Presentation22

Resurgence of Conservatism

Chapter 22

1980-1992

The Election of

the Great

Communicator

Democrats began the campaign by underestimating California Gov. RonaldReagan’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 thanthe majority opinion but they weren’t, and his foreign-policy views carriedovertones of ideological crusades and “Great Power” confrontation (that led tothe demise of the Soviet Union and communism)—vulnerabilities that PresidentJimmy Carter expected to exploit. Most of this opinion was fabricated by asocialist media in order to shape public opinion against Reagan. But Reagan,the master of television, phrased his conservative views with an air ofreasonableness and geniality, promising prosperity by “getting government offour backs.” Burdened by his failure to free the Americans held hostage by Iran,the weakening of the American image around the world, and by adeteriorating economy that was the worst in 25 years, President Carter saw histhinly based support erode as the voters concluded that Reagan was a safechoice 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 to36 million (with 5.7 million for independent John B. Anderson).

The New Conservatism

In this respect, Ronald Reagan, elected to his first two terms in 1980 wasdifferent. As he memorably observed, “Government is not the solution to ourproblems. Government is the problem.” Reagan’s popularity, coupled withhis support for privatization, his confidence in the American entrepreneurialspirit, and his belief in the moral superiority of the free market went a long waytoward making these positions, ridiculed and despised by socialists andcommunists during the 1960’s and 1970’s intellectually respectable again.

Critics called it the “decade of greed” because of the immense reboundingof the economy after the depths of the Carter economy. That’s hardly asurprise; as Jon Sobran once said, “Today, wanting someone else’s money iscalled ‘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 thisphony claim is that charitable giving—which, after all, represents pretty muchthe opposite of greed—increased substantially during the 1980’s, and at amuch faster rate that it had been increasing in previous decades. In realterms, charitable giving increased from $77.5 billion in 1980 to $121 billion in1989.

Reaganomics

A fix to the unemployment and

inflation of the time.

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)

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 moreprudent.

- Federal oil reserves created to ease future short termshocks (only has proven to be a short term fix- 2 weeks atmost)

- Carter started phasing out price controls on petroleum

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

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

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)

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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.

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

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

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 causedlarge budget deficits because the Democratically-controlledcongress refused to scale back on agreed upon domesticspending

- the U.S. trade deficit expansion contributed to the Savings andLoan crisis (which was nothing compared to the 2008-9 bankingcrisis) Banks got upside-down on their loans.

- covered new federal budget deficits, United States borrowedheavily both domestically and abroad raising national debt $700billion to $3 trillion (Reagan cut but democrats kept spending)

Reagan described the new debt as the "greatestdisappointment" of his presidency

Tax RevenueTax 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

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

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

Perspectives…

President Ronald Wilson Reagan

Clintonomics vs. Reaganomics

Tony Horwitz – journalist

Conservatives vs. Liberals- Redistribution of Wealth

Belgian Prime Minister, Guy Verhofstadt

Ronald

Reagan As seen in the previousvideos, Reagan feelsthat Reaganomics areessential to helping theAmerican Peoplemove forward andgrow economically asReaganomics allowsfor a decrease ininterest rates, inflation,and unemployment.

With Reaganomics,America’s beliefs willgrow in time as thepromises of prosperitywill become true

The pictures above represent Reagan’s pride and approval of the idea of Reaganomics.

Opportunity belief came out ofReaganomics, which peopledidn’t have during this timeperiod

opportunity was achievedthrough Reaganomics foreveryday Americans aseconomic increase providedpeople with items that theywould not normally have

education increased for peopleas they began to grow in theireducation, and the opportunitieseducation provided.

Better jobs=more familyincome to spend

Faith in the people howevermade the ideas of Reaganomicscome true

-Ronald Wilson Reagan

“We who live in free market societiesbelieve that growth, prosperity, andultimately human fulfillment, are createdfrom the bottom up, not the governmentdown. Only when the human spirit isallowed to invent, and create, only whenindividuals are given a personal stake indeciding economic policies…only then cansocieties remain economically alive,dynamic, progressive, and free.”

A quote connecting Economics to Society by Ronald Reagan.

Conservative or Liberal???? Redistribution of Wealth…

“For conservatives, wealth is redistributed by companies, via profits. What is not returned to the masses directly (to employees in the form of pay and benefits) is passed on to the consumer in terms of goods and services (both products and charity work that many corporations participate in.) For liberals, wealth is redistributed by the government, via taxes. What is not returned to the masses directly (rebate checks, for instance) are returned in

(Reaganomics, Wealth Distribution…)

A Foreign Look on Reaganomics

“When I think of Reagan, I'm thinkingof Reaganomics and the Laffer curve.Do you remember: a tax cut couldcreate more revenues! Reagan is deadnow, but several of his ideas are nowself-evident”

-Guy Verhorstadt (BelgianPrime Minister)

(Reaganomics, as a Success Story)

Belgium loves Reaganomics

-On the global scale, other governments, likeBelgium, find Reaganomics helpful as they seepluses in the lowering of taxes.

-As the government lowered the estate and gifttaxes, the government got a higher revenue.

-This allows for a higher amount of money thegovernment can use for public works, alongwith up-keeping and the maintaining of themilitary to protect the nation.

(Reaganomics, a Success Story)

Belgium loves ReaganThe Following 6 points are how the Belgian government used Reaganomics.

1) gradual but considerable cut of the highest marginal tax rates to 28%.

2) complete abolition of corporate taxes, with a repeal of all subsidies to corporations

3) abolition of taxes on dividends: Investment and risk taking has to be encouraged, not punished

4) abolition of all agricultural subsidies

5) shrinking of the size of government

6) abolition of the transfers of tax money from Flanders to Wallonia: 10 billion euro is transferred each year from the Flemish tax payers to the French speaking part of Belgium. The reason invoked for these transfers is that Wallonia has an unemployment rate of 18% compared with 8% for Flanders

(Reaganomics a Success Story)

Guy Verhorstadt (left).

How Reaganomics is working

in Belgium.

Reagan Economics Concept Map

Definition

Results

Policies and Actions

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 toovercome?

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 whiledecreasing tax rates to the citizens?

The World Begins to Thaw

In May 1981, at Notre Dame University, the recently inaugurated Reaganpredicted that the years ahead would be great ones for the cause of freedomand that Communism was “a sad, bizarre chapter in human history whose lastpages are even now being written.” At the time few took his words for morethan a morale-boosting exhortation, but in fact the Soviet economy and politywere under terrific stress in the last Brezhnev years, though the Soviets did theirbest to hide the fact. They were running hidden budget deficits of 7 or 8percent of GNP, suffering from extreme inflation that took the form (because ofprice controls) of chronic shortages of consumer goods, and falling fartherbehind the West in computers and other technologies vital to civilian andmilitary performance. The Reagan administration recognized and sought toexploit this Soviet economic vulnerability.

Young, educated, and urban members of the Communist elite came graduallyto 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 asBrezhnev was followed by Andropov, then by Chernenko. The reformers finallyrose to the pinnacle of party leadership, however, when Mikhail Gorbachevwas named general secretary in 1985. A lawyer by training and a loyalCommunist, Gorbachev did not begin his tenure by urging a relaxation of theCold War. Gorbachev was a phenomenon, charming Western reporters,crowds, and leaders (Prime Minister Margaret Thatcher was especiallyimpressed) with his breezy style, sophistication, and peace advocacy. Whatconvinced most Western observers that

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.

Perestroika and Glasnost

Perestroika (Russian: restructuring) was the term used by Soviet president MikhailGorbachev to describe his program of political and economic reforms,implemented between 1985 to 1991. It was closely linked to his concepts ofglasnost (openness) and democratization. The aim of perestroika was torejuvenate the Soviet system. Instead, the forces of change unleashed byGorbachev’s reforms led to the breakdown of the system and the dissolution ofthe USSR. The political reforms included a restructuring of the Soviet centralgovernment, a relaxation of censorship, and an end to the Communist party’smonopoly of power. Among the economic changes were a reintroduction oflimited private enterprise, a more flexible price structure, and decentralization ofeconomic decision making. In foreign policy, perestroika led to the breakup ofthe 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 aseries of crises that ended in the failed coup of August 1991 and the subsequentdemise of the Soviet Union.

Glasnost (Russian: publicity or openness) was the word used by Soviet leaderMikhail Gorbachev to describe his program of liberalizing the strict censorshippolicy 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

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.

End of the Cold War

Reagan’s performance at a second summit conference with Soviet leaderMikhail Gorbachev in Iceland during October 1986 (the first meeting had beenin 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 agreementto 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 eliminatedintermediate-range missiles in Europe. Reagan visited Moscow in the spring of1988.

As Reagan left Washington for retirement in California, his poll ratings were thehighest (two-thirds of those polled approved of his performance) of anypresident since World War II.

Mikhail Gorbachev’s espousal of “new thinking” in foreign policy, with itspromise of more friendly relations with the West, won him much popularityabroad. Within the Soviet Union, however, Gorbachev’s reform programencountered political opposition, bureaucratic obstruction, and popularskepticism. At his behest, the Soviet Communist party gave up its Leninist claimto a monopoly of political power, grudgingly accepting a degree of politicalpluralism and the prospect of genuine parliamentary democracy. Thisalienated Communist hardliners without satisfying radical reformers, many ofwhom

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.

End of the Cold War (cont’d)

U.S. President Ronald Reagan speaking in front of the Brandenburg Gate at the

Berlin Wall. He made his famous speech to end the Cold War stating, “Mr.

Gorbachev, tear down this wall!”

Grenada Invasion

On March 13, 1979, while Prime Minister Gairy was out of the country, the NewJewel Movement (NJM) staged a bloodless coup, proclaimed a People'sRevolutionary Government (PRG), and named their leader, Maurice Bishop, asprime minister. The new government faced opposition from Western nationsbecause of its socialist principles, but it embarked on a program to rebuild theeconomy, which had been left in disarray by Gairy. The PRG administrationwas 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 islandoverthrew the coup leaders and returned power to the governor-general, SirPaul Scoon. In December Scoon appointed Nicholas Braithwaite, a formerCommonwealth official, to head a governing council until an election could beheld, and constitutional government was restored. A peacekeeping forceremained until 1985. The election, held in December 1984, was won by the NewNational Party headed by Herbert A. Blaize, who had led the government in the1960s. The new government sought to revive tourism, but Grenada's continuingeconomic problems throughout the late 1980s contributed to the government'sdwindling popularity. Following an election in March 1990, Braithwaite, whoseNational Democratic Congress fell one seat shy of a parliamentary majority,was appointed prime minister by Scoon.

Iran-Contra Affair

U.S. political scandal in which the National Security Council (NSC) becameinvolved in secret weapons transactions and other activities that either wereprohibited by the U.S. Congress or violated the stated public policy of thegovernment. In early 1985 the head of the NSC, Robert C. McFarlane, undertookthe sale of antitank and antiaircraft missiles to Iran in the mistaken belief that sucha sale would secure the release of a number of American citizens who werebeing held captive in Lebanon by Shiʿite terrorist groups loyal to Iran. This andseveral subsequent weapon sales to Iran in 1986 directly contradicted the U.S.government's publicly stated policy of refusing either to bargain with terrorists orto aid Iran in its war with Iraq, a policy based on the belief that Iran was a sponsorof international terrorism. A portion of the $48 million that Iran paid for the armswas diverted by the NSC and given to the Contras, the U.S.-backed rebelsfighting to overthrow the Marxist-oriented Sandinista government of Nicaragua.The monetary transfers were undertaken by NSC staff member LieutenantColonel Oliver North with the approval of McFarlane's successor as head of theNSC, Rear Admiral John M. Poindexter. North and his associates also raisedprivate funds for the Contras. These activities violated the Boland Amendment, alaw passed by Congress in 1984 that banned direct or indirect U.S. military aid tothe Contras.

The NSC's illegal activities came to light in November 1986 and aroused animmediate public uproar. Poindexter and North lost their jobs and wereprosecuted, President Ronald Reagan's public image was tarnished, and theUnited States suffered a serious though temporary loss of credibility as anopponent of terrorism.

Reagan Foreign Policy Frayer Model

Reagan Foreign Policy1. 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 anend to the Soviet Union?

3. What were the two terms that the Soviet leader used to bring aboutpolitical and economic reform?

4. What was the defensive program that President Reagan proposedthat brought the Soviets to their knees?

5. What famous statement did President Reagan make at theBrandenburg Gate in West Berlin bringing an end to the Cold War?