Reaganomics: Financial Politics of the 1980s

by Investing School on October 10, 2011

Named for President Ronald Reagan, who spent much of the 1980s in office, Reaganomics was an economic philosophy which guided the fiscal actions of the Reagan administration. Low taxes, low spending on social services, large military budgets 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 and Income Tax
  • Government control of the money supply to reduce inflation
  • 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 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, on the other hand, went way up. Today, economists still debate whether Reaganomics simply looks better on paper than in reality.

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