Could Reaganomics Save China’s Economy? - YouTube

China’s recent economic slowdown has pushed Chinese president Xi Jinping to try a Western

capitalist approach.

The country's new low-tax policy is being compared to 1980s Reaganomics.

So, what exactly is Reaganomics, and could it work in China?

Well, Reaganomics refers to the 1980s economic policy of former US President Ronald Reagan.

When he took office in 1981, the United States was undergoing “stagflation”.

Both unemployment and inflation were rising at the same time, making it impossible to

address either problem without leading to a downward economic spiral.

To combat the problem, Reagan proposed four solutions.

The first was called “supply-side economics” or “trickle-down theory”.

The basic premise is that by giving massive tax cuts, people will have more money left

over to invest in the economy.

Under Reagan, wealthy Americans went from paying roughly 70% in taxes to just 28%.

The second idea was to deregulate government oversight and economic price fixing implemented

by previous Presidents.

Most notably, Reagan removed restrictions on the banking industry, leading to a situation

mirrored by the 2008 financial crisis.

Banks began investing in risky, unbacked real estate, and when these investments failed,

so did half the banks in the country, leading to the 1989 Savings and Loan Crisis.

As in 2008, these banks were bailed out.

Reagan also gutted government services, particularly regulatory and oversight agencies.

This was done to offset the massive tax breaks, and might’ve worked if it weren’t for

Reagan’s fourth plan.

From 1980 to 1986,the threat of the Soviet Union led to Reagan doubling defense spending.

By 1989 it reached a nearly quarter of the US’s Total Federal Budget.

So how did that all work out?

Well for the first two years of Reagan’s term, the country fell into a recession.

But after interest rates were adjusted and Reaganomics went into play, the US saw a brief

period of healthy growth.

Americans had more money after tax cuts, industries flourished without oversight, and the military

cemented the US’s powerful position abroad.

But the huge loss of tax revenue, coupled with massive spending increases on defense,

led to the country’s national debt jumping from about 900 billion dollars in 1980 to

more than 3 trillion dollars by 1990.

Many of Reagan's policies were continued by the next two republican Presidents, George

HW Bush and his son, George W. Bush, pushing the deficit to roughly 10 trillion in 2008.

Today, after decades of Reaganomics, many are pointing to the disappearing middle class,

incredibly wealthy one-percent, and overly powerful military as being the result of Reagan’s

policies.

For example, radical deregulation of the US’s financial markets by George W Bush has been

pointed to one of the biggest catalysts of the 2008 global economic crisis.

And despite a steady recovery from that crisis, only the wealthiest Americans have seen any

real growth, while wages are stagnant countrywide.

As China grapples with its own economic issues, the President’s Reaganesque policies are

focused on tax cuts and deregulation.

But in fact, historical analysis shows that cutting taxes to stimulate the economy no

longer works.

So, what would happen to China if it went with Reaganomics?

Well, the economy may show signs of improvement, same as it did in the United States, and it

is likely that the richest will grow even richer.

But unless China is able to effectively cut government spending, such as subsidies for

failing mines and factories, it’ll be China’s middle and lower classes holding the national

debt bill.

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Make sure to watch more TestTube News videos like this one about America’s reliance on

Chinese investment and manufacturing.

To find out exactly why the US needs China check out our video here.

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