Effect of Reaganomics?

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Dear Mr De Long:

I understand perfectly what you meant because I noticed it with everyone who talks about Reagan, but arent there some solid facts to show that Reagan really hurt the US in the longer run than what he helped... I am not disagreeing that he brought more jobs, and the average american was getting payed better than what he used to during Carter's Presidency, what i am arguing is that when Reagan decided to initiate all these programs, including all these new jobs, the american budget was really unfit to support these people yet they didnt know it. Just because you create more jobs, lower taxes, and there is more money out there, that does not necessarily mean that money was generated by the economy,maybe some of it was, but for the most part all that money came from america's budget which in turn increased the deficit not to mention that Reagan also increased Military spending like a madman cause "USSR" needed to be defeated. I know this is a very long subject but sometimes, I dont think people think in the long run. Just as long as they have more money than last year, dont have to pay as much taxes, all what you'll hear out of them is "I'm living life, I dont care about anyone else" Clinton aint the best of presidents either...

Sincerely Musab

-- Musab Shaheed (shaheed81@worldnet.att.net), April 13, 2000



On the economic policy side, Reagan deserves essentially *no* credit for the reduction in inflation (the work of the Federal Reserve), *some* credit for reducing the inefficiencies caused by the tax system (but Bill Bradley deserves more credit for the 1986 tax reform, and Reagan's 1981 tax law changes reduced some inefficiencies and created others), and *enormous* amounts of blame for the budget deficit.

The effect of the budget deficits? An extra four percent of GDP for a decade removed from the flow of funds for investment reduces the end-of-period level of real GDP by 2.4% if the pretax social rate of return on investment is 10% per year, and by 4.8% if the pretax social return on investments is 20% per year. I think that those numbers roughly bound the damage to economic growth that resulted from the Reagan deficits.

Of course, those who benefitted from the tax cuts in the 1980s had one hell of a party along the way...

Foreign policy I'm not qualified to speak about. I tend to think that changes in countries' modes of governance are largely driven by internal forces--that Reagan's SDI had little to do with perestroika and glasnost. But I couldn't make a sustained, convincing argument to that effect because I know too little.

Brad DeLong

-- Brad DeLong (delong@econ.berkeley.edu), April 13, 2000.

Dear Mr. De Long, I happen to think that President Ronald Reagan's Presidency was one of the best presidencies of my time! He left his legacy in all of his decisions. I truly like the space station program. We may truly need it in the extreme future. Yours truly, Tina Tommaseo

-- tina tommaseo (tinatommaseo@hotmail.com), May 02, 2000.

Well, let's see......we went from "Stagflation" resulting from idiotic Keynesian pork-barrel spending intiatives under Carter, replete with 20%-plus interest rates and double-digit inflation, to an economic policy under eight years of the Reagan Administration that resulted in growth equal in size to the entire economy of West Germany.

'nuff said.

-- Bruce McGehee (luv2flyjets@comcast.net), July 06, 2002.

Reaganomics, otherwise founded on JFK's principles, and better described as supply side economics has created more wealth and better living conditions in this country than ever known.

While the deficit issue is of concern, the realization must be that the decrease in inflation over early 1980s... that continues through today was effectively brought about by investment and improvement in productivity through technological advances largely supported and funded by investors. With the lower inflation levels, and government's unwillingness to shrink proportionetly, the deficits grew. A large part of that government growth was in defense expenditures, and while fiscally a dismal idea, in reality, the effects of that spending were beneficial in an overwhelming way with the collapse of the USSR. More or less, it was a true investment in our future that paid itself off within a decade, something that can seldom be said for the mass majority of government spending.

It wasn't until the long term effects of growth, the snowballing of investment and productivity... that were unable to be outspent by government until 2001, when growth slowed to a point that could not hide the exponential growth of the government.

-- Bill Trimmer (hillbillythe kid77@yahoo.com), May 07, 2003.

Mr. DeLong cannot be right that Reagan deserves no credit for the decline in inflation; his administration's support for the Federal Reserve's policies was crucial, because the Fed is always influenced by political pressures. I agree with Milton Friedman that few presidents would have had the guts, as Reagan did, to let the recession take its course in order to stamp out inflation, and Reagan deserves a great deal of credit for

-- steven gerber (sgerber639@aol.com), August 21, 2003.

Long time since last post but I don't think the thread is complete, nor completely right. The supply-side tax cuts that Reagan and his advisors initiated did nothing except lower the taxes and create more loop holes. Reagan agreed to a tax increase in 1982 to the tune of 98 billion, 1/4 of his tax cut in a compromise for Volcker to loosen the money supply. Volcker let the M1 money supply grow 15% from July to October which reduced the interest rates. This had more a keynsian pump priming effect due to the recession than that of a supply side tax cut(which says with lower taxes savings and investments increase and more jobs and products are created, allowing even more taxes), however savings actually decreased from 1984 to 1988, while the economy grew( a direct contradiction to supply-side theory). After Volcker ended the monetary experiement the economy grew under the Fed's careful eye, at one point it was even threatened by Reagan about being "independent". While Reagan did have the guts to relect Volcker a second time even though he was a Carter apointee, he knew Volcker was a hawk when it came to watching inflation and that was the reason. Reagan didn't have any insight in the economic scheme, he just knew Volcker could do his job(no commendations there, those that can do a job right should do it). Reagan's point with military increases was if you have the power you don't need to use it, who would start something with a stronger power. Much like the other ideas of Reagan, it seems feasible in the beginning but not adequate in the long run. It's unfortunate this doesn't always work, even more so that George W. isn't following in the legacy of Reagan and his regime by waging war on whoever he sees. Reagan saw a few simple truths, he wasn't a scholar and didn't look for any more answers or questions for that matter. He knew the answer to the simple truths and didn't see anything else. Supply-side economics fit right in with Reagan because it would lower the taxes AND increase revenue, something only a very few supply-siders say works. Reagan never saw what he didn't want to, which was the problem with this. His PR team however was very effective and one of the best, if not the best, and was able to take credit for things that might have been questionable. Reagan inherited a sick economy and left the White House with a vibrant economy, one that had seen 92 months of economic growth. One could and will continue to debate who was responible, but the average people didn't care as long as they had jobs and money and it worked. While Reagan was critical of big government say it didn't work and hindered the american dream and economy, no one should be able to deny the Federal Reserve Board, with Volcker and Greenspan, were major players in the recovering economy as well as proof that the government can promote monetary discretionary methods that improve the economy. While Reagan said big government was bad and the people should watch out for it, he restored the confidence in the presidency after 5 failed presidencies and proved the government was realiable. His contradictions were numerous, to many to list in this brief answer. All of what he accomplished can be undone policy wise, however the one thing Reagan did leave was the reversal of 50+ years of work. We turned away from the good of society to the good of the individual in favor of the "marketplace magic". Where Reagan believed everyone could become rich if they tried, they forgot about helping the poor or even the middle class because in reality they hoped they themselves could become rich. He made liberals reel back in defense as conservatives accussed those who looked out for the group of immoral practices. Americans felt more comfortable looking up to the millionaires than they did for looking at the millions of the poor. The economic disparity grew during the 80s(it started before, and still continues), and following Reagan's mentality people think that it's alright. I believe the 80s were the least harmed by Reagan than today and tomorrow.

-- clint (divine_plague@yahoo.com), April 29, 2004.

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