Ronald Reagan Flashcards
What is stagflation?
Rising inflation and rising unemployment at the same time. Business stops expanding and stagnates.
What is real GNP?
-adjusted gross national product to match inflation
What is a data series?
Types of statistical information
What is per capita income?
GDP divided by the number of people in the country
What is GNP?
The value of all goods and services produced in a country in a year
What is marginal income tax?
US income tax is organised into brackets/ margins, with the amount of tax rising as you move from one bracket to a higher one. The higher tax is only paid on the income in the higher tax bracket
What is real disposable personal income?
-amount of money people have left to spend or save after tax. Real disposable income links disposable income to the movement of prices. So if have same disposable income but prices have gone up-worse off
What is constant 1987 dollars/ 1987 dollars?
-the actual wage is adjusted by the amount of inflation or otherwise to produce a wage that can be directly compared with a 1987 wage
What immediate action did Reagan take when he became president?
- focused on the economy
- wanted to control government spending, reduce government involvement and to cut taxes
- ‘supply side’ economic theory
- sacked White House Staff Members, Federal government hiring freeze, freeze office furnishings and equipment
- cut travel expenses by 15%
- executive orders and set up new advisory groups
- BUT were small financial savings
What is supply side theory?
Not driven by consumer demand but by keeping up production, encouraging saving and investment
- restraints on production eg: high taxes should be removed
- better off benefit which would help poorest- ‘trickle down’
Why did he decide to cut taxes?
-reason thinking high taxes was the reason that productivity fell in the 1970s
What was the plan for reform?
- wanted to present whole budget policy through 1984 as a single bill when he met congress (not normal process)
- wanted a tax bill
- Council of Economic Advisers didn’t have time to go through usual procedures- successful
What are the 4 parts of Reaganomics?
- meant to be quick
- cuts came from federal grants for specific projects set up under Johnson’s ‘Great Society’ reforms
1) Cutting the Federal deficit (loss)- cuts on domestic spending, had lots of errors and footnotes of ‘as yet unidentified’ cuts to be decided later
2) Personal and business tax reductions
3) Deregulation(removing federal control) in industry
4) Planned control of the money supply- keep inflation down while expanding the economy
How did Reagan get his legislation passed?
- small amount of Democrat’s to convince
- Republican majority in senate and House of Representatives
- passed as the Omnibus Reconciliation Act of 1981
- Hard to pass in house- Democrats felt they had been manipulated over the budget and saw tax bill as a fight over control
- reshaped- Economic Recovery Tax Act 1981
- untaxed IRAs (Independent Retirement Accounts) set up for some working taxpayers
- business tax rates cut
- suffered inflation- usually fears in advance
When was Reagan’s assassination attempt, what happened?
- March 1981
- popularity increased because of attempt
- By John Hinckley Jr
- Cheerful demeanour throughout impressed people
- 69-oldest elected president
Name four pieces of economic legislation and economic measures by Reagan:
- 1981-President’s commission on Housing= investigate all aspects of housing and how to save money on housing schemes
- 1981- Economic Recovery Tax Act= cuts income tax by 23% over 3 years links tax bands to inflation and offers incentives
- 1981-Omnibus Budget Reconciliation Act= variety of tax cuts- take $35 billion out of federal spending
- 1986 Tax Reform Act= revises tax codes, remove tax evasion loopholes and ease pressure on poorer families
How can you define Reagan’s success? Why were the 4 parts of Reaganomics so important?
- successful if met aims
- similar to 1920s (ideas) which were successful (Republican majority)
- All things that counteract stagflation which is main issue
- New Deal- not long term solution, led to borrowing culture, no longer necessary or sustainable
How do Reagan’s policies compare to Johnson’s Great society?
Great Society was ‘anti- poverty’. Reaganomics was concerned with some anti- poverty measures but mainly focused on those at the top
-Reagan- laissez-faire where as Democrats- want more control
Why would cutting the personal and business tax reductions help the economy?
- more disposable income- more spending, cycle of prosperity
- more money for businesses- workers get paid more- trickle down element
Why would cutting federal deficit help the economy?
- improves GNP and inflation
- less bankruptcy in government meaning can support more fairly without huge loss itself
- solves main issue of stagflation
Why would deregulation help the economy?
- improve living standards
- choose working hours
- links back to Henry Ford
- links to idea that businesses know how to make the most money- power with the people
- Problem= trusting rich, some would pass on benefits others wouldn’t
Why would money supply help the economy?
- keeps inflation down
- can’t print money-need to control money circulation
- too much- not worth anything
Where can you go for lesson summary?
-Starred text notes= does an overall sentence for each (only 2 pages):
1) What was the economic situation in 1981:
- Was poor, with previous over-governmental spending, low productivity and unemployment
2) What economic policies did Reagan introduce?
- Reagan introduced Reaganomics, passed his budget policy as a single bill in 1984 and passed legislation like the 1981 Economic Recovery Tax Act…
3) How did he get these policies passed?
- Sympathy for his assignation, use of the media, unity by Republics and them being the majority in senate and house of representatives, also offered some tax concessions to Democrats to swing vote
What are the 7 main things Reagan wanted his policies of tax cuts and money supply control to achieve?
1) Stop inflation
2) Reduce unemployment
3) Increase personal wealth
4) Increase productivity
5) Encourage personal saving and investing
6) Encourage businesses and service providers to produce more
7) Federal spending and the federal deficit to fall
What is supply side theory in a nutshell- main objective:
- to reduce federal income from tax cuts which would be covered by rising productivity and investment
How can interpretations effect the significance of Reagan’s policies?
-statistic data- different interpretations and viewpoints
-eg: some may be employed but not earning full capacity eg: part time or temporary work. Some statistics a
So missed out those unemployed and classes them as ‘unemployable’ eg: drug use
-therefore data may not include everyone, it’s subjective and may not always provide a clear picture (absence of explanation)
Did Reagan improve inflation and unemployment?
- Federal Reserve Board put tighter restrictions on money supply but as these restrictions weren’t lifted as unemployment rose it led to a sharp rise in interest rates- damaged industries like farming which bought supplies on credit or had loans
- came to power in middle of recession
- unemployment rates increased but inflation did fall and by 1966 never reached double figures again
Did Reagan’s policies increase personal wealth?
- tax cuts does make people richer but which sections of the population became richer?
- some argued received economy, tax cuts hurt the rich most others argued gap widened- rich got richer, poor got poorer
- millionaires had doubled between the late 1970s
Source viewpoints:
- widened gap between rich and poor
- ‘millionaire’ became meaningless
- ‘increasing economic inequality’
Other:
- beneficial for economy eg: employment rate fell, CPI rose, GDP grew, ‘remarkable’
- tax burden shift= rich paid the most while poor taxes fell-more equal
Did the policies increase productivity?
- hard to measure eg: look nationally at GNP of whole country or output per worker per hour (producing more per hour?)
- more people began to save and invest towards the end of recession but the ‘big government’ policy backfired- led to deregulation- more competition…
- financial investments and savings happened in an unstable environment
- led to stock market crash of 1987- lost savings and investments
- recovery- rapid eg:FBR encouraged banks to support each other, told not to panic- not as wide scale as GD
- failure- reduction of deficit, made worse by USA borrowing from abroad
- supply side arguments failed
- some federal departments resisted cuts
- defence budget (believe increased defence spending was necessary), reversed spending pattern- less spending on Human Resources and less defence spending
Did George HW Bush continue his policies?
- promised to continue Reagan’s policies but less popular as limitations and long term effects became clear
- forced to break promises as dignified by raising taxes which promised in campaign would never do
- democrats back in control of both houses of Congress
- needed to prove himself- particularly in media and public support was “lukewarm”
Did (1992) Bill Clinton continue his policies? What are the 3 main points of Clinton’s campaign?
- Democrat
- people although recognised Reagan’s economic issues did not want to return to high taxation
- became a ‘New Democrat’- campaign economically focused eg: low inflation, high employment, no tariffs, reduced deficit…
- took up ideas from previous democrats and was ‘investing in people’
3 main points of his campaign?
1) Address medical care
2) Would bring change
3) ’the economically stupid’- catch phrase outside and inside campaign offices
What were some of his main aims and arguments in Reagan’s inaugural speech?
- overall believes that government involvement has been too much
- believes that people should have more self confidence, remind them that they do have power and influence and some responsibility
- shows people shouldn’t just rely on the government, all have a role
- wants to ‘curb the size and influence of the Federal Establishment’
- also realises the ‘racial divisions’ and those ‘too long neglected’
- ‘government did not create the states; the states created the Federal Government’
- ‘must provide opportunity, not smother it, foster productivity, not stifle it’
What were the overall successes of Reagan’s economic policies?
- tight restrictions on money supply which worked short term
- inflation fell
- tax cuts
- rapid recovery of stock market crash- not like GD
- people did save and invest towards end of recession (short-term)
- people liked some of Reagan’s economic policies such as low taxes even though it did have its limitations and long term issues
- paved way for ‘New Democrat’- Bill Clinton
- Inaugural Speech- did meet some of aims (successful to an extent) eg: stopping inflation
