Devastating stagflation signaled the exhaustion of Keynesian economics in the 1970s and contributed to President Jimmy Carter's loss to Ronald Reagan in 1980. With Reagan's blessing, Federal Reserve Chairman Paul Volcker tightened the money supply by raising interest rates to unprecedented levels, sparking a recession but effectively taming inflation.

Under "Reaganomics," small government was both a fiscal imperative and a political belief. Adopting "supply-side" economics, Reagan believed that reducing taxes would free individuals and businesses to invest elsewhere, thereby maximizing economic gain. This meant, though, reducing government programs accordingly.

The success of Reaganomics is up for debate, but its legacy can be traced throughout U.S. economic policy ever since.

Participants

George Shultz
U.S. Secretary of State, 1982-1989

A former secretary of the Treasury, George Shultz served Reagan as a chief economic policy advisor and later as secretary of State. He talks about Reagan's ability to stick to his economic convictions.

Milton Friedman
Professor Emeritus, University of Chicago

Nobel laureate Milton Friedman was an advisor, and a keen observer, of the Reagan economic policy "revolution." He discusses the economic outcome of Reagan's support for a tight money policy to control inflation and for deregulation.

Richard Gephardt
Democratic Leader, U.S. House of Representatives

Democratic congressman Richard Gephardt, currently House minority leader, discusses the impact of Reagan's tax cuts and deficit spending.

Newt Gingrich
Speaker of the U.S. House of Representatives, 1995-1999

Newt Gingrich, leader of the Republican wave that swept the House of Representatives in 1994, was greatly inspired by the "Reagan revolution." He talks about Reagan's grasp of economic theory.

John Kenneth Galbraith
Professor Emeritus, Harvard University

The eminent economist John Kenneth Galbraith observed Reagan from an ironic perspective: He saw him as an unconscious Keynesian.