Ronald Reagan - Part 2

In this second installment, I will try and explain why I believe Ronald Reagan's economic policy was effective. In part 1, I promised a review of Reagan's domestic agenda. It is at this point that I wish to apologise to my readers for not being able to deliber on all my promises. I simply do not know enough to be able to talk about those other exciting areas that were developing in the 1980s, namely Reagan's policies vis-a-vis the judiciary, (the rise of 'judicial restraint'), crime (the 'war on drugs') or constituional issues (such as the 'new federalism' initiative). I do aim, as already mentioned, to talk about the economy. I am no economist. But the principles of 'Reaganomics' are basically accessible to all. Given the present situation in America, where George W. Bush is attempting to make further tax cuts to the ones he had passed in 2003, I'd like to spark a debate over this approach to managing the economic life of a country.

Contrary to popular opinion, Reagan was not the front-man for other people's ideas in this area. He had studied Economics as a university student and had had direct experience with high federal tax margins whilst a Hollywood actor. In 1964, sixteen years before becoming President, he came out in support of Republican Presidential candidate Barry Goldwater, who advocated the conservative principles Reagan stood for as President. Reagan supported Goldwater at a time when it was politically unpopular to do so (being the heyday of the 'big government' approach to public life).

'Reaganomics' or supply-side economics, needs to be assessed against what the situation was like when Reagan came to office. The economy was in great difficulties. The country was hit by double-digit inflation and unemployment. Reagan's analysis was that the American economy was being held back from enterprise and productivity by federal tax rates that were discouraging investment, and by excessive federal regulation. The philosophy behind the 1981 tax cuts, which reduced the top rate of income tax by 25% over a period of three years, was to kick start the economic engine, by giving entreprenuers and businesses the incentives to produce.

As stated, I am no economist, neither can I or am I going to go into much more depth than that already described. What is important here, however, is a measure of historical perspective and the persistency of Reagan's character.
He believed in his tax cuts. He believed in them from the time George H.W. Bush had described them as "voo-doo economics", through the time of their implementation, and even during the immediate aftermath of 1981-82 when almost everyone else was claiming that they had failed and that tax rises were going to be necessary to reinvigorate the depressed economy. Needless to say, Reagan's persistence paid off, the deep recession bottomed out, and things begin to turn, so much so that America enjoyed her longest period of peacetime economic expansion.

It is easy to say now that such a recovery was inevitable, that inflation and low economic growth were never going to continue for ever, but the mood during those days in the late 70s/early 80s was very different. Many were predicting years of double-digit inflation and a future in which Americans would have to settle for less. Set against this context, Reagan's economic recovery programme cannot be understated. Individuals were given freedom, and freedom did the job.