As a result of the tax cuts the economic growth increased at 1.8% annually and the productivity growth increased at 3.8% annually, which resulted in a $2.7 trillion, increase in the nations GDP. [3]
With strong support of the Reagan administration The Federal Reserve brought down the rate of growth in the money supply from about 8% down to 5%. The tight money policy slashed inflation rates from 18% to below 4%. [4]
The economic policies instituted by the Reagan Administration had immediate impacts on the American society.
The 60.5% increase in defense spending ($157.5 billion to $252.7 billion)[5]
Health care services improved because Medicare spending increased by 68.1% (from $39.1 billion to $65.8 billion) [6]
Social Security programs provided more aid to families because the Social Security Spending increased 35.1% (from $139.6 billion to $188.6 billion). [7]
Part C: Evaluation of Sources
The first resource, Age Of Greed by Jeff Madrick was a very useful book. The author, Jeff Madrick is a former economics columnist for the New York Times. He’s a professor and senior fellow at the Roosevelt Institute and at the Schwartz Center for Economic Policy Analysis. He has also written many other books relating to the US Economy. He wrote this book in 2011 and Random House of Canada Limited in Toronto published it. The purpose of the book is to how greed has affected America throughout the years and how this greedy mentality is what has brought America to the top of the world and taken it to the bottom during recessions and depressions. The purpose of this book is to also educate people on where each president/politician went wrong and/or what they did right. In Reagan’s case this book provides lots and lots of detailed information. The value of this book to is that it gives very insightful opinions on what Ronald Reagan did during his years of presidency, specifically regarding his economic policies. Also this book provided statistics that showed the results of Reagan’s actions (e.g. tax cuts). This book also shows what state the economy was in prior to Reagan’s presidency so this way I could have a better understanding of the true impact Reagan had on the American economy. The Limitations of this book are that it does not talk much about the social impacts and policies Reagan had enacted/created, it just focuses on the American economy. This book also did not talk about the foreign opinions of the American economy; this book does not show how foreign countries view the economy. All in all, this book proved to be very useful.
The second resource, Not So Free to Choose: The Political Economy of Milton Friedman and Ronald Reagan by Elton Rayack has a Ph.D. and has written about various economics in the past (e.g. medical economics, the economics of racial discrimination etc.) He was a Fulbright Scholar at the London School of economics and a professor of Economics the University of Rhode Island. He wrote this book in 1987 and Praeger Publishers published it in New York, New York. The purpose of this book is to show how Ronald Reagan’s economic policies are very similar to the beliefs of Milton Friedman. This book also shows how both Reagan and Friedman agreed on almost all aspects of how the economy should be run. It also provides very detailed analysis with each step Reagan took during his presidency. The value of this book is that it has very useful charts (e.g. Table 9.6 on page 184) in this book that very clearly showed what was going on in the nation during Reagan’s presidency and how everything was changing over time. This book also provided good research, which painted a good picture of Reagan’s policies and the impacts that they had. However, the limitations of this book are that it does not discuss the other important people in the Reagan Administration that helped make decisions. For example Paul Volcker is very briefly mentioned in the book even though he did quite a bit for the economy. This book is very reliable because it is filled with quotes and analysis from Friedman and Reagan themselves regarding their own policies and actions. Also the author is well known and is very qualified, all in all, this book is also a great source.
Part D: Analysis
Fiscal and monetary policies played a crucial part in allowing the American economy to recover from economic distress and improve at the same time.
The massive income tax cuts Reagan implemented meant that families would now have more income coming into their homes, which in turn provided lots of comfort and relief Now that people had more money in their pockets, more transactions would be made, thus resulting in a larger cash flow which would help the economy recover from an economic downfall. These large reductions in personal and corporate tax rates were the heart and soul of Reaganomics[8]. Without cutting tax rates work will not be rewarded[9] According to the Laffer Curve[10] people will save more out of their higher income and the saving would be made available to investors who in turn will have the incentive because of lower tax rates to buy more machinery and equipment and produce more. [11] With lower tax rates, people were now in better financial situations and were getting approved for loans more easily at lower interest rates. The creations of millions of new jobs also meant that there would be more money in circulation, which also adds to the nation’s cash flow and this allows the economy to prosper. With unemployment rates going down the economy is in a period of recovery, but since there were 19 000 000 new jobs created[12] this is an indicator that the economy is not only recovering but improving at the same time. Increases in growth and productivity rates also signal improvement in the economy. With these rates increasing the workforce is increasing and the demand of items is increasing now that people can afford more goods. There is a repeating cycle in the economy during this time period where one thing is constantly caused by another, which leads into a chain reaction that consistently repeats. As this cycle continues to repeat the nations GDP is obviously going to grow, it doubles to $5.4 trillion. Reagan is often criticized for leaving a tremendous debt of $1.7 trillion but this is nothing when one compares it to the $17 trillion rise in the nations wealth over the 8 years he is president.[13] Monetary policies keep very tight control on a nation’s money supply and by supporting The Federal Reserve; Reagan has complete control over the county’s growth and slows it down. Slowing growth and reducing inflation rates helped the American dollar strengthen.[14] With increased salaries, reduced inflation and a more valuable dollar the nation’s economy is very quickly growing. During the Reagan Administration the American economy witnessed 96 months of continuous growth, the longest peacetime expansion in history. [15]
Social impacts resulting from Ronald Reagan’s economic policies are immediately felt in the American society. Increased defense spending brought prosperity to the US regions with defense and aerospace industries, such as the west coast.[16] Although spending on education and transportation has decreased by quite a bit it hardly makes a difference when compared to the benefits of all the defense spending. With the creation of new industries in these areas the economy will boom because of the cold war the country is stocking up on nuclear weapons in case of an all out nuclear war. Also as a result of this, the cold war is won because America is the more powerful nation and this of course happens because of the billions of extra dollars pumped into national defense each year. With the cold war now won America is relieved that nuclear war is not going to take place and that capitalism can be maintained. Medicare improves in the US because the population does not rapidly increase but the money being spent on the Medicare is being doubled. Although Americans still have to pay for their health care it hardly matters because now they are getting much better Medicare. Patients are treated better as they are provided with better treatment and whatnot. With the economy constantly growing there are still poor people that need help from the government and Reagan’s Administration spends almost $50 billion more to provide people with Social Security programs (e.g. welfare). However, in his first term Reagan was completely against the idea of things such as welfare and started cutting the amount of money spent Social Security programs and it angered the citizens. Reagan learned his lesson for the 1984 elections and never again did he speak of cutting any type of Social Security Program. Therefore the fact that he had tried to cut funding to these programs at one point can be ignored because he dramatically increases funding for these programs. With all these budget reforms Ronald Reagan’s Administration has immediate impacts on the American society.
Part E Conclusion
What economic policies instituted by the Reagan administration allowed the American economy to recover from economic distress and how did these policies impact the American society? The economic plan instituted by President Ronald Reagan allowed the American economy to simultaneously recover & improve whilst bringing upon social changes in society. The use of fiscal and monetary policies in Ronald Reagan’s administration played a critical role in revitalizing and spurring growth within the American economy. The economic policies instituted by the Reagan Administration had immediate impacts on the American society. In conclusion Ronald Reagan was exactly what the US needed when they were on in an economic downfall. He quickly helped the nation recover by implementing his tax cuts, monetary policies and budget reforms almost instantly. To many peoples surprise not only did Reagan aid the economy in recovery he spurred economic growth, which the US would see for the next 96 months[17]. Ronald Reagan entered the White House as a well respected politician but left a great legacy behind him and in the his own words believed “history will remember this as an era of American renewal; remember this administration of change, and remember this Congress as a Congress of destiny” [18]
Part F: Bibliography
[1] Age of Greed. Madrick, Jeff, page. 169.
[2] Fact and Commnent; Forbes Magazine. Forbes, Steve.
[3] Reflecting on the days of Reaganomics Smith, Craig R. USA Today; New York
[4] Not So Free to Choose: The Political Economy of Milton Friedman and Ronald Reagan Rayack, Elton page. 192
[5] Ibid page. 184
[6] Ibid.
[7] Not So Free to Choose: The Political Economy of Milton Friedman and Ronald Reagan Rayack, Elton page, 184
[8] Not So Free to Choose: The Political Economy of Milton Friedman and Ronald Reagan Rayack, Elton page, 174
[9] Ibid page. 173
[10] Ibid. page. 174
[11] Not So Free to Choose: The Political Economy of Milton Friedman and Ronald Reagan Rayack, Elton page, 175
[12] Reflecting on the days of Reaganomics Smith, Craig R. USA Today; New York
[13] Fact and Commnent; Forbes Magazine. Forbes, Steve.
[14] Age of Greed. Madrick, Jeff, page. 169.
[15]
[16] Politics, Presidency and society in the USA, 1968-2001. Sanders, Vivienne. page. 111
[17]
[18] Not So Free to Choose: The Political Economy of Milton Friedman and Ronald Reagan Rayack, Elton page, 173.
by
ib2014 (student)
