He was vilified by his opponents, and his proposals for economic reform were branded as “Voodoo” economics. To this day the political opposition holds him responsible for all the problems with the economy, but let’s look at the time when he actually took over.
The year prior to his election the US saw its second gas crisis in the decade, with long lines and a doubling in the cost of crude oil. This triggered a time of double-digit inflation and the
Federal Reserve’s seeming inability to get a handle on the economy. Interest rates on borrowing for a home
mortgage topped 12% in some cases which drove down the house construction and
automobile production, raising unemployment and compounding the economic woes
of the county. These factors drove the
US into recession at the time of the election.
The sitting President seemed unable to make any right steps to solve this recession, or to address the other significant Geo-political crisis of the day. Against this, came Ronald Reagan. Twice governor of California where he had raised taxes, and turned the states deficits into surpluses, he offered a political theory that every government economist found appalling. Lower the tax burden on the corporations, reduce government regulations, oversight, and control and let the businesses of America succeed. His, and his advisors, theory was that if the supply-side economy was strong the wealth it created would pull up the standards of all the county. This supply-side economic theory was called “trickle-down” economics by the opposition, and “Voodoo Economics” by his harshest critics.
He entered office on January 20th, 1981, and immediately set to the work with the Congress of gaining control of the inflationary spiral that had fueled the recession. Within the first 100 days in office he had proposed an economic program that included $41 billion in budget cuts and a 30% tax cut for all Americans that would take place over three years. He signed the economic recovery act of 1981 that phased in a 23% cut in individual taxes over three years, dropping the top rate from 70% to 50%, established the ability for all citizens to create individual retirement accounts and receive additional tax deferments, and created a 10% exclusion on income for two-earner married couples. He signed an executive order creating a council to look for efficiency and corruption in the executive branch, and removes a 15-month embargo the Carter Administration had placed on shipping grain to the Soviet Union. Along the way he survives an assassination attempt.
The recovery act of 1981 did not take effect until 1982, and the recession continued well into that year, reaching its peak in December. But then the impacts of the act, as well as actions by the Federal Reserve began to show a positive effect. As his popularity fell and the results of the mid-term election were assessed, Reagan agreed to raise corporate taxes but held the line on individual tax increases.
Unemployment from the recession rose to levels unseen since the Great Depression but by the beginning of his second term they were, on average, below 10% and declining.
The successes of his time are significant. The fall of the soviet union and the improved relations with their several parts being most noteworthy. The failures come not from the belief in supply-side economics, but in his failure to curb the growth of government and government spending. During his terms he tripled the national debt and government growth continued an almost straight line trend that had begun in 1948.
As we look at the legacy of President Ronald Reagan, and ask the question would he fit into his party today? I think the answer would be yes, but he, like a number of long-term Republicans, would not be very happy.