The 1982 Recession

http://www.pbs.org/wgbh/americanexperience/features/general-article/reagan-recession/

In February 1981 Reagan presented the Economic Tax Recovery Act to Congress, calling for massive personal and corporate tax cuts, reductions in government spending, and a balanced budget. The program was based on supply side economics: Tax cuts, the theory went, would allow people either to spend more on goods and services, thus giving the economy a boost, or to invest in businesses, thus leading to economic growth. The economic expansion, supply side theorists argued, would generate enough revenue to cover the shortfall resulting from the initial cut in tax rates.

In an effort to balance the budget, Reagan "propose[d] budget cuts in virtually every department of government." While he cut back social programs, including school-lunch programs and payments for people with disabilities, he refused to touch Social Security and Medicare. He also advocated deregulation of certain industries in an effort to reduce the government's role in the economy, and proposed such a massive military buildup that Pentagon spending would reach $34 million an hour during his administration. snip

When, in August 1981, Reagan signed his Recovery Act into law at Rancho del Cielo, his Santa Barbara ranch, he promised to find additional cuts to balance the budget, which had a projected deficit of $80 billion -- the largest, to that date, in U.S. history. That fall, the economy took a turn for the worse. To fight inflation, running at a rate of 14 percent per year, the Federal Reserve Board had increased interest rates. Recession was the inevitable result. Blue-collar workers who had largely supported Reagan were hard hit, as many lost their jobs. snip

The United States was experiencing its worst recession since the Depression, with conditions frighteningly reminiscent of those 50 years earlier. By November 1982, unemployment reached, nine million, the highest rate since the Depression; 17,000 businesses failed, the second highest number since 1933; farmers lost their land; and many sick, elderly, and poor became homeless.

The country lived through the recession for a full year before Reagan finally admitted publicly that the economy was in trouble. His budget cuts, which hurt the poor, and his tax cuts, which favored the rich, combined with the hardships of a recession, spawned the belief that Reagan was insensitive to his people's needs. (Although it was a 25% across-the-board tax cut, those people in the higher income brackets benefited the most.)