Cheers to the 1980s; Hail the 1990s
THE 1980s are just about over. It was a remarkable decade from an economic standpoint. The 1990s promise more drama. Here are some key economic events or trends:
The business cycle. The decade started in the United States with a minor six-month recession, recovered in the last half of 1980, but slipped again into a slump in July 1981. This time it was a wing-dinger, by some estimates the worst downturn since the Great Depression in the 1930s. That downturn reached its trough in November 1982. The subsequent expansion became the longest peacetime recovery ever.
However, the economy has slowed down decidedly in this last quarter of 1989. It could be a recession.
A December survey by the National Association of Business Economists (NABE) found that 62 percent of the economists quizzed forecast a ``soft landing'' - a slowdown mild enough not to count as a recession. But the last time the NABE majority was so optimistic about avoiding recession was 1982, after the recession was already under way.
Many economists have been revising their forecasts down.
Inflation. The decade started with a 12.5 percent rise in the consumer price index in 1980. The severe 1981-82 recession, imposed by the Federal Reserve System, brought inflation down to 1.1 percent in 1986. Since then inflation has risen - to 4.4 percent in both 1987 and '88 and, according to most economists, about 4.7 percent in 1989.
However, the average of some 50 economists surveyed by Blue Chip Economic Indicators (Sedona, Ariz.) expects the growth in output of goods and services in the US to fall from 2.9 percent in 1989 to 1.7 percent in 1990. That should reduce inflation - to 4.1 percent next year, according to this consensus.
Budget deficit. In fiscal 1980, when President Reagan took office, the budget deficit was $73.8 billion. As a result of the 1981-82 recession, a huge tax cut, and a massive defense buildup, the deficit ballooned to $221.2 billion in fiscal 1986. It shrank to $152.1 billion by fiscal 1989, ending last Sept. 30.
With the help of the Gramm-Rudman requirements, the deficit should theoretically drop to around $100 billion in fiscal 1990. But a recession could leave the deficit in the $150 billion range.
From an economic standpoint, the deficit is now of lesser importance. With the growth in the economy, it amounted to only 2.5 percent of total national output in 1989, down from a peak of about 6 percent of gross national product in 1983.
The dollar. During President Reagan's first term, the Treasury Department took a laissez-faire attitude to the price of the US dollar on the foreign exchange markets. Starting in 1980, the dollar rose dramatically in value until February 1985. Measured by a trade-weighted index against 10 other industrial country currencies, the dollar peaked at more than 140 percent above its level in 1973.
Then a change in guard at the Treasury, a rapid increase in the US trade deficit, and a blossoming of protectionism in the US resulted in a decision by the major industrial nations in September 1985 to intervene in the foreign exchange markets. The dollar, already on a downward path, fell further. The dollar is now back to around the 1973 level against other currencies. As a result, imports and vacations abroad are more expensive.
Other trends in brief: The world's capital markets have exploded in size, liquidity, and number of products. Investment flows across borders have multiplied. Japan has become a financial superpower. International trade, stalled in the early 1980s, is growing again.
Developing country debts, which became a crisis in August 1982 when Mexico announced it could not service its debts, remain a serious burden for the debtor nations. However, the commercial banks that made the loans are in far better shape to take losses.
Defense spending in the US has peaked in real terms and could come down decidedly in the 1990s. The communist nations - China, the Soviet Union and its East European allies - made their first moves into the Western economic establishment in the 1980s. That exciting shift will become more solid in the 1990s.