What was Reaganomics? What were the long-term and short-term effects of Ronald Reagan's economic policies?

Reaganomics is the name given to the economic
policies pursued by the Reagan Administration. In broad terms, these involved challenging the
political and economic consensus that had prevailed since the New Deal in the 1930s. This
consensus held that government had an important role to play in running the economy. In
particular, it was widely accepted that governments should intervene in the economy in order to
ensure a persistently high level of employment.

By the late 1970s, this
consensus came under sustained attack as the American economy, in common with most economies of
the industrialized West, experienced major difficulties. A perfect storm of high inflation and
high unemployment caused many to argue that the prevailing consensus was no longer sustainable.
A new approach had to be triedone that significantly reduced the role of government in running
the economy.

According to these arguments, the government had become way too
big and was spending way too much money, crowding out investment that would otherwise be
provided by the private sector. What was needed was for the government to get out of the way,
cut taxes and spending, and allow businesses to get on with creating jobs. Broadly speaking,
this was the approach to economic policy that characterized Reagan's presidency.

In the short term, substantial cuts to government spendingfor instance, in welfare
provisionled to a large increase in poverty. Unemployment also dramatically increased as the
Federal Reserve hiked interest rates in order to bear down on inflation. Manufacturing was
particularly hard-hit by the higher cost of borrowing, and many of the old industries, such as
coal mining and steel, were decimated. To this day, entire communities across the Midwest still
remain adversely affected by the loss of these industries.

At the same time
as cutting government spending in some areas, the Reagan Administration dramatically increased
it in others, such as defense and national security. The massive hike in defense spending,
combined with tax cuts, led to an enormous increase in the deficit, which would prove to be one
of the main long-term economic legacies of the Reagan Administration.

Also in
the long-term, the gap between rich and poor widened substantially as the wealthiest members of
society benefited from cuts in the top rate of tax, while the poorest lost out from dramatic
reductions in public spending.