Econ 545 Project Paper

Topics: Unemployment, Monetary policy, Bill Clinton Pages: 6 (1934 words) Published: August 4, 2013


Team F

Submitted in Partial Fulfillment of the Course
Requirements for

Business Economics

The US Economy in 1982-2000


Throughout the late 1970s, American people had grown discontent with the government’s fiscal and monetary policies as the economy was stagnant and recovery was not in sight. This ultimately led to the election of former actor and California governor, Ronald Reagan in 1980. President Reagan’s economic policy was based in the theory of supply-side economics, which promotes the reduction of taxes to stimulate spending and investment. Additionally, he made cuts to social programs as he believed that government had become too big and intrusive. Next, the President also increased defense spending out of concern that the country had neglected its military after the Vietnam War. This combination overwhelmed the small reductions in other domestic programs and ultimately led to an increase in federal budget deficit even higher than the levels seen in the Carter administration; recovery stagnated once again. The effects of a slow economy show in the unemployment rates. We can observe the table shown below, that even after the economy is recovering, the unemployment rates are still higher than before the recession began. This can be due to the accumulation of the unemployed during the previous year of recession.

U.S. Unemployment Rates Month-by-Month for the Period 1978-1984| Year| Jan| Feb| Mar| Apr| May| June| July| Aug| Sept| Oct| Nov| Dec| 1978| 6.4| 6.3| 6.3| 6.1| 6.0| 5.9| 6.2| 5.9| 6.0| 5.8| 5.9| 6.0| 1979| 5.9| 5.9| 5.8| 5.8| 5.6| 5.7| 5.7| 6.0| 5.9| 6.0| 5.9| 6.0| 1980| 6.3| 6.3| 6.3| 6.9| 7.5| 7.6| 7.8| 7.7| 7.5| 7.5| 7.5| 7.2| 1981| 7.5| 7.4| 7.4| 7.2| 7.5| 7.5| 7.2| 7.4| 7.6| 7.9| 8.3| 8.5| 1982| 8.6| 8.9| 9.0| 9.3| 9.4| 9.6| 9.8| 9.8| 10.1| 10.4| 10.8| 10.8| 1983| 10.4| 10.4| 10.3| 10.2| 10.1| 10.1| 9.4| 9.5| 9.2| 8.8| 8.5| 8.3| 1984| 8.0| 7.8| 7.8| 7.7| 7.4| 7.2| 7.5| 7.5| 7.3| 7.4| 7.2| 7.3| Bureau of Labor Statistics of the U.S. Department of Labor.

The detailed statistics are important for this recession because it differed from the others in the time pattern. Below is the graph of the levels of quarterly real Gross Domestic Product (GDP) levels, seasonally adjusted and in billions of chained 2000 dollars.

Fiscal Policies
President Reagan signed the Tax Equity and Fiscal Responsibility Act of 1982 to correct the excessive reduction in taxes from the Economic Recovery Tax Act of 1981 (Tax). Also, Reagan signed the Tax Reform Act of 1986 to eliminate deductions, lower marginal rates for the higher class, and significantly raise taxes for those with low income. President Clinton signed the Omnibus Budget Reconciliation Act of 1993, to cut the deficit in half. In 1994, it was the highest peace-time tax increases in United States history, cut appropriations spending, and renewed the framework of the Budget Enforcement Act of 1990 (Bankcroft). Monetary Policies

After the recession in the early 80’s, the Reagan administration’s top priority was disinflation, meaning keeping the inflation rate low. Paul Volcker, Chairman of the Federal Reserves, with Reagan’s approval, raised the interest rate so inflation would go down (New York Times). As a result, the inflation rate dropped from 13% to 4% in four years. When President Clinton and Vice President Gore took office, economic growth has averaged 4.0 percent per year, compared to average growth of 2.8 percent during the Reagan-Bush years (Clinton5). Clinton supported low interest rates. The country was getting out of a short recession in the 90’s when Clinton took office. The federal government allowed the interest rates to fall due to the weak economy and allowed it to continue for four more years. When Clinton left office, the interest rate was...

References: Sperry, Peter “The Real Reagan Economic Record: Responsible and Successful Fiscal Policy” March 1, 2001
Tax Equity and Fiscal Responsibility Act of 1982 – TEFRA
Bancroft. 1993 Omnibus Budget Reconciliation Act. Retrieved December 1, 2012 from
New York Times. November 4, 2008. To Treat the Fed as Volcker Did. Retrieved December 1, 2012 from
The Clinton Presidency: Historic Economic Growth. Retrieved December 1, 2012 from
February 8, 2008. Interest Rates During the Clinton Years. Retrieved December 1, 2012 from
Schmitt, J., & Baker, D. (2009). Is the U.S. Unemployment Rate Already as High as It Was in the 1980s?. Challenge (05775132), 52(5), 117-125. doi:10.2753/0577-5132520507
Angus Koolbreeze
The National Academies Press, (1987). Technology and Employment: Innovation and Growth in the U.S. Economy.
Carl E. Walsh (1993). "What Caused the 1990–1991 Recession". Economic Review (Federal Reserve Bank of San Francisco) (2).
Dzialo, Mary C.; Shank, Susan E.; Smith, David C. (1993). "Atlantic and Pacific Coasts ' Labor Markets Hit Hard in the Early 1990s".Monthly Labor Review (Bureau of Labor Statistics) 116 (2): 32–39. Retrieved 6 April 2011.
 Hardone, Thomas; Herz, Diane; Mellor, Earl; Hipple, Steven (1993). "1992: Job Market in the Doldrums". Monthly Labor Review(Bureau of Labor Statistics) 116 (2): 3–14. Retrieved 6 April 2011.
Gardner, Jennifer M.; Hipple, Steven; Nardone, Thomas (1994). "The Labor Market Improves in 1993". Monthly Labor Review(Bureau of Labor Statistics) 117 (2): 3–13. Retrieved 14 June 2011.
Burton, Steven (1998). Bank Trends - Ranking the Risk of Overbuilding in Commercial Real Estate Markets. Federal Deposit Insurance Corporation.
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