Ronald Reagan was elected president in 1980 on a platform of reducing the size and role of government. Known as "Reaganomics", his economic policies sought to lower taxes, reduce regulations, and control inflation. While critics argued it primarily benefited the wealthy, unemployment decreased during Reagan's terms and economic growth recovered after a recession. However, the national debt also increased substantially. Reagan's confrontational rhetoric towards the Soviet Union contributed to growing internal reforms and the eventual dissolution of the USSR in the early 1990s.

1. Resurgence of Conservatism
Chapter 22
1980-1992

2. The Election of
the Great
Communicator
Democrats began the campaign by underestimating California Gov. Ronald
Reagan’s strengths. His age was offset by robust health and relaxed self-
assurance. His views on domestic policy appeared to be further to the right than
the majority opinion but they weren’t, and his foreign-policy views carried
overtones of ideological crusades and “Great Power” confrontation (that led to
the demise of the Soviet Union and communism)—vulnerabilities that President
Jimmy Carter expected to exploit. Most of this opinion was fabricated by a
socialist media in order to shape public opinion against Reagan. But Reagan,
the master of television, phrased his conservative views with an air of
reasonableness and geniality, promising prosperity by “getting government off
our backs.” Burdened by his failure to free the Americans held hostage by Iran,
the weakening of the American image around the world, and by a
deteriorating economy that was the worst in 25 years, President Carter saw his
thinly based support erode as the voters concluded that Reagan was a safe
choice to replace an ineffective regime. Reagan’s margin of victory was sizable,
the Californian carrying 44 states against Carter’s 6, the popular vote 43 million to
36 million (with 5.7 million for independent John B. Anderson).

3. The New Conservatism
In this respect, Ronald Reagan, elected to his first two terms in 1980 was
different. As he memorably observed, “Government is not the solution to our
problems. Government is the problem.” Reagan’s popularity, coupled with
his support for privatization, his confidence in the American entrepreneurial
spirit, and his belief in the moral superiority of the free market went a long way
toward making these positions, ridiculed and despised by socialists and
communists during the 1960’s and 1970’s intellectually respectable again.
Critics called it the “decade of greed” because of the immense rebounding
of the economy after the depths of the Carter economy. That’s hardly a
surprise; as Jon Sobran once said, “Today, wanting someone else’s money is
called ‘need,’ wanting to keep your own money is called ‘greed,’ and
‘compassion’ is when politicians arrange the transfer of wealth.
The fact is, the 1980’s were no such thing. The most direct refutation of this
phony claim is that charitable giving—which, after all, represents pretty much
the opposite of greed—increased substantially during the 1980’s, and at a
much faster rate that it had been increasing in previous decades. In real
terms, charitable giving increased from $77.5 billion in 1980 to $121 billion in
1989.

4. Reaganomics
A fix to the unemployment and
inflation of the time.

5. ELECTING RONALD
REAGAN…TWICE
 Ronald Reagan for Reagan/Bush '84
http://www.youtube.com/watch?v=SDMksN-ZTR4&feature=related
 Ronald Reagan TV Ad: "Reaganomics"
http://www.youtube.com/watch`?v=GhgiOSgBEYY
Reagan won 525 electoral votes and 49/50 states leaving Mondale
with his only state of Minnesota and 3800 votes.
Reagan received 58.8% of the popular vote to Mondale’s 40.6%. (This
was Reagan’s Second Term)
(Wikipedia)
(Youtube)

6. Stagflation
- Economic predicament before Reagan’s Administration
- The economy was not expanding but stagnate
- Prices were out of control (inflation) because of
government interference and regulation
- Political pressure results in expansion of money supply.
- Nixon's wage and price controls abandoned
- Under Ford the problems continued but policy was more
prudent.
- Federal oil reserves created to ease future short term
shocks (only has proven to be a short term fix- 2 weeks at
most)
- Carter started phasing out price controls on petroleum

9. Stagflation
-Much of the credit for resolution of the stagflation is given
to…
…a three year contraction of the money supply by
the Federal Reserve under Paul Volcker to long term
easing of supply and pricing in oil during the 1980s oil glut

10. This Cartoon Shows the differences between Reaganomics and FDR’s economic policies like the New Deal.

11. The Four Pillars
Reagan+Economics=Reaganomics
1. reduce govt. spending
2. reduce marginal tax rates on
income from labor and capital
3. reduce government regulation
of the economy
4. control the money supply to
reduce inflation (don’t print
money above the monetary
base)
ReducegovernmentSpending
ReduceMarginalTaxRates
Reducegovt.RegulationofEconomy
Control$supplytoreduceinflation

12. The Roots
-Reaganomics roots in two of Reagan's
campaign promises:
1) lower taxes
2) a smaller government
-reduced income tax rates
 with the largest rate reductions on
the high incomes
-in a time of battling inflation Reagan raised
deficit spending to its highest level since
World War II.

13. The Beginnings
- lifted remaining domestic petroleum price
and allocation controls on January 28, 1981
- lowered Oil Windfall profits tax in August
1981, helping end the 1979 energy crisis
- ended Oil Windfall profits tax in 1988 during
1980s oil glut
- Tax Reform Act of 1986, Reagan and
Congress sought to broaden the tax base
and reduce perceived tax favoritism

14. The Growing Economy
- Top income tax rates dropped from 70% to 28% in 7 years
- Payroll taxes increased because there were more jobs and
more people working which equals more government tax
revenue
- Real Gross Domestic Product (GDP) growth recovered strongly
after the 1982 recession at annual rate of 3.4% per year slightly
lower than post-World War II average of 3.6%--the largest of
the 20th century.
- Unemployment peaked over 10.7% percent in 1982 then
dropped during rest Reagan's terms
- inflation significantly decreased
- job increase of 16 million occurred

15. Trickle Down Affect
- Reagan’s policies were derided as “Trickle-down economics”
due to the significant cuts in the upper tax brackets
- massive increase in Cold War related defense spending caused
large budget deficits because the Democratically-controlled
congress refused to scale back on agreed upon domestic
spending
- the U.S. trade deficit expansion contributed to the Savings and
Loan crisis (which was nothing compared to the 2008-9 banking
crisis) Banks got upside-down on their loans.
- covered new federal budget deficits, United States borrowed
heavily both domestically and abroad raising national debt $700
billion to $3 trillion (Reagan cut but democrats kept spending)
Reagan described the new debt as the "greatest
disappointment" of his presidency

16. Tax Revenue
Tax Bill 1 2 3 4 First 2
yr avg
4 yr
avg
Econ. Recovery Tax Act of 1981 -1.21 -2.60 -3.58 -4.15 -1.91 -2.89
Tax Equity and Fiscal Responsibility
Act of 1982
0.53 1.07 1.08 1.23 0.80 0.98
Highway Revenue Act of 1982 0.05 0.11 0.10 0.09 0.08 0.09
Social Security Amendments of
1983
0.17 0.22 0.22 0.24 0.20 0.21
Interest and Dividend Tax
Compliance Act of 1983
-0.07 -0.06 -0.05 -0.04 -0.07 -0.05
Deficit Reduction Act of 1984 0.24 0.37 0.47 0.49 0.30 0.39
Omnibus Budget Reconciliation
Act of 1985
0.02 0.06 0.06 0.06 0.04 0.05
Tax Reform Act of 1986 0.41 0.02 -0.23 -0.16 0.22 0.01
Omnibus Budget Reconciliation
Act of 1987
0.19 0.28 0.30 0.27 0.24 0.26
Number of Years after Enactment

17. Laffer Curve
 Arthur Laffer’s model predicting excessive tax
rates reduce tax revenues by lowering production.
 Theoretical taxation model
 Vogue among some American Conservatives
during 1970’s
 if tax rates lowered, tax revenues will lower by the
amount of decrease in rate- What Democrats
thought
-reverse is true for an increase in tax rates
The Laffer Curve: Past Present and Future

18. Achievements
 American economy did better than any other pre-
or post- Reagan years
 Median family income grew by $4,000 annually,
during Reagan Era and afterwards decreased by
$1500
 Interest Rates, Inflation, and Unemployment
decreased faster than pre- and post- Reagan years
 Productivity Rate increased, declined and then
stayed the same

19. Reagan Economics Concept Map
Definition
Results
Policies and Actions

20. Ronald Reagan Economic Quiz
1. According to Ronald Reagan, what was the problem with our society?
2. What was the economic problem that Reaganomics was designed to
overcome?
3. Name one of the four pillars of Reaganomics.
4. How did President Reagan want to distribute the wealth, what policy?
5. What is the proven policy that increases revenue to the government while
decreasing tax rates to the citizens?

21. The World Begins to Thaw
In May 1981, at Notre Dame University, the recently inaugurated Reagan
predicted that the years ahead would be great ones for the cause of freedom
and that Communism was “a sad, bizarre chapter in human history whose last
pages are even now being written.” At the time few took his words for more
than a morale-boosting exhortation, but in fact the Soviet economy and polity
were under terrific stress in the last Brezhnev years, though the Soviets did their
best to hide the fact. They were running hidden budget deficits of 7 or 8
percent of GNP, suffering from extreme inflation that took the form (because of
price controls) of chronic shortages of consumer goods, and falling farther
behind the West in computers and other technologies vital to civilian and
military performance. The Reagan administration recognized and sought to
exploit this Soviet economic vulnerability.
Young, educated, and urban members of the Communist elite came gradually
to recognize the need for radical change if the Soviet Union was to survive,
much less hold its own with the capitalist world. They waited in frustration as
Brezhnev was followed by Andropov, then by Chernenko. The reformers finally
rose to the pinnacle of party leadership, however, when Mikhail Gorbachev
was named general secretary in 1985. A lawyer by training and a loyal
Communist, Gorbachev did not begin his tenure by urging a relaxation of the
Cold War. Gorbachev was a phenomenon, charming Western reporters,
crowds, and leaders (Prime Minister Margaret Thatcher was especially
impressed) with his breezy style, sophistication, and peace advocacy. What
convinced most Western observers that

22. The World Begins to Thaw
(cont’d)
genuine change had occurred, however, was not what Gorbachev said
but what he allowed others to say under his policy of glasnost, or openness.
Throughout his first four years in power, Gorbachev inspired and presided
over an extraordinary outpouring of new ideas and new options. Western
skeptics wondered whether he meant to dismantle Communism and the
Soviet empire and, if he did, whether he could possibly avoid being
overthrown by party hard-liners, the KGB, or the army. In truth, Gorbachev
faced a severe dilemma born of three simultaneous crises: diplomatic
encirclement abroad, economic and technological stagnation at home,
and growing pressure for liberal reform in Poland and Hungary and for
autonomy in the non-Russian republics of the USSR.

23. Perestroika and Glasnost
Perestroika (Russian: restructuring) was the term used by Soviet president Mikhail
Gorbachev to describe his program of political and economic reforms,
implemented between 1985 to 1991. It was closely linked to his concepts of
glasnost (openness) and democratization. The aim of perestroika was to
rejuvenate the Soviet system. Instead, the forces of change unleashed by
Gorbachev’s reforms led to the breakdown of the system and the dissolution of
the USSR. The political reforms included a restructuring of the Soviet central
government, a relaxation of censorship, and an end to the Communist party’s
monopoly of power. Among the economic changes were a reintroduction of
limited private enterprise, a more flexible price structure, and decentralization of
economic decision making. In foreign policy, perestroika led to the breakup of
the Soviet satellite system in Europe and the end of the cold war with the West.
At home the partial dismantling of the system crippled it altogether, causing a
series of crises that ended in the failed coup of August 1991 and the subsequent
demise of the Soviet Union.
Glasnost (Russian: publicity or openness) was the word used by Soviet leader
Mikhail Gorbachev to describe his program of liberalizing the strict censorship
policy of the USSR and allowing greater freedom of speech. The glasnost policy,
by which he hoped to reform and strengthen the stagnating Soviet system,
served instead to hasten its downfall. Having

24. Perestroika and Glasnost (cont’d)
moved away from the rigid thought control that had formerly been the rule,
Gorbachev, starting in 1985, introduced a new tolerance for criticism, a
broader range of opinions in the press and in the arts, and more accurate
rendering of Soviet history.

25. End of the Cold War
Reagan’s performance at a second summit conference with Soviet leader
Mikhail Gorbachev in Iceland during October 1986 (the first meeting had been
in Geneve in November 1985) deepened strains between U.S.-Soviet relations.
Reagan’s persistent advocacy of his costly Strategic Defense Initiative (SDI;
berated by the liberal media as “Star Wars”) appeared to block an agreement
to reduce nuclear missiles. In December 1987, however, a buoyant Reagan,
having resolved some of the differences with the Soviets, signed an arms-
control agreement with Gorbachev in Washington. This agreement eliminated
intermediate-range missiles in Europe. Reagan visited Moscow in the spring of
1988.
As Reagan left Washington for retirement in California, his poll ratings were the
highest (two-thirds of those polled approved of his performance) of any
president since World War II.
Mikhail Gorbachev’s espousal of “new thinking” in foreign policy, with its
promise of more friendly relations with the West, won him much popularity
abroad. Within the Soviet Union, however, Gorbachev’s reform program
encountered political opposition, bureaucratic obstruction, and popular
skepticism. At his behest, the Soviet Communist party gave up its Leninist claim
to a monopoly of political power, grudgingly accepting a degree of political
pluralism and the prospect of genuine parliamentary democracy. This
alienated Communist hardliners without satisfying radical reformers, many of
whom

26. End of the Cold War (cont’d)
expressed their discontent by resigning from the party. As centrifugal
forces increased, a cabal of hardliners in August 1991 arrested President
Gorbachev and mounted an abortive coup. That precipitated the end of
Communist rule over the Soviet Union, and the end of the Soviet Union
itself. By the end of 1991, the USSR had disintegrated into separate
republics, all of which repudiated communism.

27. Grenada Invasion
On March 13, 1979, while Prime Minister Gairy was out of the country, the New
Jewel Movement (NJM) staged a bloodless coup, proclaimed a People's
Revolutionary Government (PRG), and named their leader, Maurice Bishop, as
prime minister. The new government faced opposition from Western nations
because of its socialist principles, but it embarked on a program to rebuild the
economy, which had been left in disarray by Gairy. The PRG administration
was ended in October 1983 by a military coup, during which Bishop was killed.
Less than a week later, on October 25, a U.S.-led invasion of the island
overthrew the coup leaders and returned power to the governor-general, Sir
Paul Scoon. In December Scoon appointed Nicholas Braithwaite, a former
Commonwealth official, to head a governing council until an election could be
held, and constitutional government was restored. A peacekeeping force
remained until 1985. The election, held in December 1984, was won by the New
National Party headed by Herbert A. Blaize, who had led the government in the
1960s. The new government sought to revive tourism, but Grenada's continuing
economic problems throughout the late 1980s contributed to the government's
dwindling popularity. Following an election in March 1990, Braithwaite, whose
National Democratic Congress fell one seat shy of a parliamentary majority,
was appointed prime minister by Scoon.

28. Iran-Contra Affair
U.S. political scandal in which the National Security Council (NSC) became
involved in secret weapons transactions and other activities that either were
prohibited by the U.S. Congress or violated the stated public policy of the
government. In early 1985 the head of the NSC, Robert C. McFarlane, undertook
the sale of antitank and antiaircraft missiles to Iran in the mistaken belief that such
a sale would secure the release of a number of American citizens who were
being held captive in Lebanon by Shiʿite terrorist groups loyal to Iran. This and
several subsequent weapon sales to Iran in 1986 directly contradicted the U.S.
government's publicly stated policy of refusing either to bargain with terrorists or
to aid Iran in its war with Iraq, a policy based on the belief that Iran was a sponsor
of international terrorism. A portion of the $48 million that Iran paid for the arms
was diverted by the NSC and given to the Contras, the U.S.-backed rebels
fighting to overthrow the Marxist-oriented Sandinista government of Nicaragua.
The monetary transfers were undertaken by NSC staff member Lieutenant
Colonel Oliver North with the approval of McFarlane's successor as head of the
NSC, Rear Admiral John M. Poindexter. North and his associates also raised
private funds for the Contras. These activities violated the Boland Amendment, a
law passed by Congress in 1984 that banned direct or indirect U.S. military aid to
the Contras.
The NSC's illegal activities came to light in November 1986 and aroused an
immediate public uproar. Poindexter and North lost their jobs and were
prosecuted, President Ronald Reagan's public image was tarnished, and the
United States suffered a serious though temporary loss of credibility as an
opponent of terrorism.

29. Reagan Foreign Policy Frayer Model

30. Reagan Foreign Policy
1. What aspect of the Soviet Union did the Reagan administration seek
to exploit to bring its demise?
2. Who was looked at as a Soviet reformer but in the end brought an
end to the Soviet Union?
3. What were the two terms that the Soviet leader used to bring about
political and economic reform?
4. What was the defensive program that President Reagan proposed
that brought the Soviets to their knees?
5. What famous statement did President Reagan make at the
Brandenburg Gate in West Berlin bringing an end to the Cold War?