The Era of Deregulation

When Ronald Reagan entered the White House in 1981, the nation was contending with serious economic problems; inflation was on the rise, along with interest rates and unemployment. But Reagan was not inclined to mobilize the resources of the federal government to improve the nation's economic health. Instead, Reagan blamed the economic woes on government itself and pledged to scale back the role of the federal government in managing the American economy.

In his inaugural address, Reagan declared that "it is time to check and reverse the growth of government that shows signs of having grown beyond the consent of the governed." Toward this end, he asked Congress to cut spending on many of the federal social programs created in the 1960s as part of President Johnson's Great Society campaign. In addition, Reagan's ambitious agenda included the passage of significant tax cuts, the deregulation of several economic sectors, the privatization of certain government functions, and the transfer of responsibility for a number of federal programs to the states.

The combination of these various measures, sometimes referred to as "Reaganomics," had mixed results. By 1984, the problem of double-digit inflation had indeed been cured, but only after the nation had endured a serious recession in 1982. Although many states welcomed the greater autonomy they received under Reagan's "New Federalism," the $25 billion in cuts in federal social welfare spending left states in a difficult position as they sought to cope with the effects of the 1982 recession.

In addition, despite the cuts in spending on social programs, Reagan's insistence on a massive increase in defense spending led to huge federal budget deficits. Finally, the deregulatory efforts of the Reagan Administration and the Congress helped to bring about a near collapse of the savings and loan industry in the mid-1980s, ultimately leading to a $500 billion taxpayer bailout of the industry.