Poverty and the Distribution of Income During the Reagan Years - Research Paper Example

? Poverty and the Distribution of Income during the Reagan Years United s had a Republican form of government from 1981 to 1989. The supervision was under the 40th head of United States named Ronald Reagan. The diverse economic policies that were introduced by the president were principally examples of supply side economics; they were often known as ‘Reaganomics’. System of government can only lead to good formulation of policies if the regulations set by the government are efficient and effective. Reagan wanted to encourage private contribution in the U.S. market by wounding down the level of public expenses. This essay tries to analyse and evaluate the level of poverty and income distribution in the Reagan years in United States. Name of the Student Name of the Professor Course No. Date Poverty and the Distribution of Income during the Reagan Years I. Introduction United States had a Republican form of administration from 1981 to 1989. The administration was under the 40th president of United States named Ronald Reagan. This essay tries to focus on the level of poverty and income distribution in the Reagan years in United States. The pattern of governance under Reagan in U.S. was in favor of reducing the state owned programs. Ronald Reagan has announced the highest across board tax redemptions in American history. The different economic policies that were introduced by the president were mainly examples of supply side economics; they were often termed as ‘Reaganomics’. 1 The concept of what is now known as Privatization was first introduced by Reagan; he always encouraged the private spending by limiting the growth of state expenditures. Reagan successfully won re-election in U.S. by taking active measures to reduce inflation and extra regulations imposed by the government. However it was a noticeable fact that the fiscal debt was successfully incrementing during this period of economic history. II. Poverty and Income Distribution in the Reagan Period The epoch of Reagan governance in U.S. was often termed as the ‘Reagan Revolution’ as the economy both in and beyond U.S. was significantly influenced by the faith that the ruling president had in laissez-faire economy. 2 It has always been a subject of study for economists and analysts concerning the extent of inequality and income distribution in U.S. It is analyzed that after a long period of equitable income distribution, income equality started to fall in most of the English speaking nations from 1970 onwards mainly in the U.S. It was found that in the Reagan era the gap between rich and low income classes started to increase.3 This is because Reagan paved a way for almost a ‘U’ turn in U.S. economy. The nation started to invest primarily in speculation purposes by increasing its offshore stash.4 The country also started to outsource its factor services like labor required for productive purposes. The following was done in order to get sources at lower cost. U.S. governance during this period supported growth of business and industry at the cost of abating the organized labor power of the economy.5 Reaganomics made the country to spend less in welfare purposes, led to reduced corporate taxes and reduced spending on military services.6 It was believed by Krugman that the tax cuts made by the government during this period increased the costs of the lower 60% population and gave profit to the upper 40% income group.7 It was found during this period that the mean wage of the common households in U.S during this period was approximately $2000 while the average wage of the steelworkers was almost close to $4000.8 Rather the Pension Benefit Guarantee Corporation has abolished the allowances of unilateral transfer payments to the old section of the society. The labor unions were made almost powerless under the extreme rules and regulations of the government. Thus the U.S. economy was subjected to high income inequality during this era. The table given below depicts the level of income inequality in U.S. from the years 1967 to 1998. Income equality is often statistically measured with the help of Gini coefficient. The value of this coefficient exists between 0 to 1.9When the value of the coefficient is 0 it indicates perfect equality in income distribution while 1 shows a level of 100% inequality of income distribution. It is evident that income inequality has been increasing in the subsequent years from 1981 onwards with rise in the value of Gini Coefficient (See Table 1). The income ratios of men as well as women have also increased during the ‘Reagan Age’. Over the years, the share of top 1% high income group people in U.S. has significantly been more that rest of the population showing maximum magnitude of income inequality in the Reagan Years10 (See graph 1). The median real income for both men and women shows high income inequality amongst the wage and the non wage groups in U.S. over time (See graph 2). The mean income of the bottom 90% population is almost as low as 5% from the period 1976 to 2007. Widespread inequality in U.S. during the political control of Reagan has retarded the growth of the economy. Almost 80% of the population in U.S. was poor so Reagan era catered to extreme poverty all over the nation.11 Poverty persisting in the economy was a vicious circle. Ronald Reagan was against the concept of public spending that required catering to welfare related activities to the economically weaker classes of the society. This policy set by the ruling president went against the development of the poor classes of the society. It is always the duty of the state to enhance the quality of life of all the members of the country. The government of a nation should always frame its policies in ways by which the level of human development of the nation will rise. The situation of U.S. in the Reagan period was not the same. Ronald Reagan failed to analyze the fact that a significant rise in the level of Domestic Product of a country is not the sole determinant of economic development. A nation’s progress is determined by a large variety of parameters like literacy, health status, gender inequalities etc. Poor incomes lead to low literacy and poor health standards in U.S.12As the disposable income of the majority was low; they could spend meager resources in other sources that could improve their standard of living. The level of investments were low in the economy thus it generated less employment opportunities for the common folk. Ronal Reagan accelerated the level of external investments made by U.S. This was the period when U.S. made many green field investments in several other emerging economies in the world like India. Furthermore the country started outsourcing factors services for the other countries where the costs of such services were low. The main motto of the president was to give economies of scale benefits to the private sectors of the economy. The percentage of people having income below the poverty line was almost 13% to 15%. The policies that was undertaken by Roland Reagan were criticized as ‘tickle down economies’ especially when he reduced the tax cuts in the income of rich class.13 The government faced high budget deficit, indicating that unproductive investments made by the state were high was exceeding its revenue. The state did not spend for social welfare showing that poor became poorer and the elite business class became wealthier.14 After World War II the cost of poverty in U.S. was more than the cost of the countries wars (See graph 3). The number of people living below the poverty line in U.S. has increased in the 10 years of Reagan governance (See table 2). These were the people who lacked finance to avail their basic requirements of life. The state was also one-sided with the rich class and had almost ceased its social spending. The CPI of most of the people in the economy was increasing in the Reagan period (See table 3). Consumer Price Index (CPI) is the average of the prices of a large basket of goods and services produced in the economy. A significant continuous rise in CPI explained an inflationary trend in the economy during the Reagan years. The level of poverty in the economy was already very high and it was difficult for the common mass to get the basic requirements at high prices. Thus Ronal Reagan weakened the economy of U.S by making it unequal in terms of resources and wealth. III. Conclusion Bureaucracy can only lead to good formulation of policies if the rules set by the government are efficient and effective. The presidency of Reagan was a forceful era of U.S. current history. He changed the dealing, national and global agenda of the economy in U.S. Reagan wanted to encourage private participation in the U.S. market by cutting down the level of public spending but this created a detrimental impact in the economic system. The debaters often drive the topic of valuing Reagan rule. Whatever might be the result it is clear that income inequality and poverty was predominant in this era. Ronald Reagan had tried to promote unproductive offshore investments in U.S. and outsourced labor or any other factor services from outside at cheap cost. This dampened the income and employment opportunities of the common folk in U.S. Over the time U.S. has now accelerated its growth with high GDP, per capita income and significant improvement in its level of social parameters. Table 1 Income Inequality in U.S. Source: U.S. Dept of Commerce. “1960, 1970, 1980 and 1990 Censuses,” (2013), http://www.census.gov/hhes/www/poverty/data/census/1960/ Table 2 Poverty In U.S. Person for whom poverty status is determined Below poverty level Year 241,977,859 31,742,864 1980 to 1989 220,845,766 27,392,580 1970 to 1979 198,059,959 27,124,985 1960 to 1969 Source: U.S. Dept of Commerce. “1960, 1970, 1980 and 1990 Censuses,” (2013), http://www.census.gov/hhes/www/poverty/data/census/1960/ Table 3 Consumer Price Index Source: U.S. Dept of Commerce. “1960, 1970, 1980 and 1990 Censuses,” (2013), http://www.census.gov/hhes/www/poverty/data/census/1960/ Graph 1 Income Share of Top 1% in U.S. Source: Freerepublic.“The Top 5 Facts About America’s Richest 1%,” (2011), http://politicalcalculations.blogspot.in/2012/08/men-with-and-without-wage-and-salary.html#.UfYAqNIwcqM. Graph 2 Average Income Inequality in U.S. Source: Political Calculations. “Men With and Without Wage and Salary Income,” (2013), http://politicalcalculations.blogspot.in/2012/08/men-with-and-without-wage-and-salary.html. Graph 3 Poverty in U.S. Source: Richards, Jay Wesley. “The Economy Hits Home: Poverty,” (2013), http://www.heritage.org/research/reports/2010/06/the-economy-hits-home-poverty Notes 1) See Ackerman, Frank. Reaganomics: Rhetoric vs. reality, p. 34. 2) See Alexander, Michelle. The new Jim Crow: Mass incarceration in the age of colorblindness, p. 120. 3) See Bartlett, Bruce R. Reaganomics: supply side economics in action, p. 135. 4) See Bowles, Samuel, David Michael Gordon and Thomas E. Weisskopf. After the waste land: A democratic economics for the year 2000, p. 222. 5) See Duncan, Cynthia M. Rural poverty in America, p. 65. 6) See Iceland, John. Poverty in america: a handbook, p. 124. 7) See Jones, Gavin. American hungers: the problem of poverty in US literature, 1840-1945, p. 176. 8) See Laham, Nicholas. Crossing the rubicon: Ronald reagan and united states policy in the middle east, p. 125. 9) See Podder, Nripesh. On the relationship between the gini coefficient and income elasticity, p. 4. 10) See Reeves, Richard. President reagan: the triumph of imagination, p. 23. 11) See Ryscavage, Paul. Income inequality in america: an analysis of trend, p. 76. 12) See Soltow, Lee. Distribution of wealth and income in the united states in 1798, p. 246. 13) See Ventura, Jesse. American conspiracies: lies, lies, and more dirty lies that the government, p. 169. 14) See Wolters, Raymond. Right turn: William bradford reynolds, the reagan administration, and black civil rights, p. 49. Bibliography A. Articles Adjasi, Charles K. D., and Kofi A. Osei. “Poverty profile and correlates of poverty in Ghana” International Journal of Social Economics, 34.7, 2007, pp. 449-471. 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