Analysis Of Reagan Government's Deficit Finance From The Perspective Of Transaction Cost Politics

The Reagan government achieved great success in both internal and external affairs. Yet the deficit it left becomes the focus of arguments. Scholars believe that from economics standpoint, the result of Reagan government's financial policy is in conflict with the theory he advocated and the promises he made when coming to power. Therefore, they usually regard Reagan government's financial policy a failure. But the author believes that we cannot judge that his financial policy is unsuccessful just from the big deficit it brings. The paper attempts to analyze the reasons that lead to the deficit finance from the perspective of transaction cost politics of the neo-political economics. It also attempts to reconsider the result that Reagan government's financial policy bring and hence comes to a conclusion that we should evaluate Reagan government's financial policy positively.The transaction cost politics is the application of the theory of new institutional economics in the field of politics. The transaction cost politics believes that there are a variety of political transactions in the political field. All political transactions are based on political contracts with the relationships of trust and agent.The paper analyzes two reasons that lead to Reagan government's deficit finance. On the one hand, the weak control mechanism of the financial political contract between president Reagan and his electorates is one of the important reasons that result in the financial deficit. On the other hand, the process of financial budget is the process of political transaction, and the process of playing games between various benefit groups as well. The relationships of trust and agent between benefit groups and congressmen always existed during the process of budget decision. The complicated relationships of trust and agent resulted in the plight of common resources, namely the unavoidable financial deficit.As to the evaluation of result, the transaction cost politics holds that we cannot decide that a policy is useless just because its transaction cost increases in a short period of time. Unlike the currency policy in macro-regulation, which can have immediate influence upon economy, the effect of Reagan government's financial policy often lags behind thepolicy itself. Therefore, the author believes the effect of Reagan government's financial policy should be reevaluated within the framework of time and space. Reagan government's deficit policy has strategic effect on the alleviation of social conflicts, on the adjustment of strategies towards other countries, and on the regeneration of American economy in the 80th of twentieth century. It is also one of the important reasons for the coming of the neo-economy phenomenon in the 90th of twentieth century.