Named for President Ronald Reagan, who spent much of the 1980s in office, Reaganomics [1] was an economic philosophy which guided the fiscal actions of the Reagan administration. Low taxes, low spending on social services, large military budgets [2] and fewer regulations were all important aspects of this policy. President Reagan actually had a college degree in economics, and had a solid idea of how things should work.
President Reagan promoted the following four ideals in his economic policy.
- Reducing both Capital Gains [3] and Income [4] Tax
- Government control of the money supply to reduce inflation [5]
- Reduced government regulation
- Reducing the increases in government spending
It was believed that by making these changes there would be a trickle down effect through all sectors of society. Simplified tax codes, deregulation and other measures helped to decrease the federal deficit by nearly 50% over the 8 years Reagan was in office, and while federal spending did increase over the same time, the rate was lower than in the previous administration.
The success of Reaganomics is a touchy subject, and open to interpretation. While government growth slowed some, the deficit more than tripled in size. Deregulation of many industries lead to some consumer [6] benefits (for example, competitive airline pricing) but also caused problems such as plentiful loopholes in the tax law for the wealthiest individuals.
Reaganomics, like most government backed financial plans, was a mixed bag. Unemployment and inflation dropped, new businesses opened and the stock market boomed. Interest rates [7], on the other hand, went way up. Today, economists still debate whether Reaganomics simply looks better on paper than in reality.