DEFINITION: The term “Reaganomics” refers to the economic policies pursued by the administration of US President Ronald Reagan between 1981 and 1989.

Synonyms for “Reaganomics” that were in use at the time by its supporters included “supply-side economics” and “free-market economics,” while its critics preferred such pejorative phrases as “trickle-down economics” and “voodoo economics.”

USAGE: The historical context of Reaganomics was the new administration’s need to respond to the economic crisis of the late 1970s, which was characterized by high inflation together with simultaneous low or negative growth—the era of so-called “stagflation.”

Reaganomics consisted of four essential policy initiatives:

  • Reducing government spending
  • Reducing federal income and capital gains tax rates
  • Reducing government regulations on business activity
  • Tightening the money supply to bring inflation under control

The principal question surrounding ReaganomicsHow successful was it?—is still hotly debated by historians of economics.

Conservative economists answer “yes,” pointing primarily to the economic growth which finally kicked in about two years into the Reagan administration, reversing the prior recession and leading to one of the longest peacetime economic expansions in US history.

Progressive economists answer “no,” pointing to a variety of things.

First and foremost is the growth in income inequality in the US, which began during the Reagan years and continues to the present.

Also, while Reagan’s tax cuts and tight money policy appear to have had their intended effects, it has been argued that the first point listed above—reducing government spending—was never effectively put into practice.

In fact, Reagan’s heavy spending on advanced weapons systems within the context of the competition with the Soviet Union led to enormous budget deficits, which were not offset in any meaningful way by increased tax revenues, as supply-side advocates had predicted.

As a result, net government spending ballooned during the 1980s, leaving the US with a deficit three times larger on the day that President Reagan left office than on the day he took the oath of office.

Finally, critics stress that the overall size of the government continued its steady growth during the Reagan years.

On the other hand, in response to all these criticisms, supporters of Reaganomics also point to the so-called “misery index.”

Defined as the inflation rate plus the unemployment rate, the misery index shrank from 19.33 at the beginning of the Reagan administration to 9.72 at its end.

This is the greatest economic improvement, as measured by the misery index, on record for any US president since Harry S. Truman—and perhaps the single greatest vindication of Reaganomics.