American Economic Recovery
The 1980s and 1990s are arguably one of the best periods in the United States of America’s economy. For instance, the 1990s was a successful period where real family incomes and real earnings improved, for the first time after 1960s, throughout the income distribution. Gottschalk (2003) explains that even though 1960s and 1950s experienced good economic performance, the subsequent recession and oil shock during early 1970s changed the situation. A decade of rising income and earnings inequality, slow economic growth and rapid inflation coupled with three recessions followed. Despite all these economic challenges, America later recovered in the early 1980s and 1990s to record good performance. This paper will discuss the factors behind this recovery and the beneficiaries and losers of this situation.
Dramatic restructuring of the government’s fiscal and monetary policy in the early 1980s is one of the reasons for economic recovery during that period. America reduced its social spending and tightened its monetary policy to cut down federal government’s expenditure. These mechanisms led to remarkable drop in inflation levels (University of Groningen, 2002). The beneficiaries here were manufactured goods suppliers because the sector experienced increased global competition while on the losers list, were oil companies due to the second oil shock, the unemployed because the rate of unemployment increased and both the less-educated workers and families at a lower level of the income distribution as their real wages and real family income declined respectively. The farmers also faced it rough due to the droughts and heavy flooding particularly in 1986 and 1988 (Gottschalk, 2003).
The decline in inflation largely contributed to the economic recovery during this period because for instance, the growth in the consumer price index was more than double. The increase was remarkable for the period between 1973 and 1982 as it grew by 117%. The good performance prevailed for the next two decades although at a relatively lower level as the index rose by 80% between 1982 and 2002 (Gottschalk, 2003). On the other hand, the rate of inflation was less than 3 % per annum throughout the economic boom of the 1990s.
The recovery efforts that started in March 1991 instated a period of expansion that was illustrated by moderation in major sectors of growth, interest rates, unemployment and inflation. The stock market flourished during this period and between 1995 and 1997 it recorded a 60% increase. This was sustained by strong corporate earnings, low inflation rates and low rates of unemployment (University of Groningen, 2002). However, it is important to note that other financial institutions such as banks, other savings organizations and insurance companies continued to encounter problems. Most of them collapsed and others ran bankrupt and had to be taken over by the government.
Good legislation, particularly “the enactment of the bipartisan-budget that was signed into law in 1997” as stated by Gottschalk (2003) was another reason that brought about optimism in the country and restored investment confidence. Consequently, private investment was on the rise and helped recover the economy. DeLong (2000) points out that the computer revolution also helped the economy to a large extent because the sector increased innovation, production received earnings from sales of computer software and hardware to the rest of the world. Statistics indicate that the information technology sector had a tremendous contribution to the country’s GDP to a tune of 0.3% per year from early 1990s (DeLong, 2000).
Gottschalk, P. (2003). Wage Inequality, Earnings Inequality and Poverty in the U.S. Over the Last Quarter of the Twentieth Century. Retrieved 9 Oct. 2012 from http://fmwww.bc.edu/ecp/wp560.pdf
DeLong, B. (2000). What Went Right in the 1990s? Sources of American and Prospects for World Economic Growth. Retrieved 9 Oct. 2012 from http://www.rba.gov.au/publications/confs/2000/delong.pdf