Inflation is reduced from more than 12 to 2

Fifty years after the New Deal, the arrival of Ronald Reagan in the White House marked the beginning of a profound change of American capitalism. The "worse" is better than any other President economic freedom, the fight against "big government" and the politics of the offer at a time, the turn of the end of the 1970s, yet bathed of a Keynesian economics which are perceived signs of exhaustion.

The economic power of the planet is a giant weakened. The growth is negative, the double-digit inflation. After the Viet Nam, Watergate and the taking of hostages from the Embassy of the United States in Tehran, America's doubt. On the economic front, she wondered on its capacity to rebound while another power, the Japan, seems able to challenge his leadership. Miracle of American democracy, it is the second former role in "Bedtime for Bonzo" that he will revert back to the United States which lack the most at the end of the Presidency of Jimmy Carter: confidence. Basis of all the economy. Reagan embodies the failure. It will be at the origin of the "conservative revolution" that would influence a generation of political leaders. After him, several countries will draw from its "shock therapy" to revive their economy.

Four objectives

With a solid common sense, the "Great Communicator" popularized the theory of the economy of the offer ("supply-side economics"). "There is that by reducing the growth of the public sector that can increase the growth of the economy", he said. Even in his camp, it is suspicious of his ideas considered simplistic. In the campaign for the Republican primary in 1980, his opponent, George H. w. Bush, denounced recipes that he called "Voodoo Economics"... which holds it a little later become Vice-President. Reagan pounding four objectives: reduce public spending, taxes, regulation and inflation. Liberals are the angels. "Prior to Ronald Reagan, the trend was a galloping socialism", wrote Milton Friedman in the "Wall Street Journal". Since taking office in January 1981, Reagan its promise of massive reduction in taxes. The marginal rate of income tax is reduced from 70 to 28. The income tax is itself reduced a quarter for everyone and especially considerably simplified. The other battle is to target inflation. In command of the Federal Reserve, Paul Volcker applies Democrat he also monetarist shock therapy. Interest rates are identified ruthlessly to quash the drift of prices. This works. Inflation is reduced from more than 12 to 2. The economy was in recession ( 1.5) when Reagan was elected found a growth rate of more than 3.

But these successes have a price and pass through of renunciations. Rising interest rates pushed the dollar and makes harm the competitiveness of U.S. industry. The automobile, the steel industry have been devastated. Ronald Reagan, but partisan of free trade, then yield to calls for the protection of the domestic industry against the invasion of Japanese products. It was under his presidency that Congress vote the the more protectionist legislation that the United States were known in the modern era. The famous Section 301 of the Commercial Code dates from there: it allows the President to take trade sanctions against named countries. Reagan also forgotten along the way another campaign promise: the reduction of expenditures of the Federal State. If they grow slower than under the previous administration (see graphic), this is not to mention the burden of debt that explodes and military spending that fly, fight against the Soviet Union requires.

Under Reagan, federal debt is more than double (to reach more than half of the GDP), the budget deficit is more than triple, and for the first time since the first world war, the United States will become net debtors in respect of the rest of the world. In the end, the success of the "reaganomics" are to the credit of the monetary policy extremely strict the Fed and the effect of Keynesian stimulus produced by massive tax cuts to the beginning of the first Reagan term. There where it failed, however, it is in his belief without qualification in supply policy while the deficits followed a more dangerous slope. For nothing in the world, he wants to go back on the tax cuts. "It's morning again in America", proclaimed his slogan campaign in 1980. Finally, it may be less fiscal policy that charisma which restored confidence to the America and instilled a new optimism after the Presidency of Jimmy Carter. With Reagan, America had the feeling to renew its model. At least for a time.