Ronald Reagan

President Reagan and ‘Reaganomics’

He inherited an economy in difficulties for most of the 1970s
Unemployment had averaged 6.2% most of the decade (4.1% 1960s)
Inflation double-digits
Reagan thus produced the ‘Program for Economic Recovery’
It was a rejection of ‘demand management macroeconomic’ policy
This had attempted to cause low inflation and unemployment by manipulating the rate of direct taxation and government spending
Reagan replaced it with ‘supply side’ economics
The idea was to create economic growth by improving productivity and output
It involved major tax cuts as an incentive to work and a reduction in government spending
The first part of his policy passed Congress in 2 Acts in 1981:

The Omnibus Reconciliation Act

To prevent a major budget deficit there was a cut in federal government spending in over 300 programmes
The Congressional Budget Office calculated the spending cut between 1981 and 1987 to be $1,041 billion

The Economic Recovery Tax Act

Income tax was cut to 25%
These changes are remarkable because the Democrats still controlled the House of Representatives
It helped economic recovery
Real GNP grew by 11% by end of 1984 – one of the fastest economic recoveries since WW2
Unemployment fell to 7% by 1984
Inflation fell to 3.8%
1984 Reagan won a landslide victory

Arms and the Budget Deficit

The Gramm-Rudman Act 1985

Results of ‘Reaganomics’

Overall economic recovery: created thousands of jobs; inflation fell; there was economic growth; the overall economic performance of the US during his presidency was little more than average for countries OECD (Organisation of Economic Cooperation and Development) countries
There were great federal budget deficits and large trade deficits

The Decline of the Reagan Presidency

Iran-Contra 1986-7

This was a scandal that hit Reagan’s popularity when it came to light
Early 1980s in Lebanon, several westerners held hostage by militant Islamic groups
Many of these were linked to Iran
Among these hostages were British and Americans
Reagan Administration had stated that it would do no deals with terrorists over hostages
3^rd November 1986 a Beirut newspaper claimed that US had sent 500 anti-tank missiles to Iran during the Iran-Iraq War
US hostages were released in return
The money made from the arms sales was used to help the Contra rebels fighting against the Marxist government in Nicaragua
1987 there was a joint Senate-House investigation into the matter and top White House aides were implicated: Donald Regan (Chief of Staff), Robert McFarlane (National Security Adviser) and Admiral Poindexter (National Security Adviser)
Lieutenant-Colonel Oliver North was the key witness – he admitted taking part and he implicated others
No evidence was produced linking Reagan with the affair – but he suffered as a result of the scandal
July 1988 Attorney General Edwin Meese was forced to resign over accusations of corruption

Black Monday 19^th October 1987

The stock market had been buoyant reflecting the economic recovery from 1983
19^th October Dow Jones stock index fell 508 points
$500 billion in paper value of US companies was wiped out ie 20% of stock value of US
National debt had risen to $1.4 trillion as well, so final years of the Administration were filled with economic uncertainty

Conclusions

American pride restored by this Administration
American power regenerated
Gap between rich and poor increased
‘Reaganomics’ had limited success in economic recovery
Reduced taxes and arms spending created a vast federal debt
The prestige of the Presidency had been restored though after being lost in the 1970s
His monarchic style made him popular
It saved him too from being implicated in policy failures of his subordinates and the Iran-Contra affair

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