Anandi P. Sahu and
Ronald L. Tracy

The eight years of the Reagan administration have left an indelible imprint on
U.S. economic policy. This impact has often been characterized as the eco-
nomic legacy of the Reagan era; and epitomized by the media-coined term
Reaganomics. President Reagan inherited an economy with a relatively low
unemployment rate, a modest budget deficit, and a small trade surplus. How-
ever, the nation was also saddled with double-digit inflation and interest rates,
as well as a general malaise caused by both economic and noneconomic fac-
tors. When President Reagan left office at the end of the eight years, the econ-
omy had witnessed both the longest peacetime expansion in history (which
continued to show strength well into the subsequent Bush administration) and
the most severe recession in the postwar period. This economic expansion led
to a decreasing unemployment rate that was accompanied by the lowest levels
of inflation since the 1960s as well as moderate nominal interest rates. At the
same time, the federal budget deficit and the U.S trade deficit reached their
highest levels in U.S. history. During the eight years, the national debt in-
creased more than it had during the previous 200 years (which included the
fighting of two world wars, a civil war, and numerous other declared and un-
declared wars), and the United States changed from being the world's largest
creditor to the world's largest debtor. However, instead of malaise about the
ability of the United States to compete in the world economic environment of
the twenty-first century, there was a renewed optimism about the economy's
ability to change, grow, and benefit from world competition. Finally, during
the Reagan administration, while the stock market rose an unbelievable 200
percent during the economic expansion phase, it also experienced the greatest
one-day fall in stock prices.

Clearly the Reagan economic legacy is one of both major accomplishments

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