Reaganomics

The name, a portmanteau of Reagan and economics, is attributed to the broadcaster Paul Harvey. Before Reagan the United States had experienced a decade of high unemployment and persistently high inflation, known as stagflation, and attacks on Keynesian orthodoxy and on the Phillips curve were growing. George H. W. Bush, running against Reagan for the 1980 presidential nomination, derided his plans as "voodoo economics". In stating that his intention was to lower taxes, Reagan departed from his immediate predecessors.

The pillars of the policy were increased defence spending, slower growth of government spending, lower federal income and capital gains taxes, less government regulation and tighter money to reduce inflation. On 28 January 1981, soon after taking office, Reagan lifted the remaining domestic petroleum price controls. The Economic Recovery Tax Act of 1981 lowered the top marginal tax bracket from 70 to 50 percent and the lowest from 14 to 11 percent, and trimmed corporate taxes by $150 billion over five years. The case for it was supply-side economics, which held that tax cuts would raise saving and work effort and so growth and revenue, and above all the Laffer curve, which held that lower rates could actually increase tax revenue. The Tax Reform Act of 1986 cut the top rate further, to 28 percent.

The results differed from the plan. In 1982 Reagan agreed to roll back much of the corporate tax cut and a smaller part of the individual cut, undoing a third of the initial cut, and the tax historian Joseph Thorndike called the bills of 1982 and 1984 "the biggest tax increase ever enacted during peacetime". Defence spending rose from $267.1 billion in 1980 to $393.1 billion in 1988. The federal deficit peaked at 6 percent of GDP in 1983, and the United States borrowed at home and abroad to cover it, raising the national debt from $997 billion to $2.85 trillion and turning the country from the world's largest international creditor into its largest debtor. The combination of the Fed's tight money and expansive fiscal policy pushed up interest rates and the dollar and produced large deficits, which Volcker tried to remedy with the Plaza Accord of 1985.

Assessments differ. William Niskanen, a member of Reagan's Council of Economic Advisers, judged that Reagan delivered on each of his four major policy objectives, "although not to the extent that he and his supporters had hoped", the largest change being the fall of the top marginal income tax rate from 70.1 to 28.4 percent. Friedman summed up its four principles as lower marginal tax rates, less regulation, restrained government spending and non-inflationary monetary policy, and said Reagan "made good progress". Paul Krugman, by contrast, argued that the expansion under Reagan was mainly the result of the business cycle and Volcker's monetary policy, and that Reagan's tax cuts ended the post-war "Great Compression" of wealth. Martin Feldstein, Reagan's chief economic adviser, called the Laffer-curve claim that the tax cut would increase revenue "the height of supply side hyperbole". The economists Raghuram Rajan and Luigi Zingales noted that much deregulation, of airlines and trucking for example, had begun under Carter.

Reaganomics is often compared with Thatcherism in Britain in the same years and counted as a leading case of neoliberalism. The libertarian theorist Murray Rothbard turned the comparison into criticism: "Thatcherism is all too similar to Reaganism: free-market rhetoric masking statist content".