Reaganomics: a Historical Watershed

Abstract

We document the impact of Reaganomics and its long-term legacy. The preponderance of data indicate that economic growth was not particularly impressive in the wake of the tax cuts of 1981. gdp just snapped back to potential and failed to accelerate beyond the rates achieved in the prior or subsequent decades. The supposed incentives of supply-side economics failed to materialize. People did not work more, they did not save or invest more, and the trickle-down effect was that of molasses. Instead, Reagan’s presidency was a watershed in u.s. economic development in the sense that it reversed many of the accomplishments of the New Deal and inaugurated an era in which inequality increased substantially, low-skilled men’s wages began a long period of decline, and labor’s share of gdp continued to fall. Reagan’s legacy is a dual economy that accompanied the hallowing out of the middle class, deregulation that led to the Financial crisis, a stupendous increase in the national debt from 30% to 50% of gdp that could not be halted subsequently and is in excess of 100% in 2018, anti-statism that contributed to the rise of Trumpism, a stupendous rise in inequality that gave birth to an oligarchy and plutocracy, and the abandoning of blue-collar workers who eventually became Hillary’s deplorables. In other words, nothing trickled down to the masses. The rich and the super-rich kept all the windfall of the tax cuts to themselves. This is the true legacy of the supply-side economics of the Reagan administration.