Actors - Reaganomics

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	Actors - Reaganomics

The term Reaganomics, a portmanteau of Reagan and economics, has been used to describe, and decry, the economic policies of U.S. President Ronald Reagan during the 1980s. Reagan assumed office during a period of high inflation and unemployment, which had largely abated by the time he left office. It continues to be a matter of contentious political debate to what extent this was caused by Reagan's fiscal policies and to what extent it was due to external factors.

An Explanation of Reaganomics

In a July 10, 1987 White House Briefing for Members of the Deficit Reduction Coalition, Ronald Reagan said of Reaganomics: "America astonished the world. Chicago school economics, supply-side economics, call it what you will — I noticed that it was even known as Reaganomics at one point until it started working — all of it is fast becoming orthodoxy. It’s not just that Milton Friedman or Friedrich von Hayek or George Stigler have won Nobel Prizes; other younger names, unheard of a few years ago,are now also celebrated."

Reaganomics, free market economics and, specifically supply-side economics have become highly politicized terms. Most will agree that Reaganomics is based on his fundamental belief in the free market, with two key ideas being the subject of much of the "Reaganomics" debate: Reagan's desire to lower taxes and to have a smaller government. Some opponents and supporters of Reagan's economic policies quote Reagan's comment that "government is the problem" as one way to appreciate this general view. On the other hand critics of Reaganomics as policy rather than articulated ideology will emphasize the fact that in fact the role of government in the economy EXPANDED because of the significant increase in defense spending under Reagan and a significant increase in protectionism (the most significant innovation being the forcing of Voluntary Export Restraints upon the Japanese auto industry).

Free market, or classically liberal (before the 1960s "classical liberal economics" was synonymous with "free" trade economics) economists, based on the tradition from Adam Smith, stress the importance of free trade based on voluntary work specialization, while the role of government in national and international policy should be focused on removing barriers to open trade. The opponents of this view go back to the opponents of Adam Smith and his followers. Smith's free market principles, put forth in the Wealth of Nations in 1776 were attacked most famously by Karl Marx, throughout his numerous works, perhaps most notably Das Kapital co-authored with Frederich Engels. In the 20th century, most Western economics scholars have preferred to criticize Adam Smith's tradition with the works of John Maynard Keynes who argued that free market economics does not offer solutions to address rapidly changing market forces in what they refer to as cycles of boom and bust.

Others note that Adam Smith himself introduced so many qualifications of the basic principles of free market economics that, according to Mark Blaug author of ECONOMIC THEORY IN RETROSPECT these qualifications would be grist for many "socialist orations." To take one example, when Smith used the term "invisible hand" in the Wealth of NAtions, the context was that he was describing businesses deciding to prefer domestic investment to foreign investment -- a rather mercantilist result of the "natural" workings of the market. ("By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, LED BY AN INVISIBLE HAND to rpomote an end which was no part of his intention." -- NOTE in this context, that "end" is the promotion of DOMESTIC over FOREIGN indsutry... source: THE WEALTH OF NATIONS, U. of Chicago Press, 1976, Book IV, Ch. 2, p. 477) A perfect 10 for 10 inspection of Principles of Economics Textbooks finds that the words "preferring the support of domestic to that of foreign industry..." are left out and only the part about seeking to "produce the greatest value" is left in to the elucidation of the "invisible hand" concept.)

During the Great Depression, Keynesian economists saw the vast numbers of unemployed workers and suggested that the government should "prime the pump" through government borrowing for job creation programs. During the New Deal, the WPA and other programs put this theory into action. Keynesian economists justified this government spending, by claiming through the multiplier effect -- one employed worker's salary will benefit 5 other workers etc. Critics argued that government, being a political entity, is an inept distributor of economic resources.

The most significant "proof" of the validity of Keynes' remedies for a depression (high government spending) was in Hitler's Germany where the depression ended in 1935 even before Germany re-armed. The huge public works program including the building of the Autobahns led to the end of high unemployment. WHen Keynes' General Theory was published in German in 1936, Keynes wrote a preface in which he explicitly pointed to the building of those Autobahns as demonstration of the validity of his approach.

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