The Impact of Reaganomics - dummies

By Steve Wiegand

Ronald Reagan figured that if you cut taxes on companies and the very wealthy and reduced regulations on business, they would invest more, the economy would expand, and everyone would benefit. Of course, this approach, based heavily on the views of economist Milton Friedman, a Reagan advisor, would require cutting government services, which would most affect Americans on the bottom of the economic ladder.

But the benefits would eventually “trickle down” from those on the top of the ladder to those on the bottom. At least, in theory. So, early in his administration, Reagan pushed through a package of massive tax cuts, and the economy got better. Unemployment dropped from 11 percent in 1982 to about 8 percent in 1983. Inflation dropped below 5 percent, and the gross national product rose.

While Reaganistas were quick to point to the president’s policies as a great deal, critics pointed in a different direction. Although Reagan had cut taxes, he and Congress had failed to cut government spending. In fact, he greatly increased spending on military programs.

Because the government was spending far more than it was taking in, the national debt rose from about $900 billion in 1980 to a staggering $3 trillion in 1990. Moreover, most of the benefits of Reagan’s trickle-down approach failed to trickle, priming the pump for another economic downturn after he left office.