WEBVTT 00:00:00.000 --> 00:00:03.620 Imagine looking at the architectural blueprint 00:00:03.620 --> 00:00:07.240 for this massive gleaming skyscraper. Right, 00:00:07.419 --> 00:00:10.039 the initial drawings. Yeah, exactly. And on paper, 00:00:10.199 --> 00:00:12.080 it's just perfectly drawn. The lines are clean, 00:00:12.199 --> 00:00:14.220 the load -bearing calculations are flawless, 00:00:14.500 --> 00:00:17.379 and the math just adds up beautifully. But then 00:00:17.379 --> 00:00:19.339 you actually go visit the construction site a 00:00:19.339 --> 00:00:21.780 few years later. Right. And the finished building 00:00:21.780 --> 00:00:24.739 rarely matches that initial perfection. Right. 00:00:24.960 --> 00:00:27.300 You get there and realize, you know, There's 00:00:27.300 --> 00:00:29.420 a whole extra wing nobody originally planned 00:00:29.420 --> 00:00:32.820 for. Yo, yeah. The foundation had to be completely 00:00:32.820 --> 00:00:35.840 altered to deal with unstable soil, and the plumbing 00:00:35.840 --> 00:00:38.039 is just this labyrinth of workarounds. Because 00:00:38.039 --> 00:00:40.700 the elegant theory promises one thing, but the 00:00:40.700 --> 00:00:43.640 sheer physics of the real world demand another. 00:00:44.299 --> 00:00:46.820 And that brings us to today. Welcome to today's 00:00:46.820 --> 00:00:49.020 Deep Dive. Glad to be here. Today we are looking 00:00:49.020 --> 00:00:51.460 at Reaganomics. And, you know, because this is 00:00:51.460 --> 00:00:54.719 a topic that still reliably starts, uh... pretty 00:00:54.719 --> 00:00:57.219 heated arguments at Thanksgiving dinners, we 00:00:57.219 --> 00:00:59.560 are leaving our politics at the door. Our mission 00:00:59.560 --> 00:01:02.700 today, for you listening, is purely to analyze 00:01:02.700 --> 00:01:05.760 the data, the historical record, and the varied 00:01:05.760 --> 00:01:07.840 economic arguments from the source material. 00:01:08.620 --> 00:01:10.680 We aren't here to take a side or tell you who 00:01:10.680 --> 00:01:13.340 was right. We just want to impartially unpack 00:01:13.340 --> 00:01:15.760 the actual mechanics of an era that completely 00:01:15.760 --> 00:01:18.420 rewired American politics and culture. Yeah, 00:01:18.420 --> 00:01:20.579 to set the stage here, we really need to define 00:01:20.579 --> 00:01:24.049 our terms first. Reaganomics is a portmanteau 00:01:24.049 --> 00:01:26.989 of Reagan and economics, right? It's a term famously 00:01:26.989 --> 00:01:29.810 popularized by broadcaster Paul Harvey, and it 00:01:29.810 --> 00:01:32.489 refers to the sweeping neoliberal economic policies 00:01:32.489 --> 00:01:35.170 championed by U .S. President Ronald Reagan from 00:01:35.170 --> 00:01:38.390 1981 to 1989. And when we say neoliberal in this 00:01:38.390 --> 00:01:40.390 context, we're talking about a shift away from 00:01:40.390 --> 00:01:42.890 heavy government intervention in a moving toward 00:01:42.890 --> 00:01:45.450 market oriented policies. Yeah. Think privatization, 00:01:45.489 --> 00:01:48.269 deregulation and lower taxes, which his supporters 00:01:48.269 --> 00:01:50.469 passionately defended as free market economics 00:01:50.469 --> 00:01:52.950 while his opponents. And honestly, even some 00:01:52.950 --> 00:01:55.250 of his fellow Republicans at the time dismissed 00:01:55.250 --> 00:01:58.650 it as trickle down or voodoo economics. Yeah, 00:01:58.709 --> 00:02:01.109 voodoo economics was a popular critique. But 00:02:01.109 --> 00:02:03.609 at a high level, the approach rested on four 00:02:03.609 --> 00:02:07.269 main pillars. First, significantly increasing 00:02:07.269 --> 00:02:10.409 defense spending. Second, slowing down the growth 00:02:10.409 --> 00:02:13.930 of domestic government spending. Third, drastically 00:02:13.930 --> 00:02:16.530 reducing federal income and capital gains taxes. 00:02:17.150 --> 00:02:19.960 And fourth, tightening the money supply to combat 00:02:19.960 --> 00:02:22.680 inflation. Okay, let's unpack this. Because before 00:02:22.680 --> 00:02:25.020 we can look at what Reagan actually did, we have 00:02:25.020 --> 00:02:27.419 to understand the crisis he inherited. I mean, 00:02:27.520 --> 00:02:29.979 you don't get a mandate to completely rewrite 00:02:29.979 --> 00:02:32.580 the American economic playbook unless the old 00:02:32.580 --> 00:02:35.759 playbook is visibly on fire. And the late 1970s 00:02:35.759 --> 00:02:38.500 provided exactly that kind of fire. The U .S. 00:02:38.639 --> 00:02:42.139 economy was suffering from this grinding, really 00:02:42.139 --> 00:02:45.180 miserable condition called stagflation. Stagflation. 00:02:45.340 --> 00:02:47.560 Right. It was a toxic cocktail of high unemployment 00:02:47.560 --> 00:02:50.500 combined with persistently high inflation. Prices 00:02:50.500 --> 00:02:52.740 were soaring, but the economy wasn't growing. 00:02:52.860 --> 00:02:54.719 Which completely broke every rule of standard 00:02:54.719 --> 00:02:56.400 economic theory at the time, right? Oh, totally. 00:02:56.639 --> 00:02:59.060 Because under the traditional Keynesian economic 00:02:59.060 --> 00:03:01.599 models, the ones that dominated since World War 00:03:01.599 --> 00:03:03.740 II, inflation and unemployment were supposed 00:03:03.740 --> 00:03:06.479 to operate on a seesaw. If the economy is booming, 00:03:06.840 --> 00:03:09.159 unemployment is low, but inflation might creep 00:03:09.159 --> 00:03:11.979 up because everyone has money to spend, you know, 00:03:12.300 --> 00:03:15.460 and demand outpaces supply. But conversely, if 00:03:15.460 --> 00:03:18.979 the economy tanks, people lose jobs, but prices 00:03:18.979 --> 00:03:22.240 drop because nobody is buying anything. But stagflation 00:03:22.240 --> 00:03:25.280 meant that seesaw essentially snapped in half. 00:03:25.319 --> 00:03:28.620 Wow. Both unemployment and inflation were punishingly 00:03:28.620 --> 00:03:32.259 high at the exact same time. The economic orthodoxy 00:03:32.259 --> 00:03:35.080 of the era was just baffled by it. Yeah, you 00:03:35.080 --> 00:03:37.539 had those miles -long lines at the gas pumps, 00:03:37.979 --> 00:03:41.080 double -digit inflation, eroding savings, and 00:03:41.080 --> 00:03:43.439 businesses just refusing to hire. The public 00:03:43.439 --> 00:03:46.840 was desperate for a radical new approach and 00:03:46.840 --> 00:03:49.620 enter supply -side economics. And a massive part 00:03:49.620 --> 00:03:51.860 of the justification for this new approach was 00:03:51.860 --> 00:03:54.280 rooted in this concept called the Laffer Curve. 00:03:54.319 --> 00:03:56.139 Right, developed by Arthur Laffer. Yeah, who 00:03:56.139 --> 00:03:58.280 actually served on Reagan's advisory board. And 00:03:58.280 --> 00:04:00.120 the fundamental theory here is is that there's 00:04:00.120 --> 00:04:02.360 an optimal tax rate that maximizes government 00:04:02.360 --> 00:04:04.840 revenue. And if you tax people too heavily, you 00:04:04.840 --> 00:04:07.139 actually end up collecting less money. A lot 00:04:07.139 --> 00:04:08.740 of people struggle with the mechanics of how 00:04:08.740 --> 00:04:11.000 that works. But it's fundamentally about human 00:04:11.000 --> 00:04:14.020 behavior. Like, if a government taxes earnings 00:04:14.020 --> 00:04:18.100 at 100%, nobody works. And the government collects 00:04:18.100 --> 00:04:22.480 $0. If they tax it 0%, everyone works. But the 00:04:22.480 --> 00:04:25.000 government still collects $0. I always think 00:04:25.000 --> 00:04:28.560 about it like, um, pricing tickets for a massive 00:04:28.560 --> 00:04:30.500 stadium concert. Oh, that's a good way to look 00:04:30.500 --> 00:04:33.279 at it. Yeah, like, if you charge just $1 a ticket, 00:04:33.740 --> 00:04:35.459 the stadium will completely sell out in five 00:04:35.459 --> 00:04:37.160 seconds, but you're gonna make practically no 00:04:37.160 --> 00:04:39.600 money. Right, exactly. But on the flip side, 00:04:39.899 --> 00:04:42.759 if you charge $10 ,000 a ticket... the studio 00:04:42.759 --> 00:04:45.399 will be completely empty, and you still make 00:04:45.399 --> 00:04:47.720 zero revenue. You have to find that sweet spot. 00:04:48.259 --> 00:04:51.040 Exactly. You find that exact spot where lowering 00:04:51.040 --> 00:04:53.680 the price actually increases your total revenue 00:04:53.680 --> 00:04:56.079 because so many more people show up to the concert 00:04:56.079 --> 00:04:58.620 and buy hot dogs and t -shirts. And applied to 00:04:58.620 --> 00:05:01.220 the national economy, the supply -siders argued 00:05:01.220 --> 00:05:04.180 that the 1970s tax rates had become that $10 00:05:04.180 --> 00:05:07.240 ,000 concert ticket. Ah, I see. They believe 00:05:07.240 --> 00:05:10.040 taxes were so punitive that they were actively 00:05:10.040 --> 00:05:12.259 discouraging people from working. investing, 00:05:12.699 --> 00:05:15.040 and innovating. So it was stifling growth. Right. 00:05:15.279 --> 00:05:17.680 Let's look at the mechanism. If a corporation 00:05:17.680 --> 00:05:21.139 faces a massive tax burden on its next dollar 00:05:21.139 --> 00:05:24.540 of profit, it won't build a new factory. It won't 00:05:24.540 --> 00:05:27.240 hire 100 new workers. But if you lower that tax 00:05:27.240 --> 00:05:29.839 burden, they build the factory, they hire the 00:05:29.839 --> 00:05:31.759 workers, and then the government gets to tax 00:05:31.759 --> 00:05:35.139 the wages of those 100 new employees. Yes. You 00:05:35.139 --> 00:05:37.660 expand the overall size of the economic pie so 00:05:37.660 --> 00:05:39.779 much that the government collects more total 00:05:39.779 --> 00:05:41.660 revenue, even though the slice they're taking 00:05:41.660 --> 00:05:43.860 is proportionately smaller. It makes sense on 00:05:43.860 --> 00:05:46.040 paper. But what's fascinating here is that Reagan 00:05:46.040 --> 00:05:48.759 didn't just rely on 1980s economists to sell 00:05:48.759 --> 00:05:52.000 this idea to the public. He actually drew inspiration 00:05:52.000 --> 00:05:55.850 from deep history. Specifically, a 14th century 00:05:55.850 --> 00:05:59.129 Arab scholar named Ibn Khaldun. Wait, a 14th 00:05:59.129 --> 00:06:01.350 century philosopher being used to pitch a 20th 00:06:01.350 --> 00:06:04.389 century tax cut? That is an unbelievable bit 00:06:04.389 --> 00:06:07.310 of political framing. It really is. Khaldun had 00:06:07.310 --> 00:06:09.430 observed the rise and fall of empires centuries 00:06:09.430 --> 00:06:12.290 ago. He noted that societies flourished when 00:06:12.290 --> 00:06:15.149 taxes were modest because citizens felt motivated 00:06:15.149 --> 00:06:17.589 to produce and, you know, keep the fruits of 00:06:17.589 --> 00:06:20.089 their labor. But those same societies collapsed 00:06:20.089 --> 00:06:23.370 when taxes became burdensome. to prop up bloated 00:06:23.370 --> 00:06:26.750 dynasties. Reagan actually paraphrased him in 00:06:26.750 --> 00:06:30.110 a 1981 press conference. Yeah, he noted that 00:06:30.110 --> 00:06:32.490 at the beginning of a dynasty, great revenues 00:06:32.490 --> 00:06:34.850 are gained from small assessments, but at the 00:06:34.850 --> 00:06:37.230 end, small revenues are gained from large assessments. 00:06:38.079 --> 00:06:40.660 That sounds incredible in a press conference, 00:06:41.220 --> 00:06:44.459 but grand centuries old philosophies tend to 00:06:44.459 --> 00:06:46.660 get pretty mangled when they make contact with 00:06:46.660 --> 00:06:49.720 the reality of Washington, D .C. politics. So 00:06:49.720 --> 00:06:52.680 how did this actually translate into policy? 00:06:53.120 --> 00:06:55.100 The translation happened quickly and aggressively. 00:06:55.259 --> 00:06:57.600 During his first year in office, Reagan signed 00:06:57.600 --> 00:07:00.899 the Economic Recovery Tax Act of 1981. OK. This 00:07:00.899 --> 00:07:03.620 was a monumental piece of legislation. It slashed 00:07:03.620 --> 00:07:06.019 the top marginal tax bracket from 70 percent 00:07:06.019 --> 00:07:08.500 down to 50 percent. Wow. And eventually, through 00:07:08.500 --> 00:07:11.199 later legislation in 1986, that top rate dropped 00:07:11.199 --> 00:07:13.620 all the way to 28%. Real quick, I want to clarify 00:07:13.620 --> 00:07:15.720 what a marginal tax bracket actually is for you 00:07:15.720 --> 00:07:17.480 listening because it's a widely misunderstood 00:07:17.480 --> 00:07:20.839 concept. It really is. A 70 % marginal rate didn't 00:07:20.839 --> 00:07:23.399 mean the government took 70 % of everything a 00:07:23.399 --> 00:07:26.180 wealthy person earned. It meant that for every 00:07:26.180 --> 00:07:28.360 dollar they earned above a certain high threshold, 00:07:28.639 --> 00:07:31.339 they only got to keep 30 cents. Exactly. Dropping 00:07:31.339 --> 00:07:34.819 that to 50 % and then 28 % meant that suddenly 00:07:34.819 --> 00:07:38.439 high earners were keeping 72 cents of that last 00:07:38.439 --> 00:07:41.459 dollar instead of 30 cents. I mean, that is a 00:07:41.459 --> 00:07:43.600 staggering change to the incentive structure 00:07:43.600 --> 00:07:46.560 of the American economy in just a single decade. 00:07:46.899 --> 00:07:49.800 It absolutely rewired corporate and individual 00:07:49.800 --> 00:07:52.680 incentives. But here is the plot twist in the 00:07:52.680 --> 00:07:56.160 historical record. Despite his enduring reputation 00:07:56.160 --> 00:07:59.019 as the ultimate champion of tax cuts, Reagan 00:07:59.019 --> 00:08:02.000 found himself facing exploding federal deficits 00:08:02.000 --> 00:08:05.319 shortly after that first bill passed. The economic 00:08:05.319 --> 00:08:07.339 boom just hadn't materialized fast enough to 00:08:07.339 --> 00:08:10.980 offset the lost revenue. So in 1982 and 1984, 00:08:11.439 --> 00:08:13.300 he signed bills that rolled back some of those 00:08:13.300 --> 00:08:16.240 initial cuts. Wait! In fact, tax historian Joseph 00:08:16.240 --> 00:08:19.220 Thorndyke actually characterized the 1982 legislation 00:08:19.220 --> 00:08:22.100 as the biggest tax increase ever enacted during 00:08:22.100 --> 00:08:24.800 peacetime. Wait a minute, stop right there. Reagan 00:08:24.800 --> 00:08:28.019 is the absolute poster child for cutting taxes. 00:08:28.639 --> 00:08:31.879 How could he possibly authorize the biggest peacetime 00:08:31.879 --> 00:08:34.559 tax hike in American history? That breaks the 00:08:34.559 --> 00:08:36.789 entire narrative. It comes down to the difference 00:08:36.789 --> 00:08:39.009 between the headline tax rate and the effective 00:08:39.009 --> 00:08:42.610 tax base. Okay. The top marginal rates The headline 00:08:42.610 --> 00:08:45.190 numbers everyone sees stayed much lower than 00:08:45.190 --> 00:08:48.769 they were in the 1970s. But Reagan's later bills 00:08:48.769 --> 00:08:52.309 aggressively closed loopholes and removed deductions. 00:08:52.309 --> 00:08:54.909 Ah, I see. They changed corporate depreciation 00:08:54.909 --> 00:08:57.990 rules and tightened tax compliance. By forcing 00:08:57.990 --> 00:09:00.289 people and corporations to pay taxes on money 00:09:00.289 --> 00:09:02.750 that was previously shielded by accounting tricks, 00:09:03.370 --> 00:09:05.750 the government drastically increased its revenue 00:09:05.750 --> 00:09:08.669 collection compared to the 1981 baseline. Because 00:09:08.669 --> 00:09:11.049 they desperately needed the cash. Exactly. Because 00:09:11.049 --> 00:09:12.980 they were bleeding revenue from the rate cuts, 00:09:13.320 --> 00:09:15.360 but simultaneously pouring money into the first 00:09:15.360 --> 00:09:17.240 pillar you mentioned earlier, which was defense 00:09:17.240 --> 00:09:19.580 spending. Defense spending skyrocketed during 00:09:19.580 --> 00:09:22.019 this era. It rose to roughly six percent of the 00:09:22.019 --> 00:09:23.759 total gross domestic product. That's a math. 00:09:23.899 --> 00:09:26.500 It was a level of military expenditure unseen 00:09:26.500 --> 00:09:28.320 since the height of U .S. involvement in the 00:09:28.320 --> 00:09:30.840 Vietnam War. They were funding new weapons systems, 00:09:31.240 --> 00:09:33.759 expanding the Navy and investing heavily in the 00:09:33.759 --> 00:09:37.259 Cold War arms race. So the math becomes incredibly 00:09:37.259 --> 00:09:39.639 precarious here. You're drastically lowering 00:09:39.639 --> 00:09:42.299 the main income tax rates, hoping growth eventually 00:09:42.299 --> 00:09:46.120 pays for it. But you are buying billions of dollars 00:09:46.120 --> 00:09:48.299 worth of military equipment right now. That requires 00:09:48.299 --> 00:09:51.700 massive borrowing. And borrow they did. The United 00:09:51.700 --> 00:09:54.240 States took on heavy debt, both domestically 00:09:54.240 --> 00:09:56.980 and abroad, to cover those yawning budget deficits. 00:09:57.559 --> 00:09:59.639 During Reagan's presidency, the national debt 00:09:59.639 --> 00:10:03.700 nearly tripled. It went from $997 billion to 00:10:03.700 --> 00:10:07.600 $2 .85 trillion. Tripled. Wow. Yeah. And as a 00:10:07.600 --> 00:10:09.399 direct result, the U .S. transitioned from being 00:10:09.399 --> 00:10:11.240 the world's largest international creditor to 00:10:11.240 --> 00:10:14.200 the world's largest debtor nation. Reagan himself 00:10:14.200 --> 00:10:16.620 was acutely aware of this. He famously described 00:10:16.620 --> 00:10:18.860 the exploding debt as the greatest disappointment 00:10:18.860 --> 00:10:21.919 of his presidency. OK, so we have sweeping theories. 00:10:22.340 --> 00:10:25.279 We have massive tax legislation and we have a 00:10:25.279 --> 00:10:27.529 tripling of the national debt. Let's look at 00:10:27.529 --> 00:10:29.690 the actual outcomes. So what does this all mean? 00:10:29.990 --> 00:10:32.470 How did this impact everyday Americans living 00:10:32.470 --> 00:10:35.710 through the 1980s? The historical data presents 00:10:35.710 --> 00:10:38.970 a deeply polarized picture. If you view the economy 00:10:38.970 --> 00:10:42.929 from 30 ,000 feet like the macroeconomic level. 00:10:43.070 --> 00:10:46.789 There were undeniable historic victories. Real 00:10:46.789 --> 00:10:49.409 GDP, which is the total output of the goods and 00:10:49.409 --> 00:10:52.210 services in the economy, grew by over a third 00:10:52.210 --> 00:10:54.549 during his presidency. That's huge. It has an 00:10:54.549 --> 00:10:57.009 average annual growth rate of 3 .5 percent. That 00:10:57.009 --> 00:10:59.350 kind of sustained growth is just massive. It 00:10:59.350 --> 00:11:01.649 is an incredible run of expansion. And the misery 00:11:01.649 --> 00:11:03.970 index we discussed earlier, that brutal combination 00:11:03.970 --> 00:11:06.470 of inflation and unemployment shrank drastically. 00:11:07.029 --> 00:11:09.570 Inflation plummeted from a terrifying 13 .5 percent 00:11:09.570 --> 00:11:13.629 in 1980 down to just 4 .1 percent by 1988. Unemployment 00:11:13.629 --> 00:11:17.230 fell from 7 .2 % to 5 .5%. Millions of non -farm 00:11:17.230 --> 00:11:19.809 jobs were created. By those traditional metrics, 00:11:20.169 --> 00:11:22.129 the American economy came roaring back to life. 00:11:22.269 --> 00:11:24.330 But when you look at the ground level, the data 00:11:24.330 --> 00:11:27.009 tells a much more fractured story. The overall 00:11:27.009 --> 00:11:29.830 economic pie got larger, but the slices were 00:11:29.830 --> 00:11:31.610 distributed very differently than in previous 00:11:31.610 --> 00:11:34.730 decades. Real wages for working -class Americans 00:11:34.730 --> 00:11:37.230 actually continued to decline, which was a trend 00:11:37.230 --> 00:11:40.889 that had begun in the 1970s. Meanwhile, the top 00:11:40.889 --> 00:11:43.809 1 % of income earners saw their share of the 00:11:43.809 --> 00:11:47.230 national income skyrocket. The income gap widened 00:11:47.230 --> 00:11:49.929 significantly, and there were visible visceral 00:11:49.929 --> 00:11:53.330 consequences in American cities. During Reagan's 00:11:53.330 --> 00:11:55.730 first term, critics highlighted a severe surge 00:11:55.730 --> 00:11:58.759 in urban homelessness. Researchers noted the 00:11:58.759 --> 00:12:01.080 homeless population nearly doubled in just three 00:12:01.080 --> 00:12:05.200 years, from 1984 to 1987. They often point to 00:12:05.200 --> 00:12:07.200 aggressive cuts in federal housing assistance 00:12:07.200 --> 00:12:09.779 and social services as a primary driver. And 00:12:09.779 --> 00:12:12.120 when confronted with this crisis, Reagan's response 00:12:12.120 --> 00:12:15.419 was highly controversial. Yeah, in a late presidency 00:12:15.419 --> 00:12:17.559 interview with David Brinkley, Reagan stated 00:12:17.559 --> 00:12:19.539 his belief that the homeless made it their own 00:12:19.539 --> 00:12:21.559 choice for staying out there. He argued that 00:12:21.559 --> 00:12:23.639 there were shelters available that people simply 00:12:23.639 --> 00:12:26.679 chose not to use. He also asserted that a large 00:12:26.679 --> 00:12:29.240 proportion of the homeless population were mentally 00:12:29.240 --> 00:12:32.220 impaired, a situation he attributed to lawsuits 00:12:32.220 --> 00:12:35.480 by organizations like the ACLU that made it harder 00:12:35.480 --> 00:12:37.559 to institutionalize people against their will. 00:12:37.720 --> 00:12:40.519 So we are left with this wildly conflicting picture. 00:12:40.879 --> 00:12:43.340 The inflation monster is slain and the overall 00:12:43.340 --> 00:12:46.879 GDP is booming, but working class wages are stagnating 00:12:46.879 --> 00:12:49.700 and homelessness is spiking. Exactly. It's almost 00:12:49.700 --> 00:12:52.200 like installing a massive jet engine on a train 00:12:52.200 --> 00:12:55.580 to shatter speed records, but quietly uncoupling 00:12:55.580 --> 00:12:58.759 half the passenger cars at the station. The locomotive 00:12:58.759 --> 00:13:00.700 is performing better than ever, but a lot of 00:13:00.700 --> 00:13:02.919 people got left behind on the platform. That's 00:13:02.919 --> 00:13:05.049 a great analogy. And if we connect this to the 00:13:05.049 --> 00:13:08.289 bigger picture, this precise divergence is why 00:13:08.289 --> 00:13:10.529 brilliant economists can look at the exact same 00:13:10.529 --> 00:13:13.409 data from the 1980s and draw entirely different 00:13:13.409 --> 00:13:15.590 conclusions about whether Reaganomics was actually 00:13:15.590 --> 00:13:18.090 a success. Let's look at how the different camps 00:13:18.090 --> 00:13:21.330 interpret that data. On the right, supporters 00:13:21.330 --> 00:13:24.149 like the Cato Institute, economist Stephen Moore, 00:13:24.330 --> 00:13:27.230 and the legendary Milton Friedman view this era 00:13:27.230 --> 00:13:30.370 as just an unmitigated triumph. Yes, they do. 00:13:30.620 --> 00:13:33.379 Their perspective is that the combination of 00:13:33.379 --> 00:13:37.480 tax cuts, deregulation, and free trade unleashed 00:13:37.480 --> 00:13:39.840 the greatest sustained wave of prosperity the 00:13:39.840 --> 00:13:42.659 country had ever seen. Moore argues that these 00:13:42.659 --> 00:13:46.620 policies produced a $15 trillion increase in 00:13:46.620 --> 00:13:49.220 American wealth. Unbelievable. From this viewpoint, 00:13:49.759 --> 00:13:53.320 the 1981 tax cut was the profound engine of that 00:13:53.320 --> 00:13:55.700 growth. By letting people keep more of their 00:13:55.700 --> 00:13:58.539 money, it restored consumer and investor confidence, 00:13:59.080 --> 00:14:01.820 incentivizing this massive entrepreneurial revolution 00:14:01.820 --> 00:14:04.340 that essentially modernized the American economy. 00:14:04.500 --> 00:14:06.159 But then you have the left -wing perspective, 00:14:06.159 --> 00:14:08.440 championed by economists like Paul Krugman, who 00:14:08.440 --> 00:14:11.279 argues that this massive expansion wasn't magic, 00:14:11.299 --> 00:14:13.419 and it certainly wasn't the tax cuts. Right. 00:14:13.500 --> 00:14:15.779 Krugman argues it was just the natural business 00:14:15.779 --> 00:14:18.340 cycle playing out. The argument here is essentially 00:14:18.340 --> 00:14:21.000 the concept of pent -up demand. The economy was 00:14:21.000 --> 00:14:23.870 bouncing back from a very deep painful recession 00:14:23.870 --> 00:14:28.289 in 1981 and 1982. When an economy contracts that 00:14:28.289 --> 00:14:31.870 severely, people delay buying houses, cars, appliances. 00:14:31.990 --> 00:14:33.629 Yeah, you just hold onto your cash. Exactly. 00:14:33.990 --> 00:14:36.169 When things finally stabilize, all that delayed 00:14:36.169 --> 00:14:39.389 spending floods the market at once. Krugman's 00:14:39.389 --> 00:14:41.590 view is that when you hit the absolute bottom, 00:14:41.990 --> 00:14:44.350 the only way to go is up. And there's plenty 00:14:44.350 --> 00:14:46.990 of room to grow rapidly, regardless of what the 00:14:46.990 --> 00:14:49.659 tax rate is. Critics also point out that the 00:14:49.659 --> 00:14:52.059 dramatic drop in inflation, which, honestly, 00:14:52.259 --> 00:14:54.940 was arguably the real miracle of the 1980s, was 00:14:54.940 --> 00:14:57.059 actually the work of the Federal Reserve Chair 00:14:57.059 --> 00:14:59.019 Paul Volcker. Right, who was appointed by Jimmy 00:14:59.019 --> 00:15:01.740 Carter, Reagan's predecessor. Exactly. Volcker 00:15:01.740 --> 00:15:04.539 used incredibly strict monetary policy to crush 00:15:04.539 --> 00:15:07.860 inflation. Specifically, he drastically raised 00:15:07.860 --> 00:15:10.480 interest rates. The prime rate peaked at over 00:15:10.480 --> 00:15:13.860 20 percent. 20 percent? That is wild. Think about 00:15:13.860 --> 00:15:15.889 the mechanics of that. With interest rates that 00:15:15.889 --> 00:15:18.450 high, nobody takes out a mortgage to buy a house, 00:15:18.789 --> 00:15:21.070 and businesses just can't afford loans to expand. 00:15:21.429 --> 00:15:24.090 It deliberately chokes off borrowing and slows 00:15:24.090 --> 00:15:27.509 the economy to a crawl. It was a brutal, painful 00:15:27.509 --> 00:15:30.450 process that intentionally caused a recession 00:15:30.450 --> 00:15:33.690 to squeeze inflation out of the system. Critics 00:15:33.690 --> 00:15:36.149 argue Volcker's willingness to inflict that pain, 00:15:36.529 --> 00:15:39.409 not Reagan's tax cuts, is the true hero of the 00:15:39.409 --> 00:15:41.970 inflation story. And what I find so fascinating 00:15:41.970 --> 00:15:44.289 here is that the debate wasn't just left versus 00:15:44.289 --> 00:15:47.190 right. There was an intense internal feud among 00:15:47.190 --> 00:15:49.649 conservatives as well. Oh, absolutely. Like Greg 00:15:49.649 --> 00:15:51.929 Mankiw, right? He's a conservative Republican 00:15:51.929 --> 00:15:54.409 economist who later served under George W. Bush. 00:15:54.950 --> 00:15:57.570 He referred to the extreme supply -siders, the 00:15:57.570 --> 00:15:59.809 ones who claimed that tax cuts would 100 % pay 00:15:59.809 --> 00:16:02.169 for themselves without any spending cuts. He 00:16:02.169 --> 00:16:04.549 literally called them charlatans and cranks. 00:16:04.750 --> 00:16:07.549 Charlatans and cranks. Even traditional mainstream 00:16:07.549 --> 00:16:10.779 supply -siders sounded the alarm. Martin Feldstein, 00:16:11.159 --> 00:16:13.139 who served as Reagan's own chairman of the Council 00:16:13.139 --> 00:16:16.039 of Economic Advisers, felt the new extremists 00:16:16.039 --> 00:16:18.559 in his own party were making these wild hyperbolic 00:16:18.559 --> 00:16:21.289 claims. Right. Feldstein argued this loose talk 00:16:21.289 --> 00:16:23.830 gave fundamentally sound economic policies a 00:16:23.830 --> 00:16:26.309 bad name and provided political cover for the 00:16:26.309 --> 00:16:28.389 massive budget deficits we discussed earlier. 00:16:28.809 --> 00:16:30.710 The contradictions are just everywhere, especially 00:16:30.710 --> 00:16:33.389 when you look at deregulation. Deregulation was 00:16:33.389 --> 00:16:36.289 supposedly a core pillar of the Reagan revolution. 00:16:36.549 --> 00:16:38.409 You know, get the government off the backs of 00:16:38.409 --> 00:16:41.409 businesses. But the historical record on whether 00:16:41.409 --> 00:16:44.919 he actually deregulated the economy is shockingly 00:16:44.919 --> 00:16:47.500 mixed. This is one of the great paradoxes of 00:16:47.500 --> 00:16:50.940 his presidency. On one hand, William Niskanen, 00:16:51.139 --> 00:16:53.539 an architect of Reaganomics, pointed out that 00:16:53.539 --> 00:16:56.460 Reagan actually added more trade barriers than 00:16:56.460 --> 00:16:59.480 any administration since Herbert Hoover in the 00:16:59.480 --> 00:17:03.159 1930s. Wow. He restricted imports significantly 00:17:03.159 --> 00:17:06.259 to protect domestic industries like automobiles 00:17:06.259 --> 00:17:08.680 and steel. But then you have Milton Friedman 00:17:08.680 --> 00:17:11.480 arguing the exact opposite. He pointed out that 00:17:11.480 --> 00:17:13.819 the number of pages added to the Federal Register, 00:17:13.980 --> 00:17:16.380 which is that massive daily journal where all 00:17:16.380 --> 00:17:18.319 new government rules and regulations are published, 00:17:18.799 --> 00:17:21.000 that declined sharply under Reagan. And they 00:17:21.000 --> 00:17:22.779 are both technically correct. It comes down to 00:17:22.779 --> 00:17:24.299 the mechanics of how the government operates. 00:17:24.359 --> 00:17:25.799 You have to understand the difference between 00:17:25.799 --> 00:17:29.079 statutory deregulation and administrative deregulation. 00:17:29.380 --> 00:17:31.799 Okay, break that distinction down for us. So, 00:17:31.880 --> 00:17:34.640 statutory deregulation involves Congress actually 00:17:34.640 --> 00:17:37.480 passing new laws. to remove regulations from 00:17:37.480 --> 00:17:40.829 the books. That process was fairly slow under 00:17:40.829 --> 00:17:44.089 Reagan. In fact, a lot of major industry deregulation, 00:17:44.190 --> 00:17:45.910 like the airlines and the trucking industry, 00:17:46.369 --> 00:17:48.190 had already been initiated under Jimmy Carter. 00:17:48.970 --> 00:17:50.970 Interesting. Administrative deregulation, however, 00:17:51.349 --> 00:17:54.349 is about how federal agencies actually enforce 00:17:54.349 --> 00:17:56.829 the rules that already exist. Oh, I see. So it's 00:17:56.829 --> 00:17:58.650 not about changing the speed limit. It's about 00:17:58.650 --> 00:18:01.430 telling the highway patrol to stop pulling people 00:18:01.430 --> 00:18:03.630 over. That is a perfect way to conceptualize 00:18:03.630 --> 00:18:06.130 it. By cutting the budgets of regulatory agencies, 00:18:06.529 --> 00:18:08.789 appointing agency heads who favored lighter touch 00:18:08.789 --> 00:18:11.029 and intentionally slowing down the drafting of 00:18:11.029 --> 00:18:13.910 new rules, Reagan dramatically changed the regulatory 00:18:13.910 --> 00:18:16.410 environment administratively. Right. He didn't 00:18:16.410 --> 00:18:19.230 need Congress to repeal laws left and right to 00:18:19.230 --> 00:18:21.809 make businesses feel less scrutinized. Here's 00:18:21.809 --> 00:18:23.900 where it gets really interesting for me. If the 00:18:23.900 --> 00:18:26.960 results are this mixed -like, if the national 00:18:26.960 --> 00:18:29.839 debt nearly tripled, if working -class wages 00:18:29.839 --> 00:18:33.140 stagnated while inequality rose, if even his 00:18:33.140 --> 00:18:35.400 own conservative economic advisors were calling 00:18:35.400 --> 00:18:38.539 some of the math crank science and the deregulation 00:18:38.539 --> 00:18:41.759 record is full of asterisks, why does Reaganomics 00:18:41.759 --> 00:18:44.759 remain such a powerful, enduring blueprint today? 00:18:45.119 --> 00:18:47.359 Like, why is it still the baseline for so much 00:18:47.359 --> 00:18:54.720 political rhetoric 40 years later? Reaganomics 00:18:54.720 --> 00:18:57.319 successfully shifted the entire baseline of American 00:18:57.319 --> 00:18:59.559 economic confidence. Okay. After the misery, 00:18:59.720 --> 00:19:02.259 the gas lines, and the malaise of the 1970s, 00:19:02.480 --> 00:19:04.259 Reagan offered a highly effective narrative of 00:19:04.259 --> 00:19:06.519 optimism. He fundamentally changed the conversation 00:19:06.519 --> 00:19:08.420 from, you know, what can the government do to 00:19:08.420 --> 00:19:10.279 fix this to how can we get the government out 00:19:10.279 --> 00:19:12.359 of your way so you can fix it. Right. Even if 00:19:12.359 --> 00:19:14.720 the reality involved massive tax hikes in 82 00:19:14.720 --> 00:19:17.240 and exploding federal deficits, the ideology 00:19:17.240 --> 00:19:20.099 of low taxes and free markets became deeply embedded 00:19:20.099 --> 00:19:22.900 in the American psyche. It set the absolute terms 00:19:22.900 --> 00:19:24.759 of economic debate for the next four decades. 00:19:25.099 --> 00:19:27.920 The narrative and the emotional shift were ultimately 00:19:27.920 --> 00:19:30.740 stronger than the math. Often in the history 00:19:30.740 --> 00:19:33.539 of American politics, they are. Which brings 00:19:33.539 --> 00:19:37.140 us to one final lingering irony from the historical 00:19:37.140 --> 00:19:39.880 record that perfectly encapsulates the gap between 00:19:39.880 --> 00:19:42.299 the blueprint and the building. Lay it on me. 00:19:42.640 --> 00:19:45.259 When Ronald Reagan was campaigning, part of his 00:19:45.259 --> 00:19:48.220 incredibly effective branding was a promise to 00:19:48.220 --> 00:19:50.480 drastically shrink the size of the federal government. 00:19:50.730 --> 00:19:53.650 He specifically vowed to completely abolish two 00:19:53.650 --> 00:19:56.329 massive cabinet -level agencies, the Department 00:19:56.329 --> 00:19:59.210 of Energy and the Department of Education. And 00:19:59.210 --> 00:20:01.710 yet, the record shows he failed to abolish either 00:20:01.710 --> 00:20:04.549 of them. Far from shrinking the president's cabinet, 00:20:04.650 --> 00:20:07.130 he actually expanded it by elevating Veterans 00:20:07.130 --> 00:20:10.109 Affairs to full cabinet -level department status. 00:20:11.049 --> 00:20:13.690 And overall, the number of federal civilian employees 00:20:13.690 --> 00:20:16.650 actually increased by 4 .2 % under his watch. 00:20:16.910 --> 00:20:19.289 That is wild. It leaves you wondering, is it 00:20:19.289 --> 00:20:21.450 actually possible for any modern president to 00:20:21.450 --> 00:20:23.450 shrink the federal government, or does the machinery 00:20:23.450 --> 00:20:26.130 of a superpower simply demand constant expansion, 00:20:26.529 --> 00:20:28.779 regardless of who sits in the Oval Office? Keep 00:20:28.779 --> 00:20:31.720 that gap between political branding and bureaucratic 00:20:31.720 --> 00:20:34.400 reality in mind the next time you hear a politician 00:20:34.400 --> 00:20:37.319 make massive economic promises. It is never as 00:20:37.319 --> 00:20:39.759 simple as the theory suggests. Thank you so much 00:20:39.759 --> 00:20:42.059 for joining us on this deep dive into the numbers, 00:20:42.279 --> 00:20:44.579 the narratives and the messy reality of Reaganomics. 00:20:44.779 --> 00:20:45.400 We'll catch you next time.