How Reaganomics In The 1980s Helped The US Economy Explode

When Ronald Reagan, the 40th president of the United States, took office in 1981, he faced a tough brief. The energy crisis that dragged on throughout the 1970s had hobbled world trade, and the US economy was stagnating. Unemployment was at a record 7.5 per cent, inflation was skyrocketing and the government was racking up debt.

President Reagan recognised that swift action was needed to reignite the economy and prevent millions more US citizens sliding into poverknown as Reaganomics Here’s what happened next. The four key principles of Reaganomics

Reagan adopted a school of thought called Supply-Side Economics Although he never used the term, this approach is also known as “Trickle Down Economics, because it focuses on introducing business-friendly policies and supporting entrepreneurship. The idea is that the benefits will trickle down to everyone through more jobs, higher wages and cheaper goods.

The four pillars of Reaganomics included: Lower taxes (for some)

Reagan slashed taxes for higher earners, cutting the top bracket of income tax from 70 per cent to 28 per cent. He also reduced corporate taxes from 48 per cent to 34 per cent, in the belief that if businesses and high net worth individuals had more freedom to spend and invest, the whole economy would benefit. Less government regulation

Reagan rolled back the price controls on US oil and gas prices that were introduced by the previous president. He also deregulated or relaxed regulations in other sectors such as financial services, telecommunications, public transport and ocean shipping. The idea was that freer markets would mean more innovation and efficiency. Reduced government spending

Reaganomics prioritised spending on national defence to strengthen the US against the growing threat of the nuclear arms race, increasing it by 35 per cent over five years. At the same time, he reduced domestic spending in areas such as welfare and education. The theory was that the bolstered private sector would be able to absorb these costs. Tighter control of money supply

A contractionary monetary policy was introduced (although this part was largely led by the Federal Reserve rather than Reagan directly). The idea was to keep inflation under control by managing how much money was circulating in the economy. A key strategy was to raise interest rates to make lending more expensive. What happened next?

The final results of Reaganomics are still being argued over to this day, but one indisputable fact is that the US economy entered one its strongest and most sustained periods of growth ever. Between 1982 and 1990, over 20 million US jobs were created, and the unemployment rate fell to 5.2 per cent.

Inflation levels decreased significantly, dropping from double digits to low single digits, and lower taxes and less regulation boosted business. This encouraged more calculated risk taking and created an entrepreneurial spirit as investors gained confidence.

Lower inflation also encouraged more personal consumer spending, as people had more money in their pocket and felt more confident about finding and staying in work. During the mid 1980s the US economy boomed, although critics argued that the gap between rich and poor became wider. The rise of new technology

The policies of President Reagan may have given the US economy the kick-start it desperately needed, but there is another thread to the story: the rapid advances in technology that were changing the face of business. Although it was still the pre-internet era, computers were making doing business quicker and easier than ever before.

The financial markets boomed as traders no longer had to rely on placing manual orders over the phone: electronic trading platforms replaced pen and paper. Trades could be made within minutes rather than days, and for the first time speculative trading became possible and accessible outside of exclusive financial corporations and major banks.

In fact, you could argue that the combination of Reaganomics and new technology laid the foundations for the rise of today’s prop trading firms and individual traders. The prop trading revolution

Before the 1980s, proprietary trading was almost exclusively carried out by big banks and financial institutions who traded using their own capital in order to profit directly from market moves. The barriers to entry for individual traders were almost impossibly high: you needed multi-million dollar capital, even if you had the means to physically access the markets.

Deregulation, advances in technology and wider access to knowledge and information have dramatically changed all that. Now, retail prop trading programs allow individual traders to access the markets from almost anywhere in the world and trade with little or even none of their own capital.

The prop firm model works by allowing individuals to trade with the firm’s capital. The trader will usually either need to pass an evaluation program (to prove they can manage risk and hit profit targets) or pay a fee to be given access to a funded account, which can be $100k or more.

The profits are split (typically 50-90 per cent for the trader), and losses are absorbed by the firm. Most prop firms operate scaling trading plans, allowing traders to gradually increase account size and profit share if they can demonstrate a consistent performance over time. The rise of the retail trader

Although the challenges facing the US economy have changed, we are still in an era of fluctuating inflation, higher interest rates and job uncertainty. Reaganonomics has left a lasting legacy in how we deal with our spending and investments in this economic climate, as traditional approaches become less rewarding.

This can be seen in the rise of retail trading — trades carried out by individuals using digital platforms. The 1980s created an environment where entrepreneurs were encouraged to take managed risks, invest and innovate.

This led to millions of US citizens having the confidence to start small businesses, invest in real estate or explore other ways to expand their income. The same confidence to think big and act on one’s own initiative can be seen in the rising numbers of people today who are starting side hustles, including retail trading.

Today’s economy might be more uncertain, but there are also huge modern day advantages: democratised market access, lower barriers to entry, and the freedom to work at any time and from anywhere in the world. These make ideal conditions for ambitious, committed and well-disciplined traders to supplement their income or even trade full time. The parallels between prop trading and Reaganomics

Whatever your personal opinion about Reaganomics, there’s no denying that it reshaped the US economy and encouraged individual enterprise.

The economic policies of the 1980s were all about unlocking opportunities and removing barriers. Regulations were relaxed or removed altogether; high taxes for businesses and top earners were dramatically reduced; and technology helped to open up new sectors. This was an environment that rewarded hard work and calculated risk taking.

Modern day prop trading offers similar opportunities. It’s no longer necessary to be an employee of a major bank or financial institution to trade; neither do you need to be a multi-millionaire. Prop firms allow you to trade with significant capital with no personal financial risk, only the prospect of reward.

Just as deregulation and technology opened up new sectors in the 1980s, prop firms and digital technology have opened up trading to individuals. Lower taxes provided financial incentives for new businesses in the 1980s, and today traders are rewarded for their performance with profit shares and scaling account plans. The balance of risk and reward

Just as the 1980s were largely a “sink or swim” environment for businesses and not every entrepreneur made the cut, prop trading requires determination to succeed. The financial markets may be more accessible, but it still takes skill, knowledge and emotional discipline to navigate them.

The financial markets can be unpredictable and volatile, and trading requires strong risk management and technical and fundamental analysis skills. It’s important to understand that if you want to sustain your account with a prop firm, you will need to demonstrate that you can operate within their rules and not take unsupported risks.

Before signing up for an account, it’s a good idea to take a 14-day free trial. This will allow you to trade in a simulated market environment and get a taste of working under pressure before you go live. Wrapping up

The economic policies of the Reagan era changed patterns of spending and investment. As the global economy continues to stagger under the weight of the post-Covid era, entrenched international conflicts, spiraling living costs and political unrest, spending patterns continue to be reshaped.

Prop trading offers a low-cost entry point into the financial markets, with the potential for high rewards. This window of opportunity is attracting skilled individuals who have the drive and determination to succeed in a world that was once closed to them.