Reaganomics Gets a Test Drive by yfr24536

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									 Reaganomics
Gets a Test Drive

 Faith in Trickle Down
     Economics?


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Campaign Promises Become Policy




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“By the time Ronald Reagan
took office in January 1981,
monetary policy was again
fully engaged in restraint.
…To me, [the new
administration‟s] economic
officials were a rather odd
mixture of hard-boiled
monetarists and what came to
be popularized as „supply-
siders,‟ mixed in with a few
                                              Murray Weidenbaum
pragmatists like the new
chairman of the Council of
Economic Advisers, Murray
Weidenbaum.”
     Paul Volcker. Changing Fortunes, 1992, p.174                 4
Threat of Global Financial Collapse




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 While government revenue
was declining, interest
payments for all developing
countries more than tripled
from $20.7 billion in 1978 to
$71.7 billion in 1982.
 In 1982, the Mexican,
Brazilian and Argentinan
governments announced they
were no longer able to service
their debt.


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 Raise taxes;
 Cut spending on social welfare;
 Reduce domestic consumption;
and
 Export commodities to obtain
foreign currencies.
 All of the debtor countries
suffered a flight of financial
reserves by the wealthy




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Reaganomics 101




             Arthur Laffer



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 Marginal income tax rates
were reduced by 25% over three
years
 The top rate was dropped
from 70% to 50%
 The bottom rate dropped from
14% to 11%
 Tax rates were indexed,
although the indexing was
delayed until 1985


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 Business bankruptcies in 1982
rose 50 percent over 1981
 Farmers were hard hit by the
combination of declining crop
prices and rising interest rates
 Official unemployment peaked
at over 10.7% percent in 1982



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 In only 18 months these sales
inflated the value of the stock
5,300%, from 20 cents to $10.60
a share




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Reaganomics:
The Illusion of
  Recovery




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 Over 40% of household
net worth was dependent
upon stable or increasing
residential land values –
and repayment of mortgage
debt
 Median net worth was
only around $35,800




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 The Dow Jones dropped 508
points (a 22.6% decrease)
 Yet, by the end of the year, most
of the markets recovered and the
Dow Jones was up 2.3% for the
year
 In 1988, the dollar volume of
publicly-registered securities
issued was more than $400 billion
– five times the 1980 level.




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 By 1989, the total market
value of all U.S. commercial real
estate was estimated at around
$3.5 trillion
 Using the $90,000 median
price of existing housing units
as a rough measure, the total
market value of all residential
units in 1990 was around $8.4
trillion
 Of which total land value
would have been between $3 -
$3.5 trillion

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In California, with many
of the nations most
overheated land
markets, 11 out of the 15
largest thrifts were
writing off huge losses
in real estate loans and
were in danger of
closing their doors.

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Arthur Laffer


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“The four pillars of Reaganomics
are the grand territories of
macroeconomics. You've got
money, critical. You've got fiscal
policy in taxes and governing
spending, critical. You've got
regulatory policy or what we call
income policies in
macroeconomics. And the fourth
one, you have trade policy. These
were the pillars of Reaganomics.”



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Peter Dreier   34
“Reagan also presided over the
dramatic deregulation of the nation‟s
savings and loan industry allowing
S&Ls to end their reliance on home
mortgages and engage in an orgy of
commercial real estate speculation.
The result was widespread corruption,
mismanagement and the collapse of
hundreds of thrift institutions that
ultimately led to a taxpayer bailout that
cost hundreds of billions of dollars.”




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“Another of Reagan‟s enduring
legacies is the steep increase in the
number of homeless people, which by
the late 1980s had swollen to 600,000
on any given night – and 1.2 million
over the course of a year. Many were
Vietnam veterans, children and laid-off
workers.”


Peter Dreier. “Reagan’s Legacy: Homelessness in America,”
Shelterforce Online (National Housing Institute), May/June 2004


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