Why China shouldn't adopt Reaganomics

By Liu Ge
0 Comment(s)Print E-mail China.org.cn, October 4, 2014
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Reagan gives a televised address from the Oval Office, outlining his plan for tax reductions in July 1981

In the mid-1970s, the United States was dragged into the first large-scale economic recession since World War II due to the oil crisis and structural problems within the country's economy. What made that recession more difficult to address than others was "stagflation," namely, the closing of enterprises and the increasing unemployment accompanied by high inflation.

Americans responded to the crisis by voting Jimmy Carter, who seemed to be at his wit's end, out of office and turning to Ronald Reagan, a former Hollywood celebrity who not only defeated Carter in the 1980 presidential election but also helped land more than half of the seats in the Senate for his Republican Party, which laid a sound foundation for his later reform.

A former Democrat who supported Roosevelt's New Deal, Reagan converted to the Republican Party in 1962 and got himself elected as the governor of the State of California in 1966. Those who have a similar experience converting to another political ideology often turn out to be staunch advocates for their new convictions.

Reagan abandoned the Keynesian approach which the U.S. government had been practicing since the Great Depression and introduced supply-side economics. The resulting reduction of taxes, deregulation, and the tightening of the country's money supply dealt a further blow to the U.S economy, which was already in great trouble, and the new policy received much public criticism. But Reagan did not back down or compromise.

After nearly two years of economic recession, the U.S. climbed out of its economic quagmire and started an all-around recovery in the beginning of 1983. Its GDP grew by a staggering 6.5 percent that year, with 3.5 million new jobs created. Meanwhile, the inflation rate decreased significantly from 12.4 percent in 1980 to 5.1 percent in 1982.

The economic recovery won over those who had previously been suspicious of Reagan's methods, and he won a landslide victory in his second-term election.

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