Prosperity, great compression and Reaganomics: lessons for economic policy

Abstract

During the 20th century USA went through several radical swings of economic policy being the response to drastic societal, technological and ideological transformations. American economy endured several crises and experienced intensive sustained growth, which eventually transformed it into the world powerhouse. Basing on its historic record and with the benefit of hindsight, relevant lessons for economic policy can be derived. Three sub-periods of the American economic history, i.e. Prosperity (1920-1929), Great Compression (1937-1947), and Reaganomics (1981-1989), have been subject to positive analysis with the goal of suggesting answers to fundamental dilemmas of political economy. Particular attention is drawn towards evolution of institutional environment, income distribution policy and theoretical assumptions underlying policy making. We highlight the most prominent ideological pitfalls, which materialized in the American economic history, but which have not been properly addressed by the policymakers and engendered pathological processes in the political and social systems.