Reaganomics
Overview
 
Reaganomics refers to the economic
Economics
Economics is the social science that analyzes the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...

 policies promoted by the U.S. President Ronald Reagan
Ronald Reagan
Ronald Wilson Reagan was the 40th President of the United States , the 33rd Governor of California and, prior to that, a radio, film and television actor....

 during the 1980s, also known as supply-side economics
Supply-side economics
Supply-side economics is a school of macroeconomic thought that argues that economic growth can be most effectively created by lowering barriers for people to produce goods and services, such as lowering income tax and capital gains tax rates, and by allowing greater flexibility by reducing...

 and called trickle-down economics
Trickle-down economics
"Trickle-down economics" and "the trickle-down theory" are terms used in United States politics to refer to the idea that tax breaks or other economic benefits provided by government to businesses and the wealthy will benefit poorer members of society by improving the economy as a whole...

, particularly by critics. The four pillars of Reagan's economic policy were to:
  • Reduce government spending increase
  • Reduce income tax and capital gains tax
  • Reduce government regulation
  • Control money supply to reduce inflation

William A. Niskanen
William A. Niskanen
William Arthur Niskanen was an American economist noted as one of the architects of President Ronald Reagan's economic programme and for his contributions to public choice theory. He was also a long-time chairman of the libertarian Cato Institute.-Education:Niskanen received his B.A. from Harvard...

, one of the architects of Reaganomics, summarizes the policy as "Reagan delivered on each of his four major policy objectives, although not to the extent that he and his supporters had hoped," and notes that the most substantial change was in the tax code, where the top marginal individual income tax rate fell from 70.1% to 28.4%, and there was a "major reversal in the tax treatment of business income," with effect of "reducing the tax bias among types of investment but increasing the average effective tax rate on new investment." Roger Porter, another architect of the program, acknowledges that the program was weakened by the many hands that changed the President's calculus, such as Congress.
Encyclopedia
Reaganomics refers to the economic
Economics
Economics is the social science that analyzes the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...

 policies promoted by the U.S. President Ronald Reagan
Ronald Reagan
Ronald Wilson Reagan was the 40th President of the United States , the 33rd Governor of California and, prior to that, a radio, film and television actor....

 during the 1980s, also known as supply-side economics
Supply-side economics
Supply-side economics is a school of macroeconomic thought that argues that economic growth can be most effectively created by lowering barriers for people to produce goods and services, such as lowering income tax and capital gains tax rates, and by allowing greater flexibility by reducing...

 and called trickle-down economics
Trickle-down economics
"Trickle-down economics" and "the trickle-down theory" are terms used in United States politics to refer to the idea that tax breaks or other economic benefits provided by government to businesses and the wealthy will benefit poorer members of society by improving the economy as a whole...

, particularly by critics. The four pillars of Reagan's economic policy were to:
  • Reduce government spending increase
  • Reduce income tax and capital gains tax
  • Reduce government regulation
  • Control money supply to reduce inflation

Overview

William A. Niskanen
William A. Niskanen
William Arthur Niskanen was an American economist noted as one of the architects of President Ronald Reagan's economic programme and for his contributions to public choice theory. He was also a long-time chairman of the libertarian Cato Institute.-Education:Niskanen received his B.A. from Harvard...

, one of the architects of Reaganomics, summarizes the policy as "Reagan delivered on each of his four major policy objectives, although not to the extent that he and his supporters had hoped," and notes that the most substantial change was in the tax code, where the top marginal individual income tax rate fell from 70.1% to 28.4%, and there was a "major reversal in the tax treatment of business income," with effect of "reducing the tax bias among types of investment but increasing the average effective tax rate on new investment." Roger Porter, another architect of the program, acknowledges that the program was weakened by the many hands that changed the President's calculus, such as Congress. The effect was primarily a change in the composition of tax revenue, towards payroll and new investment, and away from higher earners and capital gains on existing investments. Federal revenue share of GDP declined from 19.6% in fiscal 1981 to 17.3% in 1984, before climbing back to 18.4% by fiscal year 1989. Personal income tax revenues fell during this period relative to GDP, while payroll tax revenues rose relative to GDP.

Historical context

Prior to the Reagan administration, the United States economy experienced a decade of rising unemployment and inflation, (known as stagflation
Stagflation
In economics, stagflation is a situation in which the inflation rate is high and the economic growth rate slows down and unemployment remains steadily high...

). Political pressure favored stimulus resulting in an expansion of the money supply. President Richard Nixon
Richard Nixon
Richard Milhous Nixon was the 37th President of the United States, serving from 1969 to 1974. The only president to resign the office, Nixon had previously served as a US representative and senator from California and as the 36th Vice President of the United States from 1953 to 1961 under...

's wage and price controls were abandoned. The federal oil reserves
Strategic Petroleum Reserve
The Strategic Petroleum Reserve is an emergency fuel storage of oil maintained by the United States Department of Energy.- United States :The US SPR is the largest emergency supply in the world with the current capacity to hold up to ....

 were created to ease any future short term shocks. President Jimmy Carter
Jimmy Carter
James Earl "Jimmy" Carter, Jr. is an American politician who served as the 39th President of the United States and was the recipient of the 2002 Nobel Peace Prize, the only U.S. President to have received the Prize after leaving office...

 started phasing out price controls on petroleum, while he created the Department of Energy. Much of the credit for the resolution of the stagflation is given to two causes: a three year contraction of the money supply by the Federal Reserve Board under Paul Volcker
Paul Volcker
Paul Adolph Volcker, Jr. is an American economist. He was the Chairman of the Federal Reserve under United States Presidents Jimmy Carter and Ronald Reagan from August 1979 to August 1987. He is widely credited with ending the high levels of inflation seen in the United States in the 1970s and...

, initiated in the last year of Carter's presidency, and long term easing of supply and pricing in oil during the 1980s oil glut
1980s oil glut
The 1980s oil glut was a serious surplus of crude oil caused by falling demand following the 1970s Energy Crisis. The world price of oil, which had peaked in 1980 at over US$35 per barrel , fell in 1986 from $27 to below $10...

.

In his stated intention to increase defense spending while lowering taxes, Reagan's approach was a departure from his immediate predecessors. Reagan enacted lower marginal tax rates in conjunction with simplified income tax codes and continued deregulation
Deregulation
Deregulation is the removal or simplification of government rules and regulations that constrain the operation of market forces.Deregulation is the removal or simplification of government rules and regulations that constrain the operation of market forces.Deregulation is the removal or...

. During Reagan's presidency the annual deficits averaged 4.2% of GDP after inheriting an annual deficit of 2.7% of GDP in 1980 under president Carter. The rate of growth in federal spending fell from 4% under Jimmy Carter to 2.5% under Ronald Reagan. GDP per working-age adult, which had increased at only a 0.8 annual rate during the Carter administration, increased at a 1.8 percent rate during the Reagan administration. The increase in productivity growth was even higher: output per hour in the business sector, which had been roughly constant in the Carter years, increased at a 1.4 percent rate in the Reagan years.

Before Reagan's election, supply side policy was considered unconventional by the moderate wing of the Republican Party. While running against Reagan for the Presidential nomination in 1980, George H. W. Bush
George H. W. Bush
George Herbert Walker Bush is an American politician who served as the 41st President of the United States . He had previously served as the 43rd Vice President of the United States , a congressman, an ambassador, and Director of Central Intelligence.Bush was born in Milton, Massachusetts, to...

 had derided Reaganomics as "voodoo economics". Similarly, in 1976, Gerald Ford
Gerald Ford
Gerald Rudolph "Jerry" Ford, Jr. was the 38th President of the United States, serving from 1974 to 1977, and the 40th Vice President of the United States serving from 1973 to 1974...

 had severely criticized Reagan's proposal to turn back a large part of the Federal budget to the states. Reagan's policies became widely accepted by Republicans.

Theoretical justification

In his 1980 campaign speeches, Reagan presented his economic proposals as merely a return to the free-enterprise principles that had been in favor before the Great Depression
Great Depression
The Great Depression was a severe worldwide economic depression in the decade preceding World War II. The timing of the Great Depression varied across nations, but in most countries it started in about 1929 and lasted until the late 1930s or early 1940s...

. At the same time he attracted a following from the supply-side economics
Supply-side economics
Supply-side economics is a school of macroeconomic thought that argues that economic growth can be most effectively created by lowering barriers for people to produce goods and services, such as lowering income tax and capital gains tax rates, and by allowing greater flexibility by reducing...

 movement, formed in opposition to Keynesian demand-stimulus economics. This movement produced some of the strongest supporters for Reagan's policies during his term in office.

The contention of the proponents, that the tax rate cuts would more than pay for themselves, was influenced by a theoretical taxation model based on the elasticity of tax rates, known as the Laffer curve
Laffer curve
In economics, the Laffer curve is a theoretical representation of the relationship between government revenue raised by taxation and all possible rates of taxation. It is used to illustrate the concept of taxable income elasticity . The curve is constructed by thought experiment...

. Arthur Laffer's
Arthur Laffer
Arthur Betz Laffer is an American economist who first gained prominence during the Reagan administration as a member of Reagan's Economic Policy Advisory Board . Laffer is best known for the Laffer curve, an illustration of the theory that there exists some tax rate between 0% and 100% that will...

 model predicts that excessive tax rates actually reduce potential tax revenues, by lowering the incentive to produce; the model also predicts that insufficient tax rates (rates below the optimum level for a given economy) lead directly to a reduction in tax revenues.

Policies

President Reagan
Reagan
Reagan is an Irish surname, most commonly associated with Ronald Reagan, the 40th President of the United States. Reagan may also refer to:-Surname:*Nancy Reagan , widow of Ronald Reagan and First Lady from 1981 to 1989...

 lifted remaining domestic petroleum price and allocation controls on January 28, 1981 and lowered the oil windfall profits tax
Windfall profits tax
A windfall profits tax is a higher tax rate on profits that ensue from a sudden windfall gain to a particular company or industry.-United Kingdom:In the United Kingdom, the Windfall Tax was a tax levied on privatised utility companies.-United States:...

 in August 1981, helping to end the 1979 energy crisis
1979 energy crisis
The 1979 oil crisis in the United States occurred in the wake of the Iranian Revolution. Amid massive protests, the Shah of Iran, Mohammad Reza Pahlavi, fled his country in early 1979 and the Ayatollah Khomeini soon became the new leader of Iran. Protests severely disrupted the Iranian oil...

. He ended the oil windfall profits tax
Windfall profits tax
A windfall profits tax is a higher tax rate on profits that ensue from a sudden windfall gain to a particular company or industry.-United Kingdom:In the United Kingdom, the Windfall Tax was a tax levied on privatised utility companies.-United States:...

 in 1988 during the 1980s oil glut
1980s oil glut
The 1980s oil glut was a serious surplus of crude oil caused by falling demand following the 1970s Energy Crisis. The world price of oil, which had peaked in 1980 at over US$35 per barrel , fell in 1986 from $27 to below $10...

. Reagan followed his 1981 tax cut with two large tax increases. In 1982 Reagan agreed to a rollback of corporate tax cuts and a smaller rollback of individual income tax cuts. The 1982 tax increase undid a third of the initial tax cut. In 1983 Reagan instituted a payroll tax on Social Security and Medicare hospital insurance.

With the Tax Reform Act of 1986
Tax Reform Act of 1986
The U.S. Congress passed the Tax Reform Act of 1986 to simplify the income tax code, broaden the tax base and eliminate many tax shelters and other preferences...

, Reagan and Congress sought to broaden the tax base, eliminate many deductions, and reduce rates. In 1983, Democrats Bill Bradley
Bill Bradley
William Warren "Bill" Bradley is an American hall of fame basketball player, Rhodes scholar, and former three-term Democratic U.S. Senator from New Jersey. He ran unsuccessfully for the Democratic Party's nomination for President in the 2000 election.Bradley was born and raised in a suburb of St....

 and Dick Gephardt
Dick Gephardt
Richard Andrew "Dick" Gephardt is a lobbyist and former prominent American politician of the Democratic Party. Gephardt served as a U.S. Representative from Missouri from January 3, 1977, until January 3, 2005, serving as House Majority Leader from 1989 to 1995, and as Minority Leader from 1995 to...

 had offered a proposal to clean up/broaden the tax base; in 1984 Reagan had the Treasury Department produce its own plan. The eventual bipartisan 1986 act aimed to be revenue-neutral: while it reduced the top marginal rate, it also partially "cleaned up" the tax base by curbing tax loopholes, preferences, and exceptions, thus raising the effective tax on activities previously specially favored by the code.

Reagan significantly increased public expenditure, primarily the Department of Defense, which rose (in constant 2000 dollars) from $267.1 billion in 1980 (4.9% of GDP and 22.7% of public expenditure) to $393.1 billion in 1988 (5.8% of GDP and 27.3% of public expenditure); most of those years military spending was about 6% of GDP, exceeding this number in 4 different years. All these numbers had not been seen since the end of U.S. involvement in the Vietnam War
Vietnam War
The Vietnam War was a Cold War-era military conflict that occurred in Vietnam, Laos, and Cambodia from 1 November 1955 to the fall of Saigon on 30 April 1975. This war followed the First Indochina War and was fought between North Vietnam, supported by its communist allies, and the government of...

 in 1973. In 1981, Reagan significantly reduced the maximum tax rate, which affected the highest income earners, and lowered the top marginal tax rate from 70% to 50%; in 1986 he further reduced the rate to 28%. The federal deficit fell from 6% of GDP in 1983 to 3.2% of GDP in 1987. The Federal deficit in Reagan's final budget fell to 2.9% of GDP. The rate of growth in Federal spending fell from 4% under Jimmy Carter to 2.5% under Ronald Reagan. As a short-run strategy to reduce inflation and lower nominal interest rates, the U.S. borrowed both domestically and abroad to cover the Federal budget deficits, raising the national debt from $997 billion to $2.85 trillion. This led to the U.S. moving from the world's largest international creditor to the world's largest debtor nation. Reagan described the new debt as the "greatest disappointment" of his presidency.

Results

Spending during Reagan's two terms (FY 1981-88) averaged 22.4% GDP, well above the 20.6% GDP average from 1971 to 2009. In addition, the public debt rose from 26.1% GDP in 1980 to 41.0% GDP by 1988. In dollar terms, the public debt rose from $712 billion in 1980 to $2,052 billion in 1988, a roughly three-fold increase. The unemployment rate declined from 7.0 percent in 1980 to 5.4 percent in 1988. The inflation rate declined from 10.4 percent in 1980 to 4.2 percent in 1988.

It has been claimed that Reagan's policies brought about the second longest peacetime economic expansion in U.S. history, surpassed in duration only by the 1990s expansion that began with George H. W. Bush
George H. W. Bush
George Herbert Walker Bush is an American politician who served as the 41st President of the United States . He had previously served as the 43rd Vice President of the United States , a congressman, an ambassador, and Director of Central Intelligence.Bush was born in Milton, Massachusetts, to...

 in 1991. This economic expansion continued through the Clinton administration with unemployment rates steadily decreasing throughout his presidency (7.3% at the start of his presidency and 5.7% at the culmination, with the lowest rate reaching 3.9% in 2000). During the Reagan administration, the American economy went from a GDP growth of -0.3% in 1980 to 4.1% in 1988 (in constant 2005 dollars), which reduced the unemployment rate by 1.6%, from 7.1% in 1980 to 5.5% in 1988, but with peaks of around 10.8% in 1983. A net job increase of about 21 million also occurred through mid-1990. Reagan’s administration is the only one not to have raised the minimum wage. The inflation rate, 13.5% in 1980, fell to 4.1% in 1988, which was achieved by applying high interest rates by the Federal Reserve (peaked at 20% in June 1981). The latter caused a brief recession in 1982: unemployment rose to 9.7% and GDP fell by 1.9%.
The number of Americans below the poverty level increased 8.4% from 29.272 million in 1980 to 31.745 million in 1988, which means that, as a percentage of the total population, it remained almost stationary, from 12.95% in 1980 to 13% in 1988. The poverty level for people under the age of 18 increased from 11.543 million in 1980 (18.3% of all child population) to 12.455 (19.5%) in 1988. The share of total income going to the 5% highest-income households grew from 16.5% in 1980 to 18.3% in 1988 and the share of the highest fifth increased from 44.1% to 46.3% in same years. In contrast, the share of total income of the lowest fifth fell from 4.2% in 1980 to 3.8% in 1988 and the second poorest fifth from 10.2% to 9.6%. And during Reagan's first term, homelessness became a visible problem in America's urban centers, leading many to blame Reaganomics. In the closing weeks of his presidency, Reagan told the New York Times that the homeless "make it their own choice for staying out there." Political opponents chided his policies as "Trickle-down economics
Trickle-down economics
"Trickle-down economics" and "the trickle-down theory" are terms used in United States politics to refer to the idea that tax breaks or other economic benefits provided by government to businesses and the wealthy will benefit poorer members of society by improving the economy as a whole...

", due to the significant cuts in the upper tax brackets.

During the Reagan administration, federal receipts grew at an average rate of 8.2% (2.5% attributed to higher Social Security receipts, 4.5% inflation, 1.0% population growth), and federal outlays grew at an annual rate of 7.1%. According to a 1996 report of the Joint Economic Committee of the United States Congress, during Reagan's two terms, and through 1993, the top 10% of taxpayers paid an increased share of tax revenue to the Federal government, while the lowest 50% of taxpayers paid a reduced share of the tax revenue. Personal income tax revenues declined from 9.4% GDP in 1981 to 8.3% GDP in 1989, while payroll tax revenues increased from 6.0% GDP to 6.7% GDP during the same period. This represented a more regressive tax regime, with more revenue derived from the flat payroll tax versus the progressive income tax.

According to a United States Department of the Treasury
United States Department of the Treasury
The Department of the Treasury is an executive department and the treasury of the United States federal government. It was established by an Act of Congress in 1789 to manage government revenue...

 economic study, the major tax bills enacted under Reagan, in the short term, increased total tax revenue and reduced the tax burden on the economy (~-1% of GDP). The Economic Recovery Tax Act of 1981 resulted in a reduced tax burden on the economy (~-3% of GDP) but a decrease in total tax revenues (the largest tax cuts ever enacted). while other tax bills had neutral or, in the case of the Tax Equity and Fiscal Responsibility Act of 1982
Tax Equity and Fiscal Responsibility Act of 1982
The Tax Equity and Fiscal Responsibility Act of 1982 , also known as TEFRA, was a United States federal law that rescinded some of the effects of the Kemp-Roth Act passed the year before. As a result of ongoing recession, a short-term fall in tax revenue generated concern over the budget deficit...

, a (~+1% of GDP) increase in revenue as a share of GDP. It should be however noted that the study did not examine the longer-term impact of Reagan tax policy, including sunset clauses and "the long-run, fully-phased-in effect of the tax bills". The fact that tax receipts as a percentage of GDP fell following the Economic Recovery Tax Act of 1981 shows a decrease in tax burden as share of GDP. Total tax revenue from income tax receipts increased during this time. The economic growth and increase in GDP outpaced the increase in tax receipt revenue, resulting in a slightly reduced tax burden as a percentage of GDP for the economy.
Short term analysis showing slightly reduced tax burden as a share of GDP from tax bills enacted under Reagan.
Number of years after enactment
Tax bill 1 2 3 4 First 2-yr avg 4-yr avg
Economic Recovery Tax Act of 1981  -1.21 -2.60 -3.58 -4.15 -1.91 -2.89
Tax Equity and Fiscal Responsibility Act of 1982
Tax Equity and Fiscal Responsibility Act of 1982
The Tax Equity and Fiscal Responsibility Act of 1982 , also known as TEFRA, was a United States federal law that rescinded some of the effects of the Kemp-Roth Act passed the year before. As a result of ongoing recession, a short-term fall in tax revenue generated concern over the budget deficit...

 
0.53 1.07 1.08 1.23 0.80 0.98
Highway Revenue Act of 1982
Highway Revenue Act of 1982
The Highway Revenue Act of 1982 , January 6, 1983, temporarily increased the United States gasoline excise tax from 4 cents to 9 cents through September 30, 1988....

 
0.05 0.11 0.10 0.09 0.08 0.09
Social Security Amendments of 1983 0.17 0.22 0.22 0.24 0.20 0.21
Interest and Dividend Tax Compliance Act of 1983 -0.07 -0.06 -0.05 -0.04 -0.07 -0.05
Deficit Reduction Act of 1984 0.24 0.37 0.47 0.49 0.30 0.39
Omnibus Budget Reconciliation Act of 1985 0.02 0.06 0.06 0.06 0.04 0.05
Tax Reform Act of 1986
Tax Reform Act of 1986
The U.S. Congress passed the Tax Reform Act of 1986 to simplify the income tax code, broaden the tax base and eliminate many tax shelters and other preferences...

 
0.41 0.02 -0.23 -0.16 0.22 0.01
Omnibus Budget Reconciliation Act of 1987 0.19 0.28 0.30 0.27 0.24 0.26
Total 0.33 -0.53 -1.63 -1.97 -0.10 -0.95

International transactions current account and the federal budget
Budget
A budget is a financial plan and a list of all planned expenses and revenues. It is a plan for saving, borrowing and spending. A budget is an important concept in microeconomics, which uses a budget line to illustrate the trade-offs between two or more goods...

 deficit led to a significant increase in public debt, but with a decrease in the rate of growth of federal spending. Nominal national debt rose from $900 billion to $2.8 trillion during Reagan's tenure while the federal deficit fell from 6% of GDP in 1983 to 3.2% of GDP in 1987. The federal deficit in Reagan's final budget fell to 2.9% of GDP. Advocates of the Laffer curve
Laffer curve
In economics, the Laffer curve is a theoretical representation of the relationship between government revenue raised by taxation and all possible rates of taxation. It is used to illustrate the concept of taxable income elasticity . The curve is constructed by thought experiment...

 contend that the tax cuts did lead to a near doubling of tax receipts ($517 billion in 1980 to $1.032 trillion in 1990), so that the deficits were actually caused by an increase in government spending. An analysis calculated that the average real income-tax receipts per working-age person grew 0.2% from 1981 to 1990 and 3.1% from 1990 to 2001. In 1982, during Reagan's second year in office, the U.S. recession
Recession
In economics, a recession is a business cycle contraction, a general slowdown in economic activity. During recessions, many macroeconomic indicators vary in a similar way...

 had not yet ended. The effect of Reagan's tax cuts were at least partially offset by phased in Social Security payroll tax increases that had been enacted by President Jimmy Carter and the 95th Congress in 1977. An accurate accounting indicates that receipts increased from $599 billion in 1981 to $1.032 trillion in 1990, an increase of 72%. In 2005 dollars, the receipts decreased from $1.25 trillion in 1981 to $1.13 trillion in 1983 and did not return to $1.25 trillion until 1985. The receipts in 1990 were $1.5 trillion in 2005 dollars, an increase of 20%. In contrast, from 1991 to 2000, receipts increased by 90% in current dollars, or 60% in 2005 dollars.

Deregulation

One controversial issue concerning Reaganomics is the issue of how much of deregulation which took place during the 1980s the Reagan administration was responsible for. Economists Raghuram Rajan
Raghuram Rajan
Raghuram Govind Rajan is currently the Eric J. Gleacher Distinguished Service Professor of Finance at the Booth School of Business at the University of Chicago. He is also an honorary economic adviser to Prime Minister of India Manmohan Singh and the current President of the American Finance...

 and Luigi Zingales
Luigi Zingales
Luigi G. Zingales is the Robert C. McCormack professor of Entrepreneurship and Finance at the University of Chicago Booth School of Business. Zingales also serves as a member of the Committee on Capital Markets Regulation....

 point out that many of the major deregulation efforts had either taken place or begun before Reagan (note the deregulation of airlines and trucking under Carter, and the beginning of deregulatory reform in railroads, telephones, natural gas, and banking). They argue for this and other reasons that "the move toward markets preceded the leader [Reagan] who is seen as one of their saviors." Economist William A. Niskanen
William A. Niskanen
William Arthur Niskanen was an American economist noted as one of the architects of President Ronald Reagan's economic programme and for his contributions to public choice theory. He was also a long-time chairman of the libertarian Cato Institute.-Education:Niskanen received his B.A. from Harvard...

, a member of Reagan's Council of Economic Advisers and later chairman of the libertarian Cato Institute
Cato Institute
The Cato Institute is a libertarian think tank headquartered in Washington, D.C. It was founded in 1977 by Edward H. Crane, who remains president and CEO, and Charles Koch, chairman of the board and chief executive officer of the conglomerate Koch Industries, Inc., the largest privately held...

, writes that deregulation had the "lowest priority" of the items on the Reagan agenda given that Reagan "failed to sustain the momentum for deregulation initiated in the 1970s" and that he "added more trade barriers than any administration since Hoover."

By contrast, economist Milton Friedman
Milton Friedman
Milton Friedman was an American economist, statistician, academic, and author who taught at the University of Chicago for more than three decades...

 has pointed to the number of pages added to the Federal Register
Federal Register
The Federal Register , abbreviated FR, or sometimes Fed. Reg.) is the official journal of the federal government of the United States that contains most routine publications and public notices of government agencies...

 each year as evidence of Reagan's anti-regulation presidency (the Register records the rules and regulations that federal agencies issue per year). The number of pages added to the Register each year declined sharply at the start of the Ronald Reagan presidency breaking a steady and sharp increase since 1960. The increase in the number of pages added per year resumed an upward, though less steep, trend after Reagan left office. In contrast, the number of pages being added each year increased under Ford, Carter, George H.W. Bush, Clinton, and others. The number of pages in Federal Register is however criticized as an extremely crude measure of regulatory activity, because it can be easily manipulated (e.g. font sizes have been changed to keep page count low).

The apparent contradiction between Niskanen's statements and Friedman's data may be resolved by seeing Niskanen as referring to statutory deregulation (laws passed by Congress) and Friedman to administrative deregulation (rules and regulations implemented by federal agencies). In sum, a large study by economists Paul Joskow
Paul Joskow
Paul Lewis Joskow became President of the Alfred P. Sloan Foundation on January 1, 2008. He is also the Elizabeth and James Killian Professor of Economics, Emeritus at MIT. He has served on the MIT faculty since 1972. From 1994 through 1998 he was Head of the MIT Department of Economics...

 and Roger Noll concludes that the changes in economic regulation:
... simply do not reflect a sudden ideological change in federal executive branch views ... many of the significant changes in economic regulation began during the Carter administration and were initiated by liberal Democrats ... it is not particularly productive to refer to a generic deregulation movement or to think of it as a consequence of the election of Ronald Reagan.

Positive interpretations

According to a 1996 study from libertarian
Libertarianism
Libertarianism, in the strictest sense, is the political philosophy that holds individual liberty as the basic moral principle of society. In the broadest sense, it is any political philosophy which approximates this view...

 think tank Cato Institute
Cato Institute
The Cato Institute is a libertarian think tank headquartered in Washington, D.C. It was founded in 1977 by Edward H. Crane, who remains president and CEO, and Charles Koch, chairman of the board and chief executive officer of the conglomerate Koch Industries, Inc., the largest privately held...

:
  • On 8 of the 10 key economic variables examined, the American economy performed better during the Reagan years than during the pre- and post-Reagan years.
  • Real median family income grew by $4,000 during the Reagan period after experiencing no growth in the pre-Reagan years; it experienced a loss of almost $1,500 in the post-Reagan years.
  • Interest rates, inflation, and unemployment fell faster under Reagan than they did immediately before or after his presidency.
  • The only economic variable that was worse in the Reagan period than in both the pre- and post-Reagan years was the savings rate, which fell rapidly in the 1980s.
  • The productivity rate was higher in the pre-Reagan years but much lower in the post-Reagan years.


Stephen Moore of the Cato Institute stated that "no act in the last quarter century had a more profound impact on the US economy of the eighties and nineties than the Reagan tax cut of 1981." He claims that Reagan's tax cuts, combined with an emphasis on federal monetary policy, deregulation, and expansion of free trade created a sustained economic expansion creating America's greatest sustained wave of prosperity ever. He also claims that the American economy grew by more than a third in size, producing a $15 trillion increase in American wealth. Consumer and investor confidence soared. Cutting federal income taxes, cutting the US government spending budget, cutting useless programs, scaling down the government work force, maintaining low interest rates, and keeping a watchful inflation hedge on the monetary supply was Ronald Reagan's formula for a successful economic turnaround. Critics, however, pointed to the ballooning of the federal deficit as the prime cause for the economic recovery and cite unemployment rates which increased significantly throughout his presidency (even though the 1996 study showed they fell) which many consider to be a major contributor to growing poverty rates, even as wealth increased for some factions. In the 1988 vice-presidential debate, Senator Lloyd Bensen (D-Tex) quipped, "If you let me write $200 billion worth of hot checks every year, I could give you an illusion of prosperity, too."

Negative interpretations

The following Keynesian interpretation of Reaganomics is given by Paul Krugman
Paul Krugman
Paul Robin Krugman is an American economist, professor of Economics and International Affairs at the Woodrow Wilson School of Public and International Affairs at Princeton University, Centenary Professor at the London School of Economics, and an op-ed columnist for The New York Times...

:
In this view, the expansion was primarily a recovery from the 1982 recession, which was created by the textbook Keynesian monetary policy of Volcker, not the tax policy of Reagan. At the start of the Reagan administration, inflation was high. The textbook Keynesian prescription for high inflation is high interest rates (contractionary monetary policy), designed to create a sustained period of high unemployment to break the price/wage spiral
Price/wage spiral
In macroeconomics, the price/wage spiral represents a vicious circle process in which different sides of the wage bargain try to keep up with inflation to protect real incomes. Thus, this process is one possible result of inflation...

. Volcker did precisely this, creating the 1982 recession, then lowered interest rates once inflation was under control, resulting in economic growth and the unemployment rate coming down gradually.

Krugman argues that there is nothing unusual about the economy under Reagan – because unemployment was reducing from a high peak, it is entirely consistent with Keynesian economics for the economy to grow as employment increases while inflation remains low – the expansion was a cyclical recovery, but did not feature an increase in the structural rate of growth as its supply-side proponents argued.

Spending during Reagan's two terms (FY 1981-88) averaged 22.4% GDP, well above the 20.6% GDP average from 1971 to 2009. In addition, the public debt rose from 26.1% GDP in 1980 to 41.0% GDP by 1988. In dollar terms, the public debt rose from $712 billion in 1980 to $2,052 billion in 1988, a three-fold increase. Combined with tax cuts, this pattern of elevated spending is consistent with significant Keynesian stimulus theories.

Another critique of Reagan's policies stem from Tax Reform Act of 1986
Tax Reform Act of 1986
The U.S. Congress passed the Tax Reform Act of 1986 to simplify the income tax code, broaden the tax base and eliminate many tax shelters and other preferences...

 and its impact on the Alternative Minimum Tax
Alternative Minimum Tax
The Alternative Minimum Tax is an income tax imposed by the United States federal government on individuals, corporations, estates, and trusts. AMT is imposed at a nearly flat rate on an adjusted amount of taxable income above a certain threshold . This exemption is substantially higher than the...

(AMT). The tax reform would ostensibly reduce or eliminate tax deductions. This legislation expanded the AMT from a law for untaxed rich investors to one refocused on middle class Americans who had children, owned a home, or lived in high tax states. This parallel tax system hit middle class Americans the hardest by reducing their deductions and effectively raising their taxes. Meanwhile, the highest income earners (with incomes exceeding $1,000,000) were proportionately less affected, thereby shifting the tax burden away from the richest 0.5% to poorer Americans. In 2006, the IRS's National Taxpayer Advocate's report highlighted the AMT as the single most serious problem with the tax code. As of 2007, the AMT brought in more tax revenue than the regular tax which has made it difficult for Congress to reform.
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