How Did Ronald Reagan's Economic Policy Affect The Economy

In the wake of a recession under Jimmy Carter with soaring unemployment rates, double-digit inflation, declining wages, and stagnating economic growth, Ronald Reagan won the election of 1980 with a promise to bring the US out of its hardship and into a new fiscally conservative era of booming economic growth. He pledged to engender a new era of individual liberties, and stressed the urgency to, “recognize anew the economic freedoms of our people and, with the Founding Fathers, declare them as sacred and sacrosanct as the political freedoms of speech, press, religion, and assembly.”To achieve his goal, Reagan centered his economic policy on decreasing government spending, reducing inflation, deregulating industry, and cutting taxes. The culmination

Keynesian economics, developed in the 1930s by British economist John Maynard Keynes to understand the Great Depression, sharply differed from Supply-Side in its assessment of taxation, government spending, and demand, both in a stable economy and in recession. While Keynes stated that consumer demand, instead of producer supply, creates economic growth, Supply-side argues the opposite, saying that producer supply instead of consumer demand is responsible for economic growth. Furthermore, Supply-side says that in times of recession, government spending should decrease to stop inflation, while Keynes argues that government spending should increase, injecting more liquid capital to stimulate the economy and increasing aggregate demand. Supply-side economics argues in favor of deregulation, whereas Keynesian economics favors more government oversight. Lastly, both Keynesian and Supply-side economics argue in favor of tax cuts. However, Keynes argues for temporary tax cuts, only during times of recession, while Supply-side favors extended tax cuts in both recession and in stable

In response to this growing problem, the chairman of the Federal Reserve Paul Volcker promised to “slay the inflationary dragon,” by sharply decreasing the money supply., Volcker did just that, raising interest rates to a resounding 20% by June of 1981. The short-term impact of the exorbitant spike in interest rates led to worsened recession in 1981 and 1982, as consumers were not eager to take out costly and burdensome loans to spend money on houses. Indeed, the national unemployment rate shot up to 10% in 1982, the highest rate since the Great Depression. The hardship was short-lived, however, and the inflation rate fell from its 13.5% peak in 1980 to just 3.2% in 1983, ushering in a new era of economic growth., Volcker lowering interest rates “caus[ed] housing to spring back-- and it was housing that mainly drove the recovery.” The economic success of the contraction and subsequent release of the money supply was simply a matter of fixing inflation and unleashing free-market capitalism with lower interest rates. Fixing inflation had nothing to do with Reagan, so while “Reagan got the political credit for ‘morning in America,’ Mr. Volcker was actually responsible for both the slump and the boom.” In fact, Volcker was not even appointed by Reagan, but by Carter. For these reasons, Nobel Prize-winning economist Paul Krugman argues that “Reaganomics was basically