U.S. History 1877-Present 13.2a: Reaganomics
Stagflation and Reaganomics may sound like the hip new superhero/sidekick duo, but they’re not quite as fun as they sound.
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vision but like every president ever he took a swing at it. Let's dig in and find [Baseball bat swings at 'economy' and it explodes]
the good, the bad and the hideously deformed... Well no one disagrees that America's
economy was injured and injured bad when Reagan first took office, it was so awful ['American' economy sat in a wheel chair with bandages on]
we had to invent a whole new word for it, stagflation. And no we're not talking an
infestation of inflatable male deer... To whip up a batch of stagflation we [Inflatable animals start to float]
first need a cup of stagnant economy, kinda where no new jobs are being created.
For that extra touch of terrible we add a dollop of inflation or the increase of [Wooden spoon of 'inflation' is added to a pan]
prices. So for those of us keeping score at home, stagnation plus inflation equals
stagflation. Well Reagan inherited this stag problem and set out to try and fix
it by scaling government and taxes way back, according to Reagan "government
is not the solution to our problems government is the problem." Well but [Reagan talking in front of the American flag]
before any gain there was going to be a lot more pain. Through most of the first
two years of Reagan's first term America got a heaping dose of recession, the [Woman looks shocked by giant spoonful of 'recession']
downturn's severity mostly came from the machinations of Federal Reserve Chairman, Paul Volcker.
Paul Volcker was determined to get the inflation part of stagflation
under control by any means necessary, like a game of thrones warrior Volcker ['Inflation' tied up with ropes]
promised to slay the inflationary dragon, hope he watched out for the inflationary Kalissey.
Whatever the case it was hard fought battle, Volcker combatted the
inflation with a monetary contraction. Which surprisingly he isn't part of the
birthing process, it just means that Volcker sharply curtailed the growth of [Baby playing with a toy]
the money supply and in the end Volkers main goal was cheap the inflation rate
fell from a devastatingly high rate of 13.5% in 1980 to just
3.2% by 1983. Well the inflation dragon fell flaming from the
skies. No word on where Kalissey was... [Inflation dragon falls and is on fire]
However these policies also produced a sharp jump in the real interest rates that contributed
to the brutal recession of 1980 through 1982. National unemployment rate exceeded
10% throughout 1982. This meant that more Americans were jobless than at
any time since the Great Depression. While unsurprisingly President Reagan's [Long queues of people]
public approval rating bottomed out at just 35% that same year.
Well still Reagan and Volker stuck to their guns, Reagan had starred in cowboy
movies so he knew all about that. Both men's patience paid off after 1983 when [Reagan dressed as a cowboy]
with inflation under control at last the economy began growing again and it kept
growing and people were going back to work. Seriously it was like someone dumped [Plant begins to grow]
miracle-gro on it. Anyway the growth continued unabated through the rest of [Plant grows extremely fast]
Reagan's two-term presidency, it was actually the longest peacetime period of
unbroken economic expansion that had been seen in American history. An even
longer boom would occur a decade later during a Bill Clinton presidency but in [Bill Clinton reading 'Ronald Reagans Playbook']
many ways Clinton cribbed off Reagan's playbook. Overall between 1981 and 1989 real
GDP per capita increased by nearly twenty-three percent well in the same
time the value of the stock market more than tripled. The Stock market was taking off [Dollar signs]
and many Americans got in on the great game making off like bandits. Well in 1980
just 4,400 American taxpayers had claimed an annual income of more than a
million bucks. By 1987 more than 35,000 did, while middle-class investors also
got in on the feeding frenzy in 1978 congress created the 401k tax-deferred [Lots of seagulls flying around]
retirement plan which provided new incentives for workers to invest their
savings in the stock market. The percentage of american households owning
some stake in the market either directly or through mutual funds shot quickly up [Guy holding up money]
from 15.9 percent 1983 to almost thirty percent in 1989 and that's in part how
the great bull market of the 1980s created more wealth for American families [Person riding a bull]
than any previous boom in history. That bull market changed when it saw green.
Of course things were only awesome for thirty percent of american households at
that point, that still left about seventy percent of Americans not yet invested in [Man surrounded by dollar bills]
the market and boy would that change in the next couple of decades.
Those who didn't have the money to invest got diddly-squat, yeah save your [Man looks shocked]
pennies, invest in the market, believe in America. And while the financial sector
was doing great the world of industrial manufacturing was doing, worse. The
blue-collar working class was in more and more trouble by the day, during the [Man wearing a hard hat looks confused]
Reagan era the wealthiest one-fifth of american households those who naturally
owned the most stock saw their incomes increased by fourteen percent, while the
poorest one-fifth while they mostly owned no stock and were dealt with an [Rough looking man down a boarded up street]
income decline of twenty four percent, while the income of the middle
three-fifths of american families stayed more or less flat. The wall street bull [Woman and her dog watching TV]
market helped some but not all and it definitely didn't help the wall street matador.