Topic 5 Flashcards
Reagan
how did Reagan inherit the economy?
He inherited an economy in difficulties for most of the 1970s
what was the unemployment rate during his election?
Unemployment had averaged 6.2% most of the decade (4.1% 1960s)
how bad was inflation at the time of his election?
13.5%
what did Reagan do as a result of the very aggravated inflation?
Reagan produced the ‘Program for Economic Recovery’
what was the program (for economic recovery) like?
This had attempted to cause low inflation and unemployment by manipulating the rate of direct taxation and government spending
what did Reagan replace the program for economic recovery with?
supply-side economics
what were the ideas and aims of supply-side economics?
The idea was to create economic growth by improving productivity and output
It involved major tax cuts as an incentive to work and a reduction in government spending
what was The Economic Recovery Tax Act?
Income tax was cut to 25%
It helped economic recovery
Real GNP grew by 11% by end of 1984 – one of the fastest economic recoveries since WW2
Unemployment fell to 6% by 1984
Inflation fell to 4.1%
1984 Reagan won a landslide victory
meanings and effects of the Arms and the Budget Deficit
Reagan launched the biggest peacetime build-up of US armed forces in history
It created a huge budget deficit by mid 1980s
Trade deficit of $170 billion by 1986
what was The Gramm-Rudman Act 1985?
Also known as the Balanced Budget and Emergency deficit Control Act
Aimed to reduce deficit by 1991
Results of ‘Reaganomics’
Overall economic recovery: created 21 million jobs; inflation fell; there was economic growth; the overall economic performance of the US during his presidency was little more than average for countries OECD (Organisation of Economic Cooperation and Development)
There were great federal budget deficits and large trade deficits
The Decline of the Reagan Presidency
Iran-Contra 1986-7
This was a scandal that hit Reagan’s popularity when it came to light
Early 1980s in Lebanon, several westerners held hostage by militant Islamic groups
Many of these were linked to Iran
Among these hostages were British and Americans
Reagan Administration had stated that it would do no deals with terrorists over hostages
3rd November 1986 a Beirut newspaper claimed that US had sent 500 anti-tank missiles to Iran during the Iran-Iraq War
US hostages were released in return
The money made from the arms sales was used to help the Contra rebels fighting against the Marxist government in Nicaragua
1987 there was a joint Senate-House investigation into the matter and top White House aides were implicated: Donald Regan (Chief of Staff), Robert McFarlane (National Security Adviser) and Admiral Poindexter (National Security Adviser)
Lieutenant-Colonel Oliver North was the key witness – he admitted taking part and he implicated others
No evidence was produced linking Reagan with the affair – but he suffered as a result of the scandal
July 1988 Attorney General Edwin Meese was forced to resign over accusations of corruption
Black Monday 19th October 1987
The stock market had been buoyant reflecting the economic recovery from 1983
19th October Dow Jones stock index fell 508 points
$500 billion in paper value of US companies was wiped out ie 20% of stock value of US
National debt had risen to $1.4 trillion as well, so final years of the Administration were filled with economic uncertainty
Conclusions
-American pride restored by this Administration
-American power regenerated
-Gap between rich and poor increased
-‘Reaganomics’ had limited success in economic recovery
-Reduced taxes and arms spending created a vast federal debt
-The prestige of the Presidency had been restored
-His monarchic style made him popular
-It saved him too from being implicated in policy failures of his subordinates and the Iran-Contra affair
what were the main aspects of reaganomics?
cutting the federal deficit: accompanied by a budget bill and a proposal for cuts on domestic spending. The budget bill aimed to reduce the federal deficit from 22% of the GNP in 1981 to 19% in 1986.
personal and business tax reductions: accompanied by the Economic Recovery Tax Act of 1981.
Deregulation: (removing federal control) in industry, state and local gov
planned control of the money supply: to keep inflation down while expanding the economy
what is the omnibus reconciliation act of 1981?
reduction for personal tax from 30% to 25%
what did the economic recovery tax act of 1981 do?
introduced a major tax cut, which was designed to encourage economic growth.
what was the Iran-contra affair?
The Iran-Contra Affair was a secret U.S. arms deal that traded missiles and other arms to free some Americans held hostage by terrorists in Lebanon, but also used funds from the arms deal to support armed conflict in Nicaragua. The controversial deal—and the ensuing political scandal—threatened to bring down the presidency of Ronald Reagan.
what were Reagan’s domestic policies like?
Reagan advanced domestic policies that featured a lessening of federal government responsibility in solving social problems, reducing restrictions on business, and implementing tax cuts.
what were his international policies like?
Internationally, Reagan demonstrated a fierce opposition to the spread of communism throughout the world and a strong distrust of the Soviet Union, which in 1983 he labeled an “evil empire.”
what was he aiming to do?
Reagan embraced the theory of “supply side economics,” feeling that tax cuts encouraged economic expansion which would result in increases in federal government revenue at a lower tax rate. Higher revenues would then be used to increase defense spending and balance the federal budget.
did inflation drop?
yes -> 13.5% in 1980 to 5.1% in 1982
