Is economy in a better shape today than it was when the article was written? Refer to inflation, unemployment , the business cycle, GDP growth, the federal deficit, and the trade deficit .
Answer this question after reading the article.
Transcribed Image Text: From Fast Living to Slow Growth
he Americaneconomy, still rate only to 6.7 percent or so. The good can Economics Association in New
burdened by the excesses news is that inflation is likely to stay in Orleans a few days ago.
of the 1980s, is struggling the 3.5 percent to 4 percent range even
to regain its footing, a chal- if the economic recovery does pick upas once the growth disappears, debts be-
"Like the debts of Latin America,
lenge that it will confront through 1992 predicted.
and perhaps much of the decade.
With a burgeoning array of prob- year, however, is not going to be enough singular economic success in the past
lems masked by economic growth sta-
tistics during the Reagan years, America
was surprised when the problems came
together at the start of the new decade incomplete recovery.
to throw the country into recession and
raise new questions about the nation's
future.
Some analysts believe that the un-
masking itself is responsible for the
sour, uneasy mood of many households
and businesses, and therefore also partly
responsible for the fact that the economy
today is as "flat as a pancake," as one
government economist put it last week.
That flatness is widely expected to
continue only for a few more months,
with growth resuming this spring as
consumers and businesses make more
progress in digging themselves out from
under a mountain of debt. The lowest large that its debt soared from less than
interest rates in years and a bull market
in stocks have paved the way for almost
everyone to reduce the cost of their
debts.
But no one is looking for a boom.
The nation still has a badly battered
financial system in which many lenders
are unable or unwilling to make many by anunprecedented decline in national
loans they would have made in the past. saving. Partly as a consequence, busi-
State and local governments are cutting
spending and raising taxes, providing
another drag on the economy. And
commercial real estate is so badly over-
built in some parts of the country that
there is an estimated 10-year supply of
empty space.
By late this year, most forecasters
expect the civilian unemployment rate
to drop from last month's 7.1 percent
come a major burden."
On the other hand, there was a
A simple resumption of growth this
to get the U.S. economy out of the decade: Arampant inflation was curbed,
woods. The legacy of the 1980s is more albeit at the cost of a severe recession,
than a matter of a recession and an
and Federal Reserve actions to keep the
flow of money into the economy at
The biggest problem in the eyes of moderate levels have kept the lid on
many economists is that the long ex-
pansion, which led to creation of more
than 18 million jobs, came at the ex- of the 1980s failed to provide a magic
pense of a sharp decline in savings and elixir for the economy, the decline in
an enormous increase in the total debt inflation by itself has not done the trick,
of governments, households and busi- either.
since.
But just as the sweeping tax changes
nesses.
Given the low level of savings and
Instead of consumer spending rising investment, some economists now fear
in line with incomes, purchases of new
cars, medical care and other goods and during the 1990s to match the record of
services far exceeded growth of after-
tax incomes in the '80s. Instead of the services produced by each worker rose
federal government keeping its outlays a scant 0.8 percent a year.
in line with revenue, it ran deficits so
that the United States will be lucky
the '80s when the amount of goods and
Dornbusch and many other experts
regard that as a "poor economic perfor-
mance" because the slow increase of
$700 billion to nearly $2.3 trillion. And
businesses by the score racked up huge productivity and a growing concentra-
debt increases in connection with take-
overs, real estate developments and employees left the real wages of average
other expansions, particularly in ser-
vices such as retailing.
The rise in total debt was paralleled
tion of income among more highly paid
workers lower than they were 10 or 15
уears ago.
Furthermore, with output per
worker going up so slowly in the '80s,
the major source of economic growth
was a rapid increase in the size of the
ness investment other than for replace-
ment of worn out or obsolete plants work force as an ever greater share of
and equipment was cut nearly in half,
relative to the size of the economy.
"The 1980s were a bit of a disaster
for the United States and the bill is
coming due," economist Rudigar
Dombusch of the Massachusetts Insti-
tute of Technology told a large audi- to expand much more slowly in coming
ence at the annual meeting of the Ameri-
women sought jobs. U.S. gross domes-
tic product rose an average of 2.2 per-
cent a year only because of all those
added workers.
Unfortunately, noted Dornbusch,
the work force in the 1990s is projected
years both because the population is
Transcribed Image Text: to work as the share of the population recession in 1982 when the unem-
in the labor force rose. Second, the ployment rate hit 10.8 percent.
federal government failed to increase
total taxes to cover large spending in-
not increasing as rapidly and because it
is unlikely that the participation of
women will keep rising strongly....
Of course, with the recession and
the still incomplete recovery having left creases for programs such as defense
the civilian unemployment rate at 7.1 and Social Security. That gave a boost other employment. However, the
percent, compared to the 5.3 percent
rate achieved for most of 1989 and part increasing the federal budget deficit. some analyss believe, took away
of 1990, there is a pool of jobless work-
ers. But after the eventual recovery pro-
vides work for that pool, economic borrowing spree.
growth should slow again..
"The economic problems that the
United States faced today are not new,
they have little to do with a minor
[recession], they will not be solved by a
tax cut, and they will not go away after
the election," said Barry Bosworth, a
senior fellow at the Brookings Institu-
tion..
Since the jobless rate did not go
up so much this time, most of those
who lost their jobs quickly found
to individuals' after-tax incomes while experience with being out of work,
And third, consumers, like the govern- the most solid prop under consumer
ment and many businesses, went on a confidence, a feeling of job security.
Once jobs were called into ques-
At the same session in New Orleans tion by the recession, what was left?
at which Dornbusch spoke, Harvard
economist Martin S. Feldstein, a former that they are worse off than 10 years
chairman of the Council of Economic ago," said Dernbusch. "They don't
Advisers,argued that one byproduct of have a lot more income, they have a
the ballooning federal deficits of the lot more debt, and they are far more
early 1980s was a large rise in the value vulnerable. Before, they were will-
of the dollar and a concomitant loss of ing to believe that everything was
American competitiveness on world going to be al right as long as taxes
"Consumers feel in their bones
The centerpiece of Bosworth's argu- markets. The resulting rise in the U.S.
ment was a chart showing that as in-
come gains lagged,consumers kept right inflow of foreign capital that kept do-
on spending. Over the decade, the share mestic investment from falling as much
of national output going for personal
consumption rose from about 63 per-
cent-a level around which it had fluc-
tuated for two decades-to an average gests that in most industrial nations an
of 68 percent in recent years.
Sharp Dropin Savings Meanwhile, prop up domestic investment only for a
for three decades prior to the '80s, total limited time. If a country's level of has been overdone, Dornbusch
national savings had averaged more
than 8 percent of net product-a mea-
sure of national income that takes out
business allowances for depreciation. ment "would mean a very slow growth
In the first half of the 1980s, the figure in future productivity and in the Ameri-
dropped to 4.9 percent and then to 2.9
percent from 1986 to 1990.
Domestic investment did not fall as
sharply as did national saving because
a large inflow of money from foreign future will bring. One reason may be helps improve policies. Of course, if
investors, who bought American stocks,
bonds, companies and real estate,
supplemented U.S. savings as a source unemployment last year, even though fication in an election year or hous-
of financing for investment.
Consumers were able to increase percent. The number of claims filed for country is likely to hop from one
their consumption despite the lack of unemployment benefits suggest that 23 crisis to the next, with little prosper-
any rise in real average wages for sev- million persons lost their jobs last year, ity in between."
eral reasons. First, more consumers went compared to 30 million in the previous
did not increase...
"They also understand that mas-
sive bank failures are not symptoms
of prosperity but more nearly the
collapse of a house of cards, and
trade deficit was the counterpart of the
as did national saving.
But Feldstein said that research he above all, an indication that trust in
and other economists have done sug- government's wisdomand prudence
is altogether misplaced," he contin-
ued.
inflow of foreign money is likely to
However, the loss of confidence
savings falls and stays down, then its added, though that might not turn
out to be a bad thing, depending on
how government responds.
"The couniry is not bankrupt,
there will not he another 1930s and
the average Aimerican will not be
paying rent to a Japanese landlord,"
unusual degree, the recession hascaused Dornbusch said. "But a deflation of
American workers to question what the optimism is not inappropriate if it
investment will eventually follow, he
said. Eventually, continued low invest-
can standard of living.
An Insecure Look Ahead To an
it is the backdrop for more 'dope'-
that an unusually large share of them
suffered through one or more spells of middle-classtax cuts for instant grati-
the unemployment rate never passed 7 ing-and-health gimmicks then the
John M. Berry,. "From Fast Living to Slow Growth," The Washington Post, January 12, 1992.
01992 The Washington Post. Reprinted with permission.