What is Reaganomics?


“Reaganomics, or supply-side economics, is a highly politicized term, which can be interpreted many different ways. In brief, Reaganomics is based on two key ideas: lower taxes and smaller government. Or in Reagan’s words “government is the problem.” A new school of thought gradually arose. It argued that the competitive nature of free markets (free of government regulation) made markets the best means to distribute economic resources. Businesses have to be innovative and create wealth to survive. This anti-government view saw businesses as the “goose that lays the golden eggs” and government regulation and taxes as “strangling the goose”. Reagan partially agreed with this anti-government view and sought to stimulate the economy by lowering taxes, financed by borrowing. He argued that lowering taxes will revive the economy. When the economy revived, the increased tax revenues will be used to pay off the debt. Excluding military spending, he argued for broad cuts in government spending,