Reagan's Economics: Austrian Or Not?

Ronald Reagan's economic policies, known as Reaganomics, were neoliberal and focused on supply-side economics. Reagan's policies included increasing defence spending, balancing the federal budget, reducing taxes, reducing government regulation, and tightening the money supply to reduce inflation. These policies were influenced by Reagan's degree in economics and his personal experience as a highly-paid actor in the 1950s.

The Austrian School of Economics, founded in 1871 by Carl Menger, is a heterodox school of economic thought that advocates strict adherence to methodological individualism. It theorises that economic phenomena are caused by the subjective choices of individuals, including their knowledge, time, expectations, and other factors.

So, was Reagan an Austrian economist?

Reagan's economic policies

Ronald Reagan's economic policies, known as Reaganomics, were neoliberal and supply-side in nature. They were influenced by a variety of economic thinkers, including 14th-century Arab scholar Ibn Khaldun, and economists Arthur Laffer and John Maynard Keynes. Reaganomics focused on cutting taxes, reducing government regulation, increasing defence spending, and controlling inflation.

The results of Reagan's economic policies are still debated. Supporters point to the end of stagflation, stronger GDP growth, and an entrepreneurial revolution. However, critics highlight the widening income gap, reduced economic mobility, declining real median wages, and the tripling of the national debt.

Reagan's policies were influenced by a variety of economic theories. During his 1980 campaign, Reagan cited the work of Ibn Khaldun, who wrote:

> "In the beginning of the dynasty, great tax revenues were gained from small assessments... at the end of the dynasty, small tax revenues were gained from large assessments."

Reagan also drew on the theories of Arthur Laffer, who popularised the idea that tax cuts could increase government revenues. Laffer's model, known as the Laffer Curve, predicted that excessive tax rates reduce potential tax revenues by lowering the incentive to produce. Reaganomics further challenged the contemporary economic policies of the time, particularly the Keynesian demand-stimulus economics that had dominated the early 1970s.

Reaganomics also drew on the theories of methodological individualism, which is a key principle of the Austrian School of Economics. This school of thought, founded by Carl Menger in 1871, advocates that economic theory should be derived from the basic principles of human action and the motivations and actions of individuals. Reagan's policies reflected this by focusing on empowering individuals with financial resources and investment incentives, which he believed would lead to job creation and reduced interest rates.

Overall, Reagan's economic policies, or Reaganomics, were a significant departure from the economic orthodoxy of the time. By implementing neoliberal and supply-side policies, Reagan sought to stimulate economic growth and increase individual wealth. While Reaganomics had both supporters and critics, it undoubtedly left a lasting impact on the American economy.

Austrian School of Economics

The Austrian School of Economics is a heterodox tradition of economic thought that began in Vienna, Austria, in the late 19th and early 20th centuries. The term "Austrian" was originally used by rival German historical school economists to distinguish the methods and theories of the Vienna School. The Austrian School is known for its emphasis on individual freedom, market economics, and a skepticism of central planning and government intervention.

The foundational theories of the Austrian School were developed by Carl Menger, who is often credited with establishing the school of thought in his 1871 book, "Principles of Economics." Menger's key contribution was his development of the subjectivist theory of value, which posited that the value of a good or service is not inherent but rather determined by an individual's subjective assessment of its usefulness. This theory stood in contrast to the prevailing labor theory of value espoused by classical economists such as Adam Smith and David Ricardo.

Other notable economists associated with the Austrian School include Eugen von Böhm-Bawerk, Friedrich von Wieser, Ludwig von Mises, and Friedrich Hayek. These scholars built upon Menger's work and expanded the school's theories, particularly in the areas of capital, money, and the business cycle. Von Böhm-Bawerk, for example, elaborated on the theory of marginal utility and developed a critique of Marx's labor theory of value. Von Mises made significant contributions to the understanding of money and business cycles, and he was a staunch defender of free-market capitalism. Hayek, who won the Nobel Memorial Prize in Economic Sciences in 1974, is known for his work on the interplay between economics and political philosophy, and he popularized the Austrian School in the English-speaking world.

The Austrian School of Economics has had a significant influence on economic theory and policy, particularly in the 20th century. While it remains a heterodox approach, its ideas have been increasingly influential, especially among libertarian and free-market thinkers. The Austrian School's emphasis on individual freedom and market solutions has made it appealing to those who favor limited government intervention in the economy. Additionally, its insights into the dynamics of the business cycle and the role of central banks have informed debates about monetary policy and the role of financial institutions. The Austrian School's contributions continue to shape discussions about economic methodology, the role of the state, and the foundations of a free and prosperous society.

In terms of Ronald Reagan's alignment with the Austrian School of Economics, it is important to note that he was not an economist himself, but his presidency was marked by a shift towards more market-oriented policies and a reduction in government intervention. Reagan's economic policies, often referred to as "Reaganomics," were influenced by a range of economic theories, including supply-side economics and free-market liberalism. While there may have been some overlap with the principles of the Austrian School, such as a shared skepticism of central planning and a belief in the power of free markets, it is difficult to definitively label Reagan as an adherent of any one economic school of thought. Nonetheless, the Austrian School's ideas likely resonated with Reagan's overall vision of limited government and individual economic freedom.

In conclusion, the Austrian School of Economics is a distinct and influential tradition of economic thought, characterized by its subjectivist theory of value, defense of free markets, and skepticism of central planning. Its ideas have had a lasting impact on economic theory and policy discussions, and they continue to inform debates about the role of government in the economy. While Ronald Reagan may have shared some ideological similarities with the Austrian School, his economic policies drew from a range of theoretical perspectives. Understanding the Austrian School of Economics is crucial for comprehending the diversity of thought in economic theory and the ongoing discussions about the role and scope of government in economic affairs.

Reaganomics

Ronald Reagan's economic policies, dubbed "Reaganomics", were influenced by neoliberal and supply-side economic theories. Reaganomics was characterised by a focus on supply-side economics, with the aim of stimulating economic growth and increasing individual wealth. The key tenets of Reaganomics included increasing defence spending, reducing taxes, reducing government regulation, and slowing the growth of government spending.

The results of Reaganomics are still debated. Supporters point to the end of stagflation, stronger GDP growth, and an entrepreneurial revolution in the decades that followed. On the other hand, critics highlight the widening income gap, reduced economic mobility, declining real median wages, and the tripling of the national debt during Reagan's presidency.

In conclusion, Reaganomics encompassed a set of neoliberal and supply-side economic policies that sought to revitalise the American economy. While Reaganomics is credited with ending stagflation and boosting economic growth, it also contributed to widening income inequality and a growing national debt. The legacy of Reaganomics continues to be debated, with supporters and critics offering differing interpretations of its impact on the American economy and society.

Reagan's economic legacy

Ronald Reagan's economic legacy, known as "Reaganomics", was a set of neoliberal economic policies promoted during his presidency in the 1980s. Reaganomics focused on supply-side economics, with the aim of stimulating economic growth and increasing individual wealth. The key tenets of Reagan's economic policy included increasing defence spending, balancing the federal budget, reducing taxes, reducing government regulation, and slowing the growth of government spending.

The results of Reaganomics are still debated. Supporters point to the end of stagflation, stronger GDP growth, and an entrepreneurial revolution in the following decades. During the Reagan administration, real GDP growth averaged 3.5%, compared to 2.9% during the preceding eight years. Additionally, the unemployment rate fell from 7% in 1980 to 5% in 1988, and inflation declined from 10% to 4% during the same period. Reaganomics also contributed to a significant increase in Gross National Product (GNP), reflecting increased productivity, business expansion, and investment.

However, critics highlight the widening income gap, reduced economic mobility, declining real median wages, and the tripling of the national debt during Reagan's presidency. They argue that Reagan's neoliberal policies led to a stagnation of wages and contributed to growing wealth inequality. Between 1977 and 1989, the wealthiest 20% of Americans saw their pretax income increase by 29%, while the pretax income of the poorest shrank by 9%.

Overall, Reagan's economic legacy is characterised by a mix of achievements and challenges. While his policies contributed to economic growth and job creation, they also exacerbated income inequality and increased government debt. The long-term impact of Reaganomics continues to be a subject of debate among economists and political analysts.

Austrian economics vs Keynesian economics

Austrian economics and Keynesian economics are two opposing theories that are still popular today. Austrian economics, founded in the mid-1800s in the Austrian Empire, argues that the free market is the most efficient means of allocating resources. On the other hand, Keynesian economics, developed by John Maynard Keynes, posits that government intervention can maximise economic growth and employment.

Austrian Economics

Austrian economists believe that the market will eventually balance itself out, requiring minimal government intervention. They advocate for a free-market economy, where society adheres to a reasonable set of laws. Austrian economics emphasises macroeconomic concepts such as free markets, private property, and minimal central bank intervention. According to this theory, government intervention typically does more harm than good, and recessions are caused by credit cycles triggered by low-interest rates. Austrian economists tend to rely on logic and critical thinking rather than complex statistical models. They support the idea of "sound money," where currency is backed by gold or other tangible assets, arguing that fiat money leads to inflation and devalues currencies.

Keynesian Economics

Keynesian economics challenges the notion that a free market will automatically maximise employment. Instead, it asserts that aggregate economic demand, including household, business, and government spending, is crucial for economic growth. Keynesians believe that government intervention can help create jobs and maintain stable prices during recessions. They prioritise maximising employment over minimising inflation and often advocate for expansionary fiscal policies to stimulate the economy. Keynesian economists support fiat currencies, which can be adjusted by central banks to control the money supply and stabilise the economy.

Reaganomics

Reaganomics, the economic policies promoted by US President Ronald Reagan in the 1980s, were influenced by both Austrian and Keynesian economics. Reagan focused on supply-side economics, reducing taxes, and deregulation of the economy. However, his policies also included increased defence spending and efforts to balance the federal budget. The results of Reaganomics are debated, with supporters pointing to stronger GDP growth and critics highlighting the widening income gap and increased national debt.

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