Topic 4 - Regan And His Economic Policy

Question 1

What were Reagan’s aims?

Answer 1

• Cut taxes
• Reduce size and role of federal gov
• Cut public spending
• Minimise welfare state arrangements where possible

Question 2

How did Reagan try to achieve his aims?

Answer 2

• 212 federal programmes, that mainly aided the poor, had their budgets reduced
• These programmes included; food stamps, student loans and child nutrition programmes

Question 3

What impact did Reagan’s policies have on families economic status’?

Answer 3

• Reduced levels and range of benefits for ‘safety net’ programmes such as Aid to Families with dependent children that gave poor single mothers support in bringing up kids. Gov believed it encouraged promiscuity, irresponsibility and the break up of the traditional family
• 1981 cuts in individual and corporate taxes benefitted rich rather than the poor
• Tax and social programme policies increased the gap between rich and poor during 1980’s. Homeless people increased from 200k to 400k and the average income of he poorest decreased by $1300 per year
• Critics compared Nancy Reagan’s 25k wardrobe to the 500k Reagan removed from disabled register
• 1981-83 were hard on workers and families with double-digit inflation and 10% unemployment. Income plummeted under Reagan and only 1-2 of families maintained their standard of living

Question 4

What were Reagan’s policies like in terms of employment rights and deregulation?

Answer 4

• Opposed minimum wage and obstructed attempts to increase it which widened gap between rich and poor
• Hostile to unions: 1981 12k air-traffic controllers ignored ‘no strike for federal employees’ clause in their contracts and went on strike for higher wages. Reagan fired them all which horrified Liberal and Labour leaders but impressed conservative ones
• Appointed over 400 conservatives to the Judiciary whose rulings made it harder for women, minorities, the elderly and the disabled to sue employers over employment discrimination

Question 5

What were Reganomics?

Answer 5

The belief in supply-side economics, which emphasised economic growth through low taxation and less government regulation

Question 6

What did Reagan do to regulatory agencies and what impact did this have?

Answer 6

• Believed the economy would benefit from lightening the regulatory burdens on industry and business
• Cut staff from regulatory agencies by 25% but did not distinguish between stifling economic regulations and regulations that protected the environment, health and safety.
• 50% decrease in prosecutions for illegal disposal of hazardous waste which had a negative impact on environment
• Made sure bodies such as Occupational Safety and Health Administration made decisions in favour of business’ not Labour meaning workers had decreased protection against accidents and unhealthy conditions
• Number of personal in consumer product safety commission dropped so there were less people making sure the products consumers bought were safe

Question 7

What resistance did Reagan face?

Answer 7

-Wanted to cut benefits for early retirees after he found out that the fund from which social security payments came would be bankrupt by 2000 but backed down after huge congressional outcry
-1981 budget accepted but later budgets were substantially rewritten and congress was unco-operative over many of his attempts to reduce the size of the federal government
-

Question 8

What economic success did Reagan have?

Answer 8

• Massive defence expenditure bought prosperity to regions with defence and aerospace industries such as the west coast
• Tax reform bill of 1986 simplified the tax code, increase taxes on corporations and capital gains lowered the top rate of taxation from 50% to 28% and raised the bottom rate of taxation from 11% to 15%
• Between 1980-88 inflation fell from 13.5% to 4.7%

Question 9

What economic failures did Reagan have?

Answer 9

• Failed to balance the budget because his tax cuts decreased government income and his defence expenditure skyrocketed
• Despite wanting to reduce expenditure it rose from $699.1 billion in 1980 to $859.3 billion in 1987
• Deficit in constant dollars was over 5x that of predecessor causing congress to pass the Balanced budget and Emergency Deficits Control Act (1985) to ensure a future balanced budget through spending cuts
• Remained economic giant with 5% of world population but Reagan left it economically weakened with massive deficit and debt caused by the borrowing of money from Japan and Germany to finance his tax cuts and weapons

Question 10

Why were the economic failures not all his fault?

Answer 10

• Polls confirmed that majority of Americans did not want to reduce spending on social programs such as Medicare. These programs contributed to countries deficit
• Consumers preferred to buy cheap imported goods Rather than domestic products. This contributed to growing trade deficit

Question 11

What happened to the trade deficit in the mid 1980’s and what impact did this have?

Answer 11

• began 1980’s with positive trade balance in manufactured goods but as decade passed this turned negative due to changing patterns of consumer spending which skyrocketed thanks to shops such as Walmart
• Goods in Walmart were imported from abroad which contributed to the loss of manufacturing jobs in the USA
• Deficit rose from $38 billion in 1982 to over $150 billion by 1985
• on average between 1981-92 American consumers spent $2 billion more on imported goods a week than foreigners spent on goods made in the USA

Question 12

What did the government do to tackle the trade deficit and was this successful?

Answer 12

• Persuaded Japanese manufacturers to voluntarily limit their exports to the USA in 1981. Japanese responded by opening manufacturing plants within US giving 1000’s of Americans jobs
• 25% tariff on imported trucks and a 3% tariff on imported cars
• Unsuccessful as deficit continued to grow. Annual deficit with Japan passed the $50 billion mark in 1985 so that by the late 1980’s and early 1990’s many Americans were accusing Japan of launching an economic offensive against USA

Question 13

What was Reagan’s legacy?

Answer 13

• Did little about deficit
• increased national debt
• policies on taxation, welfare, education, Labour and deregulation had a negative effect upon workers and their families
• Deregulation of the savings and loan industry led to risky loans which backfired in 1989-90 causing $132 billion of taxpayers’ money being used to bail out savings and loan institutions
• Since Reagan it has been considered unwise to continue to increase expenditure on social welfare

Question 14

What did Bush promise?

Answer 14

• Decrease in the $2.7 trillion trade deficit, upon which $200 billion interest was being paid annually, but he also promised low taxes.
• This was very Contradictory and when in office bush realised he must raise taxes to lower deficit in 1990

Question 15

Why was bush’s decision to raise taxes significant?

Answer 15

• Signalled his belief that the federal gov had spent beyond its means so that he did nothing to help workers worried about family incomes
• Demonstrated the difficulties facing a democratic nation living beyond its means
• Coupled with Bush’s failure to promote a conservative agenda it Infuriated conservative republicans
• Caused voters to reject bush