Homework - Post on Discussion Board Prior to Next Class

If you were President in 2024 and had to choose between

kensian and trickle down economics which would you choose
and why
Supply Side
Economics
• Economist Arthur Laffer argued that the cut in taxes
reduces government spending, and its stimulative effect, by
exactly one dollar.
• According to Laffer, that the tax cut has a multiplier effect on
economic growth. Every dollar in tax cuts translates into
increased demand. It stimulates business growth, which results in
additional hiring.
 Supply Side
Economics
That says what's good for the wealthy will trickle down to
everyone in the society. Proponents believe that
investors, savers, and company owners are the real drivers of
growth.
Advocates of trickle-down economics promise that businesses
will use the extra cash from tax cuts to expand. Investors will
use their tax-cut windfall to buy more companies or stocks.
Owners will invest in their operations and hire workers.

Supply-siders claim that this greater growth will always make

up for the lost tax revenue.
Supply Side Economics – How Well It Worked
President Ronald Reagan put supply-side economics into practice in the 1980s.
He used it to combat stagflation. That's a rare combination of stagnant
economic growth and high inflation. For this reason, supply-side economics is
also called "Reaganomics.

Reagan was an advocate of laissez-faire economics.

He believed that the free market and capitalism would solve the nation's woes.
His policies matched the "greed is good" mood of 1980s America.

Reagan cut the top marginal income tax rate from 70% to 28%. He reduced
the top corporate tax rate from 48% to 34%. That helped boost the economy
out of the worst recession (at that time) since the Great Depression.

Reagan also increased defense spending at the same time. He doubled the
national debt while he was in office. As a result, he was the third greatest
contributor to the U.S. debt ranked by president. He increased the debt by
186%.
 President Ronald Reagan put supply-side
economics into practice in the 1980s. He used it
to combat stagflation. That's a rare combination
of stagnant economic growth and high inflation.
For this reason, supply-side economics is also
called "Reaganomics

Reagan also increased defense

spending at the same time. He
doubled the national debt while he
was in office. As a result, he was the
third greatest contributor to the U.S.
debt ranked by president.
• He increased the debt by
186% Military spending
increased by 11% per year,
from $154 billion in FY 1981 to
$295 billion in FY 1989.
• The federal debt almost
tripled, from $998 billion in
1981 to $2.857 trillion in 1989.
 Top 5 Presidents Who Contributed to
the Debt by Percentage
• Franklin D. Roosevelt (1933-1945)
• President Roosevelt added the largest percentage increase to the national debt. Although
he only added $236 billion, this was an increase of about 1,048% from the $22.5 billion
debt level left by President Herbert Hoover before him. The Great Depression and
the New Deal contributed to FDR's yearly deficits, but the biggest cost was World War II—
it added $186.3 billion to the debt between 1942 and 1945.2
• Woodrow Wilson (1913-1921)
• President Wilson was the second-largest contributor to the debt, percentage-wise. He
added about $21 billion, which was a 723% increase over the $2.9 billion debt of his
predecessor. World War I contributed to the deficits that raised the national debt.2
• Ronald Reagan (1981-1989)
• President Reagan increased the debt by $1.86 trillion, or by 186%. Reagan's
supply-side economics didn't grow the economy enough to offset the lost revenue from
its tax cuts. Reagan also increased the defense budget by 35%.2
• George W. Bush (2001-2009)
• President Bush added $5.85 trillion to the national debt. That's a 101% increase, putting
him in fourth. Bush launched the War on Terror in response to the 9/11 attacks, which led
to multi-trillion-dollar spending on the War in Afghanistan and the War in Iraq. Bush
also dealt with the 2001 recession and the 2008 financial crisis.2
• Barack Obama (2009-2017)
• Under President Obama, the national debt grew the most in dollar terms ($8.6 trillion)
and was fifth by percentage at 74%. Obama fought the Great Recession with an $831
billion economic stimulus package and added $858 billion through tax cuts. Even though
the fiscal year 2009 budget was set by President Bush, Obama added to it with the
23
 The impact of Ronald Reagan's Tax Cuts on America is a topic of ongoing debate,
and opinions on their effectiveness vary. Here are some arguments from both
sides.

Arguments in favor of Reagan's tax cuts: Arguments against Reagan's tax cuts:

Increased Investment: Lower tax rates for businesses and Social Programs and Infrastructure: Some argue that the reduction
investors were intended to incentivize investment in capital, in government revenue due to tax cuts hindered investments in
research, and development. Some argue that this led to social programs, education, and infrastructure. These cuts in public
technological advancements and increased productivity. services may have had long-term consequences for certain
segments of the population.

Inflation Reduction: Reaganomics, which included both tax cuts Budget Deficits: Despite his efforts to cut government spending in
and a tight monetary policy, contributed to a significant some areas, Reagan presided over an increase in federal budget
reduction in inflation during the 1980s. Lower inflation is deficits during his tenure. Critics contend that the combination of
generally seen as a positive outcome because it stabilizes prices tax cuts and increased defense spending led to unsustainable
and provides a more predictable economic environment. deficits that had to be financed through borrowing.

Economic Growth: Proponents argue that the tax cuts helped Income Inequality: Critics argue that Reagan's tax cuts
stimulate economic growth during Reagan's presidency. By disproportionately benefited the wealthy and exacerbated income
reducing individual and corporate tax rates, more money was inequality. The reduction in the top income tax rates and capital
left in the hands of consumers and businesses, which they gains taxes primarily benefited high-income earners and investors,
could spend, invest, or save. This, in turn, led to increased while many middle-class and low-income Americans saw fewer
economic activity and job creation. benefits.
 Arguments against Reagan's deregulation:
Promoting Competition: Proponents Public Safety and Health Concerns: Critics argue that
argue that deregulation increased deregulation sometimes resulted in reduced oversight and
Arguments in favor of Reagan's Deregulation:

competition within industries, leading enforcement of safety and environmental standards,

to lower prices and improved potentially putting the public at risk. For example, lax
efficiency. By reducing government regulations in the financial industry were seen as a
restrictions, businesses had more contributing factor to the savings and loan crisis of the late
freedom to innovate and respond to 1980s and the financial crisis of 2008.
market demands. Income Inequality: Some critics contend that deregulation
Economic Growth: Deregulation was disproportionately benefited corporations and wealthy
seen as a means to stimulate individuals, contributing to income inequality. Less
economic growth by removing regulation could enable businesses to engage in practices
bureaucratic hurdles and fostering that favor shareholders and executives over workers and
entrepreneurship. This, in turn, could consumers.
create jobs and lead to overall Market Volatility: Critics also argue that deregulation,
economic expansion. particularly in the financial sector, contributed to
Consumer Choice: Deregulation in increased market volatility and the risk of financial crises.
sectors like telecommunications and The removal of certain restrictions may have allowed for
transportation provided consumers risky financial practices to go unchecked.
with more choices and often lower Long-term Consequences: Deregulation decisions made
prices. For example, the breakup of during the Reagan era have had long-term effects on
AT&T's monopoly in the various industries. Some argue that these effects, such as
telecommunications industry led to media consolidation in the telecommunications sector,
increased competition and innovation have led to reduced competition and diversity in the
in telecommunications services. marketplace.
 Regeanomics - Trickle Down Theory
REDUCE REGULATIONS
• In 1981, Reagan eliminated
the Nixon-era price controls on
domestic oil and gas. They
constrained the free-market
equilibrium that would have
prevented inflation. Reagan
also deregulated
• cable TV,
• long-distance telephone service,
• interstate bus service,
• ocean shipping.
• eased bank regulations, but that
helped create the Savings and
Loan Crisis in 1989.
• Reagan made minor cuts to
other discretionary programs in
his first few budgets. These
included the Departments of
Commerce, Education, Energy,
Interior, and Transportation.
 Reaganomics trickle down economics
Ronald Reagan did not directly control monetary policy during his presidency; that responsibility
fell to the Federal Reserve, specifically under the leadership of Federal Reserve Chairman Paul
Volcker during the early years of Reagan's administration. However, the monetary policies
pursued by the Federal Reserve during this time played a crucial role in shaping the economic
environment of the era.
The Federal Reserve, under Chairman Volcker, implemented a tight monetary policy to combat
high inflation, which had been a persistent problem in the 1970s. This policy involved raising
interest rates to reduce the money supply and control inflationary pressures, even at the expense
of short-term economic pain. The impact of these monetary policies included:

Short-Term Pain: The high-interest rates and tight monetary policy resulted in a recession in the early
1980s, which led to job losses and economic hardships for some Americans.
Budget Deficits: While the Federal Reserve was focused on controlling inflation, the Reagan
administration pursued tax cuts and increased defense spending, leading to significant budget deficits.
Some argue that these fiscal policies offset the benefits of the tight monetary policy.
Impact on Borrowers: High-interest rates made borrowing more expensive for businesses and
individuals, potentially slowing down investment and consumer spending

Reduced Inflation: One of the primary goals of the tight monetary policy was to bring down high inflation
rates. It was successful in achieving this goal, as inflation rates fell significantly during the early 1980s.
Price Stability: Lowering inflation contributed to greater price stability, providing a more predictable
economic environment for businesses and consumers.
Increased Confidence: The Federal Reserve's commitment to combating inflation helped restore
confidence in the U.S. economy and its currency. This confidence was seen as crucial to long-term
economic stability.
 Reaganomics trickle down economics
Income Inequality: One of the major criticisms is that the benefits of economic growth disproportionately
favor the wealthy, leading to increased income inequality.
Lack of Trickle-Down Effect: Critics argue that the benefits do not necessarily trickle down to the middle and
lower-income classes as anticipated. Instead, wealth concentration among the rich may increase.
Budget Deficits: Tax cuts without corresponding reductions in government spending can lead to budget
deficits, potentially requiring cuts in public services or increased national debt.
Social Programs Impact: Critics assert that reduced government revenue from tax cuts can negatively impact
social programs and services that benefit the less affluent.
Asset Bubbles: Lower interest rates and increased liquidity can contribute to the creation of asset bubbles,
which may lead to economic instability and financial crises

Economic Growth: Proponents argue that by reducing tax burdens on the rich and
corporations, there is more incentive for them to invest, expand businesses, and stimulate
economic growth.
Job Creation: The theory suggests that when businesses have more resources due to lower
taxes, they are likely to create more jobs, reducing unemployment rates.
Increased Investment: Lower taxes are expected to encourage private investment, leading
to improved productivity and innovation.
Global Competitiveness: Advocates claim that reducing corporate taxes can make domestic
businesses more competitive in the global market.
 The question of whether Reagan's defense buildup was good for America is a subject of
debate and depends on one's perspective and priorities. Ronald Reagan's administration
significantly increased defense spending during his presidency, and this buildup had both
positive and negative consequences

National Security: Proponents argue that the defense buildup strengthened America's national security and played a
role in hastening the end of the Cold War. By investing in a modernized and robust military, the United States was
better prepared to deter potential adversaries and respond to global security challenges.
Technological Advancements: The increased defense spending fostered technological advancements in areas such as
aerospace, communications, and computer technology. These innovations had spillover effects into the civilian sector,
contributing to economic growth and technological progress.
Job Creation: The defense buildup created jobs in various sectors, including defense manufacturing, research, and
development. This was especially important during a period of economic recovery and helped alleviate unemployment
in certain regions.
Allied Security: Increased defense capabilities provided a sense of security to America's allies, which was seen as
essential for maintaining global stability and fostering strong international relationships.

Budget Deficits: One of the primary criticisms of Reagan's defense spending was the impact on the federal budget.
The significant increases in defense expenditures, combined with tax cuts, contributed to large budget deficits. Critics
argue that these deficits were fiscally irresponsible and had long-term negative consequences for the economy.
Opportunity Costs: Some argue that the substantial resources allocated to defense spending could have been used for
other important domestic priorities, such as education, healthcare, and infrastructure. The opportunity cost of
prioritizing defense may have hindered investments in critical domestic needs.
Arms Race: Critics contend that the defense buildup contributed to an arms race with the Soviet Union, increasing
tensions between the superpowers. While it may have played a role in ending the Cold War, it also raised the risk of
conflict during that period.
Economic Disparities: The benefits of increased defense spending may not have been evenly distributed. Critics argue
that defense contractors and certain regions benefited disproportionately, potentially exacerbating economic
disparities.

The question of whether Reagan's defense buildup was good for America is a subject of debate
and depends on one's perspective and priorities. Ronald Reagan's administration significantly
increased defense spending during his presidency, and this buildup had both positive and
negative consequences
FOR - Studies That Support Supply-Side
Economics
• The U.S. Department of the Treasury developed a
model showing that the Bush tax cuts increased annual gross
domestic product by 0.7%.16But the model assumes that the
revenues lost by the cuts were offset by reduced fiscal
spending and keeping the budget balanced.
• If instead, tax cuts were offset by future tax increases, the
impact would be negative. The future tax increases would have
to pay off the additional debt.
 AGAINST - Studies That Don't Support
Supply-Side Economics
• A study by the National Bureau of
Economic Research found precise
figures on how much revenue will be
recouped by tax cuts.
• For each dollar of income tax
cuts, only 17 cents will be
recovered from greater
spending.
• Corporate tax cuts do a little
better. Each dollar cut returns
50 cents to revenue. This shows
that, over the long-term, the
revenue lost by tax cuts will be only
partially regained. Without a
decrease in spending, tax cuts lead
to an increase in the budget deficit.
That harms the economy over time.
• In 1980 Reagan campaigned against what he called "out of
control" deficit spending by the federal government. He
identified the source of this "out of control" spending largely as
social welfare programs. Shortly after taking office in 1981
Reagan gave a televised speech to the country in which he
stated:
• "By 1960 our national debt stood at $284 billion.
Congress in 1971 decided to put a ceiling of 400 billion
on our ability to borrow. Today the debt is 934 billion. ...
• We can leave our children with an unrepayable massive
debt and a shattered economy, or we can leave them
liberty in a land where every individual has the opportunity to
be whatever God intended us to be. All it takes is a little
common sense and recognition of our own ability. Together we
can forge a new beginning for America."
-
Ronald Reagan: Address to the Nation on the Economy, Feb. 5, 1
981
Percentage of Disposable Income
Federal Minimum Wage
source:
http://www.faireconomy.
org/research/income_ch
arts.html
What Did Wealthy Individuals Do With The Tax Savings
They Got Rich
In 1981, Reagan significantly
reduced the tax rate from 70% to
50%; in 1986 he further reduced
the rate to 28%

U.S.
Median
Tax Rate
Corporate Lobbyists

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 Positive Outcomes of
Reaganomics:
• Economic Growth and Recovery:
• After a deep recession in the early 1980s, the U.S. economy rebounded.
Between 1983 and 1989, the U.S. saw sustained economic growth,
averaging around 3.5% annually.
• Inflation, which had reached double digits in the late 1970s, dropped
significantly, helping stabilize the economy.
• Tax Cuts:
• The Economic Recovery Tax Act of 1981 significantly reduced personal
income taxes, with the top marginal tax rate falling from 70% to 50%.
These tax cuts increased disposable income for higher earners and
stimulated investment.
• The reduction in corporate tax rates was also designed to encourage
businesses to reinvest and hire more workers.
• Stock Market Boom:
• Lower capital gains taxes and a pro-business environment contributed to
a surge in stock market activity. The Dow Jones Industrial Average saw
significant growth during Reagan's presidency, creating wealth for
investors and retirement accounts.
• Private Sector Investment:
• Supply-side policies, such as deregulation and tax incentives, were
 Negative Outcomes of
Reaganomics:
1.Income Inequality:
1. One of the most significant criticisms of Reaganomics is that the benefits
disproportionately favored the wealthy. While the wealthiest Americans saw their
incomes grow, middle- and lower-income groups saw slower wage growth,
contributing to widening income inequality.
2. The theory assumed that wealth would "trickle down" to all segments of society,
but in practice, this did not materialize for many working-class Americans.
2.Ballooning Federal Deficit:
1. Reagan's tax cuts were not matched by comparable cuts in government spending.
Military spending increased dramatically, and the national debt tripled from around
$900 billion to $2.7 trillion by the end of his presidency.
2. The federal budget deficit swelled, requiring future administrations to grapple with
the consequences of this increased debt.
3.Social Program Cuts:
1. In an effort to reduce government size, Reagan's administration cut funding for
various social programs, including welfare, food stamps, and housing assistance.
Critics argue that these cuts exacerbated poverty and left vulnerable populations
with fewer resources.
4.Job Growth Uneven:
1. While the economy as a whole grew, the benefits of this growth were not evenly
distributed. The manufacturing sector, for example, saw job losses due to
globalization and automation, and many workers in traditional industries did not
benefit from the economic expansion.
5.Corporate Focus on Short-Term Gains:
1. The emphasis on deregulation and lowering corporate taxes led some companies to
HOMEWORK – IN YOUR OPINION WHICH FORM OF
GOVERNMENT IS THE U.S? BE PREPARED TO EXPLAIN