ShmoopTube

00:03

We know a president has done something momentous when a new word [President Reagan in front of the American flag]

00:07

is made up with their name in it, like Reaganomics. Well Reaganomics is the term

00:12

for Reagan's tax cutting government spending free market loving philosophy.

00:16

He sung its praises throughout the 80s, hopefully in the form of a face melting

00:19

stadium anthem. Like every president ever he wasn't able to fully realize his [Reagan dancing in front of disco lights]

00:24

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]

00:28

the good, the bad and the hideously deformed... Well no one disagrees that America's

00:32

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]

00:37

we had to invent a whole new word for it, stagflation. And no we're not talking an

00:42

infestation of inflatable male deer... To whip up a batch of stagflation we [Inflatable animals start to float]

00:47

first need a cup of stagnant economy, kinda where no new jobs are being created.

00:53

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]

00:57

prices. So for those of us keeping score at home, stagnation plus inflation equals

01:03

stagflation. Well Reagan inherited this stag problem and set out to try and fix

01:08

it by scaling government and taxes way back, according to Reagan "government

01:12

is not the solution to our problems government is the problem." Well but [Reagan talking in front of the American flag]

01:16

before any gain there was going to be a lot more pain. Through most of the first

01:20

two years of Reagan's first term America got a heaping dose of recession, the [Woman looks shocked by giant spoonful of 'recession']

01:25

downturn's severity mostly came from the machinations of Federal Reserve Chairman, Paul Volcker.

01:30

Paul Volcker was determined to get the inflation part of stagflation

01:33

under control by any means necessary, like a game of thrones warrior Volcker ['Inflation' tied up with ropes]

01:38

promised to slay the inflationary dragon, hope he watched out for the inflationary Kalissey.

01:43

Whatever the case it was hard fought battle, Volcker combatted the

01:47

inflation with a monetary contraction. Which surprisingly he isn't part of the

01:51

birthing process, it just means that Volcker sharply curtailed the growth of [Baby playing with a toy]

01:55

the money supply and in the end Volkers main goal was cheap the inflation rate

02:00

fell from a devastatingly high rate of 13.5% in 1980 to just

02:05

3.2% by 1983. Well the inflation dragon fell flaming from the

02:10

skies. No word on where Kalissey was... [Inflation dragon falls and is on fire]

02:13

However these policies also produced a sharp jump in the real interest rates that contributed

02:18

to the brutal recession of 1980 through 1982. National unemployment rate exceeded

02:23

10% throughout 1982. This meant that more Americans were jobless than at

02:28

any time since the Great Depression. While unsurprisingly President Reagan's [Long queues of people]

02:32

public approval rating bottomed out at just 35% that same year.

02:36

Well still Reagan and Volker stuck to their guns, Reagan had starred in cowboy

02:40

movies so he knew all about that. Both men's patience paid off after 1983 when [Reagan dressed as a cowboy]

02:45

with inflation under control at last the economy began growing again and it kept

02:51

growing and people were going back to work. Seriously it was like someone dumped [Plant begins to grow]

02:54

miracle-gro on it. Anyway the growth continued unabated through the rest of [Plant grows extremely fast]

02:58

Reagan's two-term presidency, it was actually the longest peacetime period of

03:02

unbroken economic expansion that had been seen in American history. An even

03:07

longer boom would occur a decade later during a Bill Clinton presidency but in [Bill Clinton reading 'Ronald Reagans Playbook']

03:10

many ways Clinton cribbed off Reagan's playbook. Overall between 1981 and 1989 real

03:15

GDP per capita increased by nearly twenty-three percent well in the same

03:20

time the value of the stock market more than tripled. The Stock market was taking off [Dollar signs]

03:24

and many Americans got in on the great game making off like bandits. Well in 1980

03:29

just 4,400 American taxpayers had claimed an annual income of more than a

03:34

million bucks. By 1987 more than 35,000 did, while middle-class investors also

03:40

got in on the feeding frenzy in 1978 congress created the 401k tax-deferred [Lots of seagulls flying around]

03:45

retirement plan which provided new incentives for workers to invest their

03:49

savings in the stock market. The percentage of american households owning

03:53

some stake in the market either directly or through mutual funds shot quickly up [Guy holding up money]

03:57

from 15.9 percent 1983 to almost thirty percent in 1989 and that's in part how

04:04

the great bull market of the 1980s created more wealth for American families [Person riding a bull]

04:08

than any previous boom in history. That bull market changed when it saw green.

04:13

Of course things were only awesome for thirty percent of american households at

04:17

that point, that still left about seventy percent of Americans not yet invested in [Man surrounded by dollar bills]

04:21

the market and boy would that change in the next couple of decades.

04:25

Those who didn't have the money to invest got diddly-squat, yeah save your [Man looks shocked]

04:28

pennies, invest in the market, believe in America. And while the financial sector

04:32

was doing great the world of industrial manufacturing was doing, worse. The

04:36

blue-collar working class was in more and more trouble by the day, during the [Man wearing a hard hat looks confused]

04:39

Reagan era the wealthiest one-fifth of american households those who naturally

04:43

owned the most stock saw their incomes increased by fourteen percent, while the

04:47

poorest one-fifth while they mostly owned no stock and were dealt with an [Rough looking man down a boarded up street]

04:50

income decline of twenty four percent, while the income of the middle

04:54

three-fifths of american families stayed more or less flat. The wall street bull [Woman and her dog watching TV]

04:57

market helped some but not all and it definitely didn't help the wall street matador.

Full Transcript