V. Reaganomics
     A. President Reagan attempted to eliminate the causes of stagflation
          by instituting supply-side economic policies.
     B. These were the key ingredients of President Reagan's economic policy.
          1. Supply-side policies
              a. Lower government expenditures on social programs
              b. Reduce government regulation 
              c. Cut personal and corporate taxes, especially high marginal tax rates
          2. Monetary policy: President Reagan did not discourage the Federal Reserve from
              their continued attempt to lower inflation with a tight money policy.
              Everyone loves Paul Volcker. Everyone is wrong.

       E. Liberal Richard Wolff On Reaganomics

Unit V. Review  cut taxes and regulations and he let the FED
kill inflation resulting in the first Great Recession in the early 1980's.

VI. Effectiveness of Reagan's Supply-Side Economics
      A. Contraction effects of tight money came earlier than the expansionary effects of a tax cu
         t and the result was two recessions from 1980-83.
      B. Short-term results were good.
          1. Inflation dropped dramatically although much of the credit
              must go to the Federal Reserve which began tightening in 1979.
          2. Unemployment eventually came down.
          3. The longest peacetime expansion in history resulted although critics point out that
              the large increase in military spending during the early Reagan years made for
              high peacetime defense budgets.
     C. Supply-side effects may have been negligible.
          1. Aggregate supply moved little as productivity increases were small. 
          2. Saving went down (though much of the drop in saving had demographic causes as baby boomers
              borrowed to furnish homes, many of which were investment type multifamily dwellings.
     D. Some results seemed bad, especially at the time. 
          1. Large federal deficit resulted (in part because inflation came down much faster than
              expected lowering tax revenues).
              Many felt these deficits would compete with (crowd out) private investment for many years.
         2. The trade deficit increased. 
              a. The problem began when an increase in borrowing by businesses, individuals,
                   and the federal government caused high interest rates. 
              b. High interest rates combined with a drop in inflation and an economic recovery making
                  U.S. investments attractive
              c. The resulting high foreign demand for the dollar pushed its value up making imports
                  cheaper and exports more expensive.
    E. Opinions differ as to the overall result.
        1. Some think the recovery was a typical Keynesian demand-side
            phenomenon (i.e., deficit spending) See Trickle Down Economics
        2. Supply-side economists point to a number of improved conditions.
            a. The increase in manufacturing productivity indicates supply-side economics worked.
            b. Comparing saving rates for countries is difficult as different accounting procedures
                 are used to measure saving.
            c. When Reagan left office, the average United States citizen  earned about 25%
                 more than the average citizen of Germany and Japan. 
                1. Data based upon purchasing power parity, not the international exchange rate of the dollar. 
                2. Critics point to a widening income gap between rich and poor.
         3. Other things happened that affected economic activity.    
             a. Industry was deregulated. 
             b. Intellectual Property rules were rewritten.
             c. Pressure on the Soviet Union by enhancing the military buildup started by President Carter.
             d. Striking air traffic controllers were fired.
             e. Social Security funding was enhanced with benefit cuts and tax increases. 
             f. The government increased dramatically funding semiconductor and network research.
             g. Who caused what?

Reagan and Bush Cut the Safety Net

He Cut Regulation

Editor's Question Will this Lowers Cost go to Profits, Wages, Both           
Source

Reagan Started a Trend
Rates on Taxable Income Down

Problems: Many Americans Avoid Taxes

Significant Regulations Completed
by Presidential Year graph

Stephen Moore wrote as a member of the Wall Street Journal editorial board:

Editors Note: The great inflation of the 1970's
 made the CPI a less valuable inappropriate measure
 for calculating wage growth .