The Contributions of Reagan Era Policies to the Recession of 2007 Essay

Submitted By Parsippany
Words: 2307
Pages: 10

Reagan era policies, often called ‘Reaganomics’ are hailed fairly universally for being the paragon of conservative economics. Proponents of Reagan-esque policies offer Reagan’s alleged low unemployment rates, largely growing GDP, and laissez-faire governmental policy as support for the belief that Reagan’s policies were not only akin to today’s conservative economic ideology, but that his policies had beneficial long term effects for the U.S. economy. This essay will not only debunk the aforementioned claims, but explain why Reagan’s economic policies contributed to if not catalyzed the recession of 2007. The most agreed with post on regarding the quality of Reagan’s economic policies is as follows:
“Reagan provided the method of the greatest economic expansion in American history, built up the military to the strongest force in the world from where Jimmy Carter had it. Did what he said he would do, although didn't have the House of Representatives, lowered taxes, gave the American people that great feeling that we were, and are, the freest and greatest country in the world. He was a great statesman who loved our country and did everything he could to protect it and our freedoms.”
While I understand this is likely not representative of the opinions of the conservative majority, it establishes some points and frequent misconceptions to be addressed. First, there is a claim that Reagan generated the greatest period of economic expansion ever. There is widespread belief that Reagan era economics were extraordinary, and that the increases made to the GDP turned America into the economic super power it is today. The greatest economic expansion in United States history was from October 1945 to November 1948. During this time, employment grew by 17.6% and the GDP grew by 5.6%. Next, Reagan is believed to be a proponent of trickle-down economics, lowering taxes for everyone – the owning class, specifically – and allowing the wealth to spread throughout the economic system. This, in fact, is wholly inaccurate. The Tax Equity and Fiscal Responsibility Act of 1982 was the single largest tax increase in peacetime American history. Total tax increases throughout Reagan’s regime through bills he championed are $132.7 billion. Reagan was not only a frequent tax augmenter, but a serial spender and interventionist, which is contrary to contemporary conservative beliefs and the idea that Reagan was a ‘hands-off’ president. Reagan had by far the largest increase in debt as a percentage of GDP, more than double, in fact, the debt increase during George W. Bush’s terms, and quintuple the debt increase as a percentage of GDP during the Bill Clinton era. The significance of this in relation to the recession of 2007 is the precedent Reagan set for unrequited deficit spending. Another pro-Reagan rallying cry is the military development under Reagan. Defense spending hit a peak of $456.5 billion in 1987 (in projected 2005 dollars), compared with $325.1 billion in 1980 and $339.6 billion in 1981, according to the Center for Strategic and Budgetary Assessments. There have been other extraordinary militaristic economic advances, but Reagan’s unprecedented military spending took place during peacetime. This, again, established a precedent of extravagant deficit spending. Reagan is often accredited with pulling the U.S. economy out of a miniature recession of 1980. In reality, Carter appointed Paul Volcker chairman of the Federal Reserve. Volcker slowed the economic supply to control inflation, which was rampant at 12%. He eventually tightened policies of the Federal Reserve, and is credited with having started the second minor recession shortly thereafter. After Reagan took office, Volcker loosened policies that were constricting interest rates and monetary aggregates, and the economy recovered. Not only was it Volcker’s action that led to the recovery, but the American economy is highly subject to fluctuating oil prices, and when