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the Reagan Era Report
(updated Nov. 2000)
By Michael Hodges - email

- a chapter of the Grandfather Economic Reports -

FACTS - - - Government in the 'REAGAN ERA' in PERSPECTIVE

(this page is a part of the Grandfather Economic Report series, a review of economic trends revealing threats facing young families and youth, compared to prior generations - displaying hard data evidence from reliable sources in color graphic form on subjects such as debt, government, family incomes, social security, international trade, regulations, inflation, productivity, voter turnout, trust, healthcare, national security, defense, energy and education. A table of contents is on the home page. The page you are now visiting explores the Reagan Era)

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Many talk about the 1980's" (referring to it as the 'Reagan Era'). There appears to be much misinformation regarding certain economic and security indicators during this period, for various reasons - - political and otherwise. This report looks at certain hard data, from reliable sources. What are some facts?

Some call the era a 'revolution'. Was it?

- First a short summary and a conclusion - - followed by the meat -

SUMMARY of Reagan Era

The 'REAGAN ERA' was revolutionary, AND an instructive pointer for the future

  1. The first era in 50 years that the private sector share of the economy was not reduced by government expanding its share of the economic pie faster than economic growth. In fact, government's share was reduced for the first time.
  2. Federal social spending ratios stopped rising, and fell, for the first time in over 3 decades.
  3. The early 1980s was the first interruption in the rapid up-swing of federal regulatory activity spending in 2 decades. In fact, during the 1980s, said spending declined in real terms - - only to resume its fast upward pace in the 1990s.
  4. Taxes were reduced by large amounts, and the economy expanded together with a new climate of competition and regulatory burden reductions.
  5. A decade of declining real median family income was reversed to the upside.
  6. Double digit inflation and interest rates were eliminated.
  7. Debt increased due to lack of congressional spending cuts following tax cut approval, but debt ratios were higher 9 years later.
  8. International terrorism was faced head-on.
  9. The Evil Empire was brought to its knees, without increasing the defense spending ratio, ending a 40-year cold war.
  10. A 2-decade slide in voter turnout and citizen trust in government was reversed, only to collapse to new lows in the 1990s.


I believe many readers of the evidence to follow later in this report will reach a similar conclusion, which is summarized by two apparent core principals:

1. "Government is too big." President Reagan and his advisors, in his first term and at the peak of his physical health, purposefully and successfully implemented core policies to rein-in government growth as a share of the U.S. economy, by stopping the run-away growth of social spending ratios and regulatory costs, and to reduce the potential dependence of citizens on big government - - to improve the economic and competitive health of the pure private sector - - aimed toward more economic freedom and living standards for average citizens. And, he would accomplish this turning by the only viable means politically open to him - - by a significant reduction in taxes - - to force down spending, and if not immediately successful, such would force down future spending under the threat of budget deficits.

2. "Evil Empire Tear Down the Wall." President Reagan was determined that no nation or tyrant would 'push around' America - - and that the power, intimidation threats and bluffs of the Soviet Union and terrorists would be brought to a halt. America, in his view, would 'stand tall in the saddle.' His favorite phrase about many things was 'Trust but verify.'

Whether such a core philosophy is agreeable or not to the reader, most must agree that the following evidence points toward the above 2 items - and that, as intended, the Reagan Era legacy has left a clear mark on U.S. & world history for a long time - which will continue for years to come - - such a philosophy can be expressed by 'the least government is best' (as often expressed by Thomas Jefferson, and by Alexander Hamilton in the Federalist Papers), and 'socialism is dead.'


The 1980's began against very dangerous back-drops: Government spending was rising faster than growth of the economy, growing from 12% of the economy to 43% by 1980, especially social spending ratios climbing 10 times faster than the economy; the share of the economy left to the free-market private sector had been significantly compressed - - primarily due to social spending ratios exploding upwards 1,400% over 35 years; debt ratios which had fallen for decades stopped falling in the early 1970s and started up; top personal tax rates had previously increased to a stifling 70% level; productivity was down; real median family incomes had stopped growing in 1970, stagnated and were falling as the 1980s approached; rates of inflation and interest were at near historic highs as government airport controllers went on strike; regulatory cost burdens on the productive part of the economy had zoomed; the international value of the U.S. dollar had declined 50% during the prior decade; America's balance of trade was moving steadily negative. America was not feeling good about itself.

Coupling these negative economic issues of great magnitude and trend, our national security was threatened. The 'tooth-less tiger' was being challenged in all corners. Minor terrorists held citizens without challenge, as grammar school-like rescue missions failed. The Soviet Union was in another expansion mode of threat with missile power from submarines, plus its new Latin American strategy from the Falklands to Central America, as some made excuses. Further, Europe was caving and playing 'better Red than Dead' by not standing firm against Russia, not only disallowing our use of bases and over-flights to wipe out terrorists, but calling for removal of our European-based Pershing missiles. Americans were nervous. The world was nervous.

Enter the REAGAN ERA - - 1980-88. Dramatic results were realized as major negative trends were slowed or reversed. This was good news for some, and bad news for others. Good for family incomes and the productive private sector, but bad for pro-big government knows-best people and social planners. This was good news for citizens concerning their security and national pride, but bad news for those who would bury us - - from minor terrorists, to terrorist nations (Iran, Libya) to major nuclear threats with a Latin America flank plan underway from our south (Soviet Union).


[author comment: Methodology can play a part. Here spending should not be viewed only in absolute terms. It is here viewed in terms of spending as a percentage of the economy to properly compare with prior and later eras. Family incomes are inflation adjusted, etc. Trying to be very careful with starting and ending dates, the author allowed just a one year lag for government spending data, trying to give some small form of reality to the fact there is a lag in results following implementation of actions. Example: 1981 might be used as a start, instead of 1980. Some might prefer a shorter or longer lag, but the main thrust of this report is looking for major changes of direction compared to pre-Reagan and post-Reagan periods, rather than being hung-up on minor points.]


At the end of the 1980s the Soviet Union collapsed, largely due to the policies of the Reagan Era, resulting not only in increased security for U.S. citizens but leading the way to a dramatic end of the cold war, and an end to the need for continuing such huge levels of defense spending associated with same for the prior 4 decades.

In the the 1990s the unified budget deficit simply disappeared and the is now in surplus. Why did this occur? One reason is what columnist James Glassman terms "the Reagan boom."

The Reagan tax cut fueled an era of economic expansion that began around 1983 and has, with a few hiccups, continued through the 1990s. Economic growth also helped to provide much of the venture capital for the technological revolution that itself accelerated the pace of economic growth, creating an upward spiral that has raised the Dow Jones average from 800 in 1982 to over 11,000 today. This explosion of wealth has generated a windfall in tax revenue for the treasury. The second reason for the disappearance of the deficit is huge defense savings since the end of the Cold War. Mr. Reagan's policies contributed to the demise of the regime he called an "evil empire," and as a consequence America is now spending $150 billion less every year than before the Berlin Wall fell. These savings, which are likely to continue indefinitely into the future, would not have been possible without Mr. Reagan's determination to win the Cold War. These facts give rise to a tremendous irony: the very man who was blamed for the deficits of the 1980s, Ronald Reagan, is largely responsible for the budget surpluses of today. Mr. Reagan is fading into the sunset, but his legacy endures. There is little doubt that history will recognize the magnitude of his achievement. (note - portions of above paragraph taken from Dinesh D'Souza, a John M. Olin scholar at the American Enterprise Institute and author of "Ronald Reagan: How an Ordinary Man Became an Extraordinary Leader.")



We have seen in the Government Size Report, and in the Federal Government Spending Report, that total government spending has grown 4 times faster than the economy's growth, and the federal government sector alone has grown 10 times faster than the economy. Additionally, we have seen in the Debt Report that federal debt per capita is over $20,000 per man, woman and child - - the highest in history - - going straight up. Nobel laureate Milton Friedman views about the effectiveness of government spending were that it is the high level of total government spending that is the problem. I, concur with his 'its the high level of total (meaning federal + state/local) government spending that is the problem'. Friedman also said, 'I am convinced in all my studies that governments will continue to spend all revenues they receive (plus some more), and am further convinced the only solution to reducing spending is to reduce revenue (taxes).' And, as this Reagan era report shows, when one reduces taxes the spending may not be reduced at first, but such revenue loss definitely produces deficit scare-pressures, which in turn causes political pressures which in turn forces a spending slowdown (restraint) below what would occur without tax cuts. (had Bush & Clinton, in the 1990s, not reversed that course by their record tax increases, the Reagan action could have resulted in earlier spending cuts than occurred - and, less resulting debt).

Tax cuts as an effective means of reducing government, as articulated by Milton Friedman, were put into practice and proven in the Reagan era. And, there can be little doubt that this action put pressure on the deficit side which thereby restrained future spending. Never before in history has there been so much talk about debt and deficits, than after the tax cuts of the Reagan era - - thereby placing a continued restraint on the future growth of government for years to come.

Taking this a step further, if one now calls for a significant reduction of debt principal (not just deficit reduction), then politicians should be required to have debt principal payments in each budget - - not just the interest. If reduced spending is a goal then all approaches to accomplish same are viable - by tax cuts and/or debt principal reduction. Of course whenever one calls for tax cuts, then those for big government spending know tax cuts will force multi-year spending cuts, eventually - - and they use as a turf-protecting defense that all tax cuts are 'for the rich' to de-rail said efforts. If the budget includes debt principal amortization, then again spending cuts must occur to accommodate said payments - - but in this case pro-social spenders cannot claim 'for the rich' as their defense. From this, I conclude that those against reducing debt principal, taxes and spending are in fact in the camp of those for big government.

I am for debt reduction AND tax cuts as a means of realizing lower spending ratios, AND lower debt, as a beneficial bequest to the next generation. The REAGAN ERA was a proving ground for the effectiveness of this objective. What did not happen, was a follow-through by the next two administrations, as they sought to reverse his course via massive tax increases and social agendas. However, the power of the Reagan initiative is still alive and well - - potentially impacting America's economic future in a very positive manner - - as our nation approaches an important Cross-Road in its history.

It is clear economic policies in place 1988-1994 have not supported an acceptable level of economic growth, and government at all levels is thereby exposed to the necessity of spending cuts at the federal and state/local levels. That is, provided it is a desired national policy to improve real median family incomes, including full-time employed male worker incomes, and living standards long-term. Such can more likely occur if the share of the economy devoted to the private sector is increased significantly - -provided it is the intent of the American people to believe in and honor the wisdom of our founding fore-fathers - - Thomas Jefferson said, 'government is best that governs least' and that 'public debt as the greatest of the dangers to be feared.' And, The Federalist Papers of Alexander Hamilton and other thinkers who created our constitution called for small, limited government - - consistent with 4 principal functions (national defense, internal security, trade between states, trade between nations), where debt was to be paid-off. They said nothing about social spending or 'cradle to grave entitlements' as a function of government, and would turn in their graves if they knew by 1997 44% of the economy of America is government-spending dependent, and that our debt was not only the highest in peace-time history but was heavily and increasingly owed to foreign interests.

ACTION: We must reduce both spending and debt ratios, without threatening the number 1 priority of government - its national defense. Ideally, we would like to first cut social spending and debt, and only provide tax cuts after this is done. But, historically politicians have not cut spending, as they are selfishly fearing for their jobs - - and believe they cannot survive without support from big-government-spending special interest groups with the greatest special interest in that $2.6 trillion in federal, state and local government spending.. Therefore, we must cut taxes first in order to place the pressure on the spending and debt sides - - the same formula employed by President Reagan. Opponents will fight tax cuts that cause spending cuts, using 'for the rich' as their defense. Therefore, tax cuts must be perceived as also benefiting families, to counter that false defense. At the same time, we should push into the budget a debt principal amortization plan, including rapid elimination of all debt to the social security and federal employee pension trust funds which was created to paper-over the siphoning-off of all trust surpluses which wer spent on other things (siphon report).

For a plan format of spending and debt targets, see the 'Bite the Bullet Plan'

CLEARLY, the 'REAGAN ERA' was revolutionary, AND an instructive pointer for the future

The pluses and minus provide a model for serious study should it be desired to set our economy on a course toward increasing standards of living to enhance the economic potential for our children and grandchildren - - by significantly reducing spending and debt ratios.

It is the opinion of the author that this can be realized only by increasing the Private Sector portion of our economic pie, with a target to the ratios achieved before and after World War II which led to strong growth in real family incomes and savings, and voter turn-out and trust in government.

[For an in-depth study of the Reagan Era, a thorough Policy Analysis report by the Cato Institute (Oct. 1996) is referenced on the Grandfather LINKS Page ]. Following are several other related links:

Reagan's biography and cabinet officers.

A Time for Choosing, aka The Speech - "The Founding Fathers knew a government can't control the economy without controlling people. And they knew when a government sets out to do that, it must use force and coercion to achieve its purpose. So we have come to a time for choosing."

The Evil Empire - "What I am describing now is a plan and a hope for the long term -- the march of freedom and democracy which will leave Marxism-Leninism on the ash heap of history as it has left other tyrannies which stifle the freedom and muzzle the self-expression of the people."

President Reagan's First Inaugural Address - "It is no coincidence that our present troubles parallel and are proportionate to the intervention and intrusion in our lives that result from unnecessary and excessive growth of government."

President Reagan's Second Inaugural Address - "I will shortly submit a budget to the Congress aimed at freezing government program spending for the next year. Beyond that, we must take further steps to permanently control Government's power to tax and spend. We must act now to protect future generations from Government's desire to spend its citizens' money and tax them into servitude when the bills come due. Let us make it unconstitutional for the Federal Government to spend more than the Federal Government takes in."

Reagan Belongs on Kings Row - There can be no question that Mr. Reagan was one of the greatest visionaries since Lincoln to occupy the presidency of the United States - December 4, 2000 - by Steven G. Calabresi, a professor of law at Northwestern University and National Co-Chairman of the Federalist Society.

Are you interested in seeing a fast loading page, with a few dramatic charts that you have never seen? Click the following LINK:

for an EYE-OPENER on government spending trends via easy to understand pictures at



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