It was a radical idea in 1981 — lower taxes, control spending, reduce regulation and bring down inflation — the four pillars of Reaganomics that changed the economic debate then and still dominate today.
According to historian Daniel Yergin, “Since the new deal, people had looked to government to manage and deal with the problems of the economy, and he said leave it to the marketplace itself.”
Initially, there was recession and revolt. Iowa farmers, caught between low prices and double-digit interest rates turned Reagan’s words against him. The farmers protested by asking, “Are you better off than you were a year ago? No!”
Unemployed steelworkers took to the streets in Pittsburgh chanting: “Reagan, Reagan, he’s no good. Send him back to Hollywood.”
Hardest hit was the nation’s heartland, according to James Galbraith, the former executive director of the Joint Economic Committee of the U.S. Congress. Galbraith spent four years fighting Reaganomics. “It really damaged and even destroyed much of the machinery and machine tool industry, which was the source of American industrial strength in that part of the country,” he says.
Lauded for cutting taxes, but criticized for cutting food stamps, some Social Security benefits and job training funds, Reagan dramatically increased defense spending which created record deficits and government debt.
Martin Anderson, a member of Reagan's Economic Policy Advisory Board and an architect of Reaganomics, says it was worth it, “Now, he could have balanced the budget and we would have lost the Cold War, but I don’t think that’s acceptable. I don’t want to be speaking Russian.”
Two decades later, the enemy is now terrorism, but the debate is the same. “You can see Ronald Reagan’s influence in the debate about taxes today. And the Bush administration has been pursuing tax cuts and much less concerned about deficits,” historian Yergin added.
That’s, in part because even with the enormous deficits, under Reagan the economy came roaring back. By the time he left office there were 16 million jobs created, inflation had been cut by more than half and a new economic model had been established.