Reaganomics was a plan of action set forth by Ronald Reagan and Congress in the 1980’s to spur economic growth within the United States. The difficulties of the 1970’s were threatening to spill over into the next decade and that financial repression was hurting the Middle Class. Reaganomics looked to create a trickle down system that in theory would have helped everyone find higher levels of success. Here are the pros and cons of Reaganomics to consider.
The Pros of Reaganomics
1. It lowered the threat of inflation.
Many of the economic issues that happened in the 1970’s were because of inflation that was trying to run out of control. It was nice to have high inflation because it meant that interest rates were high, but the cost of goods and services were soaring in relation to the real value of wages. Reaganomics helped put a stop to this.
2. It creates lower taxes for many Americans.
Taxation has always been a key subject for Americans, dating back to the revolt on the tea tax that led to the Boston Tea Party. Americans want to be represented for the taxes they pay and many feel that the value of what they send to the government isn’t returned. The lower taxes of Reaganomics helped to provide a little additional personal income that could be used to support the GDP.
3. It encouraged budgets to be cut.
The problem with government spending is that it tends to keep increasing over time. Reaganomics encouraged the government to be fiscally conservative with their spending habits just as the nation’s households were. The end result was a cut of many extraneous programs, grants, and services that really weren’t needed.
4. It created investment opportunities.
With many of the tax cuts targeting the wealthy class and businesses, the goal of Reaganomics was to create investment opportunities so that wealth could expand for everyone. The idea was if the wealthy invested into more wealth, it would create Middle Class jobs, increase salaries for all, and provide a better standard of living.
5. It took a hard stance on crime.
Reagan signed 8 Executive Orders and signed five major crime bills during his time in office that were designed to help Americans become productive instead of enslaved to illicit drugs.
The Cons of Reaganomics
1. It required 100% compliance from the beneficiaries to work.
Reagan and Congress assumed that those receiving the tax cuts would voluntarily comply with the idea of investing into the future of the country. Their assumption was wrong. Many of those who received an economic benefit from Reaganomics simply held onto their additional cash, effectively taking it out of the economy. The average working household so little, if any benefits.
2. It created higher levels of national debt.
For the tax cuts to be implemented, Reaganomics took on the philosophy that it “it takes money to make money.” Spending levels decreased as tax incomes plummeted, but the cuts weren’t enough. The national debt went up higher during the Presidency of Ronald Reagan as a percentage more than any other serving President at that time.
3. It created larger deficits.
The spending deficits were massive in Reaganomics and it threatened to put the country back into another recession. The only way that the economy could be salvaged so a recovery could happen was to raise taxes. In total, Reaganomics wound up raising taxes nearly a dozen times on many of those who were counting on the benefits of a tax break, but never received one.
4. It created an unrealistic economy.
Internal spending was a foundational component of Reaganomics, especially within the defense sector. Over the 8 years that Reagan served, the defense budget was increased 6 times. This led to an unsustainable sector that provided temporary jobs and benefits, but no long term gain. At the height of Reagan’s defense spending, there were more than 50 defense contractors operating in the US. By 2004, there were just 5.
5. The anticipated cuts of Reaganomics never came.
One of the ways that Reagan attempted to pay for the economic policies was through cuts to education. He personally saw the Department of Education as an extraneous component of government. In total, more than $1 billion was removed from the department, but eventually Reagan had to give up on abolishing it because he couldn’t get any support behind him for the move.
The pros and cons of Reaganomics show that a system which works in simulations and on paper doesn’t always work in real life. There were certainly some positive gains made during this period in American history, but for some, the advantages came at a price that was much too high.
Crystal Lombardo is a contributing editor for Vision Launch. Crystal is a seasoned writer and researcher with over 10 years of experience. She has been an editor of three popular blogs that each have had over 500,000 monthly readers.