Topic 4 - C1 - New Directions in Economic Policy

Question 1

Who was Ronald Reagan?

Answer 1

Sportscaster, Hollywood actor and TV star. Relaxed, effective public speaker - known as the great communicator of politics. Elected as governor of California in 1967-1974.

Question 2

Why did Ronald Reagan hate taxation?

Answer 2

While in Hollywood, federal taxes took 91% of his income. Thought it was a disincentive to work

Question 3

What economic concept did RR believe in?

Answer 3

Supply side economics - emphasised economic growth through low taxation and less gov regulation. Known as Reaganomics.

Question 4

What was Reagan’s aim and vision for his presidency?

Answer 4

End to big gov. Couldn’t cut social security and medicare due to having a high proportion of elderly voters, couldn’t completely dismantle the GS but wanted to reverse it.

Question 5

How did Reagan affect family incomes in 1981?

Answer 5

Reduced the budget of 212 federal programs - most aided the poor (food stamps, student loans and child nutrition programmes). Reduced the level and range of benefits for safety net programmes e.g Aid to Families with Dependent Children.

Question 6

Why did Reagan cut AFDC and what impact did it have?

Answer 6

13 million living below the poverty line in 1984 - many children to single mothers so needed AFDC. Majority were black, reps believed that AFDC encouraged promiscuity, irresponsibility and the break up of the traditional family.

Question 7

How did Reagan’s 1981 tax cuts benefit the rich and not the poor in the 1980s?

Answer 7

• The share of national income of the wealthiest 1% rose from 8%-15%
• The average income of the poorest decreased by $1300 p/a
• The number of homeless people increased from 200,000 to 400,000

Question 8

What criticisms did Left Wingers have of Nancy Reagan?

Answer 8

They compared Nancy Reagan’s $25,000 wardrobe for the first inauguration with the 500,000 whose names RR deleted from the list of the registered disabled.

Question 9

In what state was the economy in in 1981-1983?

Answer 9

10% unemployment, 50% in the Rust Belt. Double digit inflation. Only ½ of US families maintained their standard of living in the 1980s but because both parents worked.

Question 10

What pro business policies did RR have?

Answer 10

• Opposed the minimum wage and obstructed congressional attempts to increase it - widened the gap between the rich and the poor
• Appointed over 400 conservatives to the judiciary - made it more difficult for women, minorities, the elderly and the disabled to sue employers over discrimination

Question 11

How did Ronald Reagan treat the 12,000 air traffic controllers who ignored the no strike for federal employee clause in their contract and striked for higher wages?

Answer 11

President had the power to fire fed employees who ignored it so he fired them all and called in the military to do their jobs while new controllers were trained.

Question 12

How did RR cut regulation on industry and business?

Answer 12

• Cut the staff of regulatory agencies by 25% but
• No. of personnel in the Consumer Product Safety Commission was cut by 38% - commission less active in ensuring that products were safe

Question 13

What impact did cutting regulation on industry and business have?

Answer 13

50% fall in prosecutions for disposal of hazardous waste, adversely affected environment. RR hadn’t differentiated between econ regulation and health+safety regulation.

Question 14

What did agency appointees ensure after RR’s deregulation of business and industry to give workers less protection against accidents and poor conditions?

Answer 14

That bodies such as the Occupational Safefy and Health Administration the made decisions in favour of businesses and against labour

Question 15

Why did Reagan want to cut the benefits for early retirees?

Answer 15

Reagan was informed that the fund from which social security payments came from would be bankrupt by 2000, backed down when the entirity of congress opposed it

Question 16

What is an example of where congress and RR disagreed on the budget?

Answer 16

RR vetoed the renewal of the $18 billion Clean Water Act but Congress overrode his veto with an identical Water Quality Control Act, 1987

Question 17

What programmes did RR leave intact and why?

Answer 17

RR left medicare, veterans benefits, school lunches and head start intact due to public opposition.

Question 18

What alternative to cutting school lunches was sought?

Answer 18

The Department of Agriculture attempted to save money by substituting vegetable portions for ketchup and pickle but it was ridiculed and dropped.

Question 19

How was RR successful in bringing prosperity to some regions?

Answer 19

Defense expenditure brought prosperity to regions with defense and aerospace industries like the West Coast

Question 20

What did the Tax Reform Bill 1986 do?

Answer 20

Simplified the tax code and increased taxes on corporations and capital gains - lowered the top rate of IT from 50% to 28%, raised the bottom rate from 11% to 15%

Question 21

What is the main praise for Reaganomics?

Answer 21

• Longest ever period of economic growth in peacetime - 1980-1988 inflation fell from 13.5% to 4.7%, unemployment fell from 7% to 5.2% and 16 million new jobs created

Question 22

Why did RR fail to balance the budget?

Answer 22

Failed to balance the budget due to tax cuts that decreased gov income and very high defense expenditure. He said defense was not a budget item.

Question 23

How unbalanced was the budget?

Answer 23

• $1 trillion national debt in 1980-81 which X3 to more than $2.6 trillion.
• Fed expenditure increased from $699.1 billion in 1980 to $859.3 billion in 1987.

Question 24

Why did Congress pass the Balanced Budget and Emergency Deficit Control Act (1985)?

Answer 24

Budget deficit in constant dollars was over 5 times that of his predecessors. Tried to ensure a future balanced budget through spending cuts.

Question 25

What were the criticisms of Reaganomics?

Answer 25

Tax breaks simply made the rich richer, wealth did not “trickle down” to the working classr

Question 26

What did polls confirm about the budget deficit?

Answer 26

Majority of US didn’t want to reduce spending on social programmes - these contributed greatly to debt. US preferred cheap, imported goods rather than domestic products - widened deficit

Question 27

How did the US change in terms of importing and exporting and what impact did it have?

Answer 27

From being one of the largest creditor nations to the largest debtor nation. Allowed for a higher standard of living in the 1980s but future generations would have to pay for the borrowing and the interest accrued on it.

Question 28

What led to a wider budget deficit?

Answer 28

• 1980s begun with positive trade balance

- Rise of discount stores like Walmart - 125 stores in 1975, 1198 stores in 1987 - sold cheap imported goods

Question 29

How did the budget deficit rise between 1982-1985 and how many more imported goods did consumers buy than domestic between 1981-92?

Answer 29

Deficit rose from $38 billion in 1982 → $150 billion after 1985. Between 1981-92, consumers spent $2 billion more on imported goods than domestic.

Question 30

How did RR respond to the budget deficit?

Answer 30

Convinced Japan to limit their exports to the US in 1981. Japanese opened manufacturing plants within the US - decreased unemployment. Tariffs imposed on imported trucks (25%) and on cars (3%).

Question 31

What happened after RR took action on the TD in 1981?

Answer 31

TD still grew - $50 billion 1985, US accused Japan of launching economic offensive against USA.

Question 32

What was Reagan’s economic legacy?

Answer 32

• Did little about TD
• Increased debt
• Adversely affected workers and their families
• Risky loans given out
• Now considered unwise to excessively spend on welfare

Question 33

What impact did deregualting the savings and loans industry have?

Answer 33

$132 billion of taxpayers money used to bail out savings and loan institutions 1989-90

Question 34

What contradictory promises did Bush make?

Answer 34

• To decrease the $2.7 trillion deficit which had $200 billion interest being paid on it but also promised no new taxes
• Eventually had to agree that taxes must rise

Question 35

Why was Bush’s decision to raise taxes significant?

Answer 35

Signified that US had spent beyond its means, highlighted politicians making promises they could not keep, tax rise caused many to reject Bush and politics went back to the left when Bill Clinton was elected after.

Question 36

In what state was the economy in 1990-1991?

Answer 36

• Recession began 1990 - 1991
• Unemployment at 8 year high of 7.8%,
• 31 major military bases closed = 70,000 job losses.

Question 37

What policies did Bush have?

Answer 37

Intially more LW but had to adopt more RW policies to please the new right: family and medical leave, CRA to counter discrimination in employment and a bill that gave the unemployed excessive benefits all vetoed.