Economic Policy 1950-Present

Federal-Aid Highway Act of 1956 provided government funding for superhighways that gave drivers easy access to the suburbs.

American Presidents : FDR (D) : Harry S Truman (D) : Dwight Eisenhower (R) : JFK (D) : LBJ (D)

LBJ ( ) D Nixon ( ) R Ford ( ) R Carter ( ) D Reagan ( ) R Bush ( ) R Clinton ( ) D

The Reagan Revolution Reagan charged that govt. had become too intrusive in people’s lives. “It is… my intention… to make [government] work with us, not over us; to stand by our side, not ride on our back. Government can and must provide opportunity, not smother it; foster productivity, not stifle it.” -Ronald Reagan, First Inaugural address, 1981

Campaign Promises Slash taxes Eliminate unnecessary/wasteful govt. spending and programs Bolster defense capability

“Reaganomics” Supply-side economics Unlike John Maynard Keynes – Not Stimulate demand through deficit spending Reagan – Cut taxes on wealthy and business owners – Stimulate business investment – Stimulate job creation – Tax cuts will “Trickle-down”

Did the Depression and WWII prove or disprove Keynes’ theory?

1) Cutting Taxes 1981, 5% tax cut 10% cuts in 1982 AND , Congress passed most sweeping tax reform ever – It simplified the tax system – Reduced # income brackets – While all taxpayers benefited, wealthy people benefited the most. – rate on the highest incomes dropped from 70% before Reagan to 50% in 1984 and 28% after 1986 reform.

3 types of taxes Progressive – pay a higher % if you earn more Proportional (flat) – everyone pays the same % of income Regressive – pay a higher % if you earn less, even though everyone may pay the same amount (sales tax) All deal with ability to pay and disposable income

Before Reagan, regulation had been expanding for nearly a century Began with the Interstate Commerce Commission in 1887 to regulate railway rates. Then, during the Progressive Era of the early 1900s Grew again during the New Deal years of the 1930s

Why Regulation? Regulation was intended to… – protect companies from unfair competition – protect workers from unsafe working conditions – protect consumers from ineffective or unsafe products.

2) Deregulation Reagan continued and expanded the deregulation that had begun under Carter. To get rid of regulations that “stifled free market competition.” Deregulation of energy, transportation, banking industries Cut # and sizes of regulatory agencies like Environmental Protection Agency

He argued that regulations made life difficult for producers, which meant fewer jobs for workers and higher prices for consumers. Do you agree or disagree? Why? Challenged the power of labor unions in the Professional Air Traffic Controllers Organization (PATCO) strike of 1981

Further Cuts Eliminated many public service jobs that were part of employment training program. Reduced unemployment compensation. Lowered welfare benefits and reduced spending on food stamps. Raised fees for Medicare patients. Despite cuts in these specific programs, total federal spending on social welfare increased between 1980 and 1982!

The New Federalism Gave more responsibility to state and local govts He called his plan the “New Federalism” – Under this plan the govt would no longer tell states exactly how federal aid had to be used. Program never worked as planned. – A recession early in Reagan’s presidency left a number of cities and states nearly bankrupt. – They now had more responsibility, but not enough money for the programs formerly funded directly by the federal govt.

3) Federal Defense Spending Soviet Union as “evil empire” Favored large defense budgets – Conventional military and planes/subs to deliver nuclear weapons Over five years, U.S. spent $1.1 trillion on defense – (Conservatives considered this the cost of fighting the Cold War)

Reagan promised to balance federal budget Deficit ballooned from $80 billion in 1980 to $221 billion in – Tax cuts – Defense spending National debt rose from $909 billion in 1980 to $3.2 trillion in 1990.

Terms Gross Domestic Produce (GDP) – total value of all goods and services produced in one year Federal Deficit – how much more money the govt spends in a year than it takes in taxes National Debt – sum of all yearly deficits

National Debt as % of GDP

George H.W. Bush ( ) Popular for handling of Gulf War, not for economy Military spending dropped off as Cold War ended Firms that supplied planes, ships, military hardware and technology laid off workers. Unemployment in the U.S. rose to 7%.

Bill Clinton ( ) Newt Gingrich, Republican Speaker of the House, endorsed the “Contract with America” in In 1994 mid-term elections, Republicans gained control of the both houses of Congress for the first time in decades. – Pledged to scale back the size and spending of govt. – Voters believed that the Democrats were “out of touch” with their concerns.

Welfare Reform 12.8 million people received Aid to Families with Dependent Children (AFDC) Personal Responsibility and Work Opportunity Act (1996) – States were given the authority to run their own welfare programs. – A lifetime limit of 5 years of aid per family – Required adults to work within 2 years of receiving aid By the 1996 election, the economy had rebounded, and Clinton was reelected.

Poverty Calculated using a formula that determines whether you fall above or below a threshold Nearly 60% of Americans will fall below this threshold

2010 Poverty: 15.1%