Reagan economic legacy echoes on June 7

07 Jun, 2004

Few leaders have whole movements named for them, especially one as emotionally laden as "Reaganomics" - the late President Ronald Reagan's blend of tax cuts and massive military spending that got the economy moving again but tripled the nation's debt.
It was a policy former President Bill Clinton dubbed "reckless" as he pressed to use budget surpluses to pay down debt instead of cutting taxes.
Reagan's prescription, coupled with a drive to lighten government's regulatory hand, was denounced as "trickle-down economics" by detractors who believed tax cuts for the wealthy would mean only crumbs for the poor.
But its supporters counter that it helped snap the economy out of a lethargy that had reigned for much of the 1970s.
The US economy expanded steadily from late 1982 to July 1990, creating nearly 20 million jobs and triggering a boom in stock markets that carried on until 2000.
Nonetheless, nearly a quarter-century after Reagan was first elected in 1980 to the first of his two four-year terms, his economic legacy remains deeply polarising.
Whether Reaganomics was good or bad for America, fair or unfair to different income groups, may never be resolved.
"The disagreement over the 1980s ... will almost certainly become a prominent feature of intellectual life," wrote Reaganomics proponent Robert Bartley in his book "The Seven Fat Years."
The debate that has its echoes under the administration of President George W. Bush, who has presided over big tax cuts and a return to deficits. However, that massive fiscal stimulus seems now to be paying off with the recovery from the 2001 slump at last kicking into high gear.
Veterans of the Reagan administrations and conservative scholars say the bold policy helped end a period of malaise in the 1970s when inflation soared and interest rates were sky high.
Critics point to massive debts of the era - the country owed more than $3 trillion by the end of the decade - and say Reaganomics triggered a "decade of greed" with Wall Street traders in red suspenders grown rich on bond dealing.
Officially, the Reagan doctrine was known as supply-side economics, a policy based on the expectation that big cuts in marginal tax rates would mean workers would keep - and spend - more of their wages, thus creating the need for more production. This would lead to more investment and more jobs.
Under the guidance of cigar-chomping former Federal Reserve Chairman Paul Volcker, the federal funds rate that influences lending rates throughout the economy soared to 19 percent in 1981 - compared with today's 1 percent - and the economy slid deep into recession before recovering in late 1982.

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