Economics Under Ronald Reagan (College Board AP® US History)

Summary

The 1980 election of Ronald Reagan as the 40^th president was a turning point in America’s history. This election was seen as a mandate from the voters to move away from the liberal ideologies of the 1960s and 1970s and seek a more Conservative path. 

Reagen’s presidency embodied three central pillars of conservatism: smaller government, supply-side economics (Reagonomics), and the influence of the Moral Majority. This era redefined the nation’s political and economic priorities, championing tax cuts, deregulation, and a focus on Christian morality while intensifying Cold War efforts through increased military spending.

Conservatives, Reaganomics, & Moral Majority

Key goals of the Conservatives

• By the 1980s, Conservatives understood that the people of America had become tired of the liberal ideas shaping their society

• Conservatives touched on ideals that would turn America back to a time when home and prayer were the hallmarks of American society

• The Conservative goals included:

  • reducing the size and influence of the government

  • reducing government spending

  • cutting taxes

  • promoting traditional moral values, including:

    • opposition to abortion

    • reinforcing traditional gender roles

    • Christian moral-teachings

    • opposition to LGBTQ+ rights

    • promotion of the nuclear family model (heterosexual marriage with children) as the cornerstone of society

  • overturning Roe v Wade (1973) and opposing abortion

  • reinforcing traditional gender roles

  • tougher laws on crime and illegal drug use

  • taking a firm anti-communist stance

Reaganomics

• Reaganomics was based on supply-side economics

  • These aimed to stimulate growth by reducing taxes and government regulation

Elements of supply-side economics

Tax cuts

• The Economic Recovery Tax Act of 1981 reduced personal income taxes by 25% over three years, benefiting the middle-class

• Cuts in corporate taxes, capital gains taxes, and inheritance taxes helped the rich

• Tax cuts, especially for the rich, increased investments and created new businesses with new jobs

• New jobs improved the earnings of the middle and working classes; therefore it was argued that all segments of society benefitted economically 

Deregulation 

• Deregulation is an economic policy to further reduce government spending and increase productivity

• Reagan intended to boost the economy by promoting a free market

• It removed federal restrictions on certain industries

  • In the banking industry, the cap was lifted on interest rates

  • Public lands to mining operations

  • In the oil and gas industry, offshore drilling rights were approved

  • Regulation on airfares were lifted in the air-line industry

• Deregulation did not include military spending, which was increased 

Cuts in domestic spending

• Major reductions in welfare programs, including:

  • food stamps

  • student loans

  • public transportation and other aid programs 

• This led to savings of $40 billion

Other federal programs cut

• Occupational Safety and Health Administration, OSHA, protected employees on the job from harm and injury

• The Environmental Protection Agency, EPA, protected the environment and monitored pollution levels

Military Spending

• The budget for defense was increased to continue the fight against communism, aligning with Reagans’ “peace through strength” philosophy

The economic impact of Reaganomics

• Short-term benefits included:

  • economic growth

  • job creation in some sectors

• Long term effects were mixed:

  • increase income inequality: “the rich got richer and the poor got poorer”

  • rising national debt due to tax cuts and defense spending

  • vulnerable populations could not access welfare resources and had fewer protections

Moral Majority

• The Moral Majority was a political organization focused on Christian morality and moral law

  • They played a vital role in Reagan’s victory

• The Moral Majority was founded by televangelist Jerry Falwell in 1979

• The group’s aim was to reassert traditional values in American society 

• They opposed:

  • illegal drug use

  • homosexuality

  • abortion (Roe v. Wade)

  • communism

• They supported:

  • tough on crime policies

  • returning to “family values”

• The Moral Majority became a powerful voter base for Reagan