived the debate on the success of his presidency.
Most of the discussion has focused on foreign affairs, so let's turn to his major domestic initiatives.
Reaganomics was the most ambitious reform effort since the New Deal.
President Reagan attempted to do many important things simultaneously - bring down escalating double-digit inflation, speed up sluggish economic growth, cut tax burdens, strengthen the military establishment, reduce civilian government, curb regulatory burdens, and generally expand the role of the private sector at the expense of the public sector.
The four key parts of Reaganomics were income-tax cuts, new expenditure priorities, monetary restraint, and regulatory reform.
For this far-reaching economic program to fully succeed, delicate balancing was required.
Monetary policy had to be tightened enough to bring down inflation, but not so much as to create severe recession.
Taxes had to be cut, but without raising the specter of vast deficits that would scare the Fed into an excessively restrictive credit policy.
Defense had to be expanded but not so rapidly as to offset the reductions in civilian spending.
Regulation had to be cut enough to provide a significant boost to productivity, but without eliminating public support for the reforms.
The painful and often undesired interactions among the individual parts of the Reagan program resulted in disparate results.
Monetary restraint was the key to unwinding inflation, as well as precipitating sharp recession.
Recession, in turn, delayed the beneficial effects of the tax cuts on investment and pushed the budget deficit to unprecedented heights.
Ironically, it was the enactment of tax cuts unmatched by spending cuts that scared the Fed into a tighter monetary policy.
The subsequent recession caused serious budgetary imbalance.
Simultaneously, a new sense of realism became evident in business and personal decisionmaking.
Labor and management have both become more cost conscious, and even aware of the awesome term "productivity" in a society in which government does not readily rescue the losers in the marketplace.
In the public sector, the era of big dams and expensive water-power projects drew to a close.
Witness the simultaneous spread of free-market economies in various parts of the globe, including some unexpected quarters such as the former communist economies.
A few numerical comparisons help make the point. Real GDP declined by one-half of 1 percent in 1980, President Carter's last year, and rose 3.9 percent in 1988, President Reagan's last year. The CPI rose 13.5 percent in 1980 and by 4.1 percent in '88. The prime rate dropped from 15 percent in 1980 to 9 percent in 1988. Real median family income rose from $34,200 in 1980 to $37,000 in 1988. The unemployment rate declined from 7.0 percent in 1980 to 5.4 percent in 1988.
One more set of numbers: Real national wealth rose from $11.9 trillion in 1980 to $14.2 trillion in 1988. Warts and all, the Reagan presidency was a high-water mark for the American economy, especially as measured by the more positive attitude that most Americans had toward themselves, their society, and the future.
Full Article <font color="red"><u>Here</u></font>