Explain what was meant by 'Reaganomics', the term used to describe President Reagan's economic policies. How successful were these policies.

Reaganomics is a term that is used to denote the economic policies, ameliorated by U.S. President Ronald Reagan during the 1980s. Supply-side economics and trickle-down economics were two important associates of the policies, which was termed as free-market economics by Reagan.

Pillars: Reagan’s economic policy was based on four pillars

  • Reduction of the growth of government spending
  • Reduction of the federal income tax and capital gains tax
  • Reduction of government regulation
  • Reduction of inflation by controlling money supply

 

Origin: Reagan’s economic policy was based on the Laffer Curve, developed by Arthur Laffer in 1974. The curve represents tax cuts and their impact on the economy.

Efficacy:

  • Inflation was under control and Reagan’s tax cuts ceased the recession.​
  • It could not reduce government spending.
  • The tax rates induced consumer demand.
  • Social Security payroll and excise taxes were raised.
  • Spending on the defense sector was increased.
  • Special attention was projected to cut galloping inflation.

Comment: Above all, the outcome of Reaganomics had both a mixture of success like the end of stagflation, high GDP growth, entrepreneur revolution as well as the failure like the widening of the income gap. Cutting tax rates directly affects revenue generation. As Reagan’s presidency had a higher tax rate, the tax cut did not affect too much on revenue.

Question for UPSC Mains:
Explain what was meant by 'Reaganomics', the term used to describe President Reagan's economic policies. How successful were these policies.

Published: March 21, 2017 | Modified:August 15, 2020

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