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By 1984, in good time for his re-election campaign, the GNP was growing a robust 6.8%, while inflation had dropped to 4.3%. And from then on, despite the spectacular but brief stock-market crash in 1987, the boom kept right on booming. Those gains, however, were unequally distributed. Reagan liked to say that the government provided a "safety net" for the "truly needy," but it was during these years that, for the first time since the Depression, there appeared those huddled figures who became known as "the homeless."
Another pillar of Reagan's approach was to get government out of the way of growing businesses. Deregulation had started tentatively under Carter with the airlines, but Reagan applied it broadly, to energy and broadcasting and butressed it with a dismantling of antitrust laws. Reagan was a staunch free-trader and did little to stop the onslaught against sluggish American corporations from aggressive Japanese manufacturers. Reagan's term coincided with the height of Japan's economic boom, and his instinct was that in the long run, it would be better to let most companies fend for themselves.
Under pressure from foreign competition, and with the antitrust lawyers looking the other way, Wall Street tumbled into a fever of mergers, leveraged buyouts, massive restructurings and corporate raids. It was painful, it was chaotic, it hurt a lot of workers, both blue and white collar. But in the end it seems to have produced a more competitive economy, with companies more nimble, more responsive to customers and more innovative, even if their workers felt less secure or loyal. The 1980s shakeout helped prime the economy for its leap into the high-productivity, technology-fueled boom of the next decade.
A philosophical offshoot of Reagan's impulse to deregulate was the 1986 tax-reform bill. Although the primary goal was to lower tax rates a lot, to encourage work and investment, the trick was to pay for it by eliminating most of the exemptions and special tax breaks and shelters, all the ways the government tried to micromanage the economy and control behavior. Reagan and the reformers believed in letting individuals make decisions based on their own view of economic self-interest, not the tax code's. By the end of Reagan's term, the ground had shifted to the point that it became all but impossible for politicians to propose big new spending programs in the face of so much red ink. "Reagan's policies," said Stanford economist Michael Boskin, "were all designed to do what public policy could do to transform a badly ailing economy into a highly competitive one."
During his campaign for the White House, Reagan asked the voters not only whether they were better off but also whether the nation was stronger than it had been four years earlier. And there was little doubt about the answer. At the time, America's diplomats were being held hostage in Iran, a rescue attempt had crashed in flames in the desert, and the Army--by its generals' own admission--was going "hollow." Though Presidents Nixon, Ford and Carter had all promoted the development of new weapons systems--the MX missile, F-117 fighter, the B-2 bomber, the M1 tank--it was under Reagan that those programs bore fruit, along with a mighty, imaginary weapon born all of Reagan's own instincts.