Reaganomics & Stagflation

Reaganomics & Stagflation

Background

Since the 1970s, inflation was a major problem. In 1980, Consumer Price Inflation was over 14%. The new president, Ronald Reagan, had to put into place policies that stimulate an inflation/recession – or stagflation – economy, something never before occurring in US economic history. In 1981, he asked Congress for a 10% tax cut so that people and businesses could put more money into the market. He wanted people to spend discretionary income to stimulate the economy so that new jobs and businesses would be needed. In the end of 1981, he saw a quickly improving market.The problem, however, was inflation. As stated by economist William Butcher: “In order to cure inflation, some recession is needed.” In 1983, Reagan allowed the second largest tax increase in history to counteract the inflation. Then, through the magic of the Laffer Curve, the recession of 1982 curbed inflation dramatically after a slight tax increase just strong enough to break the recession.

By 1984, inflation was under 4%; investments were higher; US families had higher take home pay; and, the income of the elderly rose. In 1984, Ronald Reagan won re-election by sweeping the electoral college – losing only Minnesota (his opponent’s home state) and the District of Columbia.

The Benefits of Reagan Deficits

  • They slowed recession because it allowed more activity in the marketplace.
  • They hastened recovery just enough to allow the economy to correct itself.
  • They also strengthened business investments.
  • Finally, defense spending caused the Soviets to run their treasury dry allowing the Berlin Wall to come down in 1989, freeing people all over Eastern Europe.
  • At the end of the Reagan years, we no longer feared being attacked by the USSR with nuclear weapons.

Deregulation of Businesses

Reagan’s deregulation of certain businesses was extremely helpful to business. And when businesses grow, jobs are created. The average person benefits when businesses grow. Promoting hate of wealthy achievers among the poor and middle class does nothing but harm growth. Whenever the government is involved in economics, the market reacts violently. Government does not belong in business at all. The consumer must be the regulator.<– This is a Libertarian concept.

What Reagan Conservatives Believe

One more thing, the primary root of Conservatism is the individual. The individual is responsible for his own actions. The individual must not be lazy or expect others to take care of him (unless a physical disability is involved). It is each person’s responsibility to learn, worship, and guide his children. If you believe that the individual, rather than government, is responsible for his own life, welcome to the party!! Conservatives believe that the role of government is to permit all people regardless of ethincity, gender, age, etc to fulfill their dreams. If the government takes your disposable income (take home pay), how can you achieve and be what you want to be without relying on it?

 

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