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Theory Often called Reaganomics or "voodoo economics", it is a rejection of the Keynesian line of thought which had dominated American economics since FDR and the New Deal. The emphasis is on, obviously, supply rather than demand(like Keynesian economics) and is built on the theory that people respond to incentives, namely money, and so the government should work to create incentives for people work, invest, and save. There is a basic concept that the government is the problem and that often, as was argued in Losing Ground, that government programs create dependence and sometimes harm the people they supposedly help. By cutting many of these social programs, deregulating much of the economy, and lowering taxes, it is argued that the economy will be stimulated and the rising tide will lift all boats. The Laffer curve had a large influence on the theory. Its Rise Through the Great Society, Johnson had in many ways overextended the tradition of FDR. The economy had become much more regulated than before with the government taking a larger role than ever before and many people saw, whether correctly or not, many of its programs not working and businesses being hindered by red tape. Conservative economists argued that the reason for high inflation and unemployment at the end of the 70s was due to high taxes and high spending, that these were stiffling the economy. Supply side economics basically came into vogue with Ronald Reagan and his advisers, notably David Stockman director of the budget office(author of The Triumph of Politics). The Plan The plan Reagan and his advisers had(actually, according to many people Reagan was a few nuggets short of a Happy Meal and just went with his advisers' suggestions) was threefold. First, cut taxes. This is where the Kemp-Roth tax cut comes in. The 10-5-3 tax cut was less an objective of the Kemp-Roth advocates and more of a political necessity. The decrease in taxes would stimulate economic growth and, according to some people, actually generate more revenue in taxes(this never happened and won't in a high inflation economy, see Laffer curve). Second, increase military spending. This would allow the United States to beat the "Evil Empire". Third, huge domestic spending cuts. This would allow everything to be paid for. What Happened Whether it should have happened is a question people will debate forever, but there were indisputable consequences. Taxes for many Americans were cut. Military spending was increased. Some domestic spending cuts were made. And the product of less revenues, more military spending, and not enough spending cuts was unprecedented deficits. Critics argue that the deficits and spending cuts hurt many Americans and the economy while defenders claim that Reaganomics is the reason for the current economic expansion and so many people have been helped. |