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REAGAN - CAN HE CURE INFLATION? - NYTimes.com
The list is a formidable one, including double-digit inflation, double-digit interest rates, lagging savings and investment, sluggish productivity growth, chronic unemployment and a loss by some American industries, such as autos and steel, of the ability to compete in world markets.
Mr. Reagan's problem is more complex than was Mr. Roosevelt's, since chronic inflation - partly a consequence of the Keynesian revolution - is combined with the problems of unemployment and slow or no growth.
With real gross national product growing by no more than 1 percent in 1981, the unemployment rate, which averaged 7.3 percent in 1980, is likely to rise above 8 percent and stay there through most of 1981.
Economy in The Reagan Era
Slaying the Dragon
Before prosperity, however, there would be a bit more pain. Through most of the first two years of Reagan's first term, Americans already battered by the stagflation of the 1970s had to endure the sharpest recession in decades. The severity of the downturn was largely a consequence of Federal Reserve Chairman Paul Volcker's determination to end the devastating inflationary trends of the 1970s by any means necessary. Following the monetarist teachings of influential University of Chicago economist Milton Friedman, Volcker resolved to "slay the inflationary dragon" by sharply curtailing the growth of the money supply. That monetary contraction, imposed starting in 1980, succeeded in its primary objective; the inflation rate fell from a devastating high of 13.5% in 1980 to just 3.2% by 1983.19 However, it also produced a sharp jump in real interest rates that contributed to the brutal recession of 1981-82. The national unemployment rate exceeded 10% throughout 1982, rendering more Americans jobless than at any time since the Great Depression. (Not coincidentally, President Reagan's public approval rating bottomed out at just 35% that same year.)
To his great credit, however, Reagan stuck by Volcker even when it would have been politically expedient for him to pressure the Fed Chairman to expand the money supply to provide a short-term boost to the economy. Both men's patience paid off after 1983, whenwith inflation under control at lastthe economy began growing again. That growth continued, unabated, through the rest of Reagan's two-term presidency, marking the longest peacetime period of unbroken economic expansion yet seen in American history. (An even longer boom would occur a decade later, during a Bill Clinton presidency that largely followed Reagan's lead in economic policy.) Overall, between 1981 and 1989, real GDP per capita increased by nearly 23%; in the same span of time, the value of the stock market more than tripled.20
The list is a formidable one, including double-digit inflation, double-digit interest rates, lagging savings and investment, sluggish productivity growth, chronic unemployment and a loss by some American industries, such as autos and steel, of the ability to compete in world markets.
Mr. Reagan's problem is more complex than was Mr. Roosevelt's, since chronic inflation - partly a consequence of the Keynesian revolution - is combined with the problems of unemployment and slow or no growth.
With real gross national product growing by no more than 1 percent in 1981, the unemployment rate, which averaged 7.3 percent in 1980, is likely to rise above 8 percent and stay there through most of 1981.
Economy in The Reagan Era
Slaying the Dragon
Before prosperity, however, there would be a bit more pain. Through most of the first two years of Reagan's first term, Americans already battered by the stagflation of the 1970s had to endure the sharpest recession in decades. The severity of the downturn was largely a consequence of Federal Reserve Chairman Paul Volcker's determination to end the devastating inflationary trends of the 1970s by any means necessary. Following the monetarist teachings of influential University of Chicago economist Milton Friedman, Volcker resolved to "slay the inflationary dragon" by sharply curtailing the growth of the money supply. That monetary contraction, imposed starting in 1980, succeeded in its primary objective; the inflation rate fell from a devastating high of 13.5% in 1980 to just 3.2% by 1983.19 However, it also produced a sharp jump in real interest rates that contributed to the brutal recession of 1981-82. The national unemployment rate exceeded 10% throughout 1982, rendering more Americans jobless than at any time since the Great Depression. (Not coincidentally, President Reagan's public approval rating bottomed out at just 35% that same year.)
To his great credit, however, Reagan stuck by Volcker even when it would have been politically expedient for him to pressure the Fed Chairman to expand the money supply to provide a short-term boost to the economy. Both men's patience paid off after 1983, whenwith inflation under control at lastthe economy began growing again. That growth continued, unabated, through the rest of Reagan's two-term presidency, marking the longest peacetime period of unbroken economic expansion yet seen in American history. (An even longer boom would occur a decade later, during a Bill Clinton presidency that largely followed Reagan's lead in economic policy.) Overall, between 1981 and 1989, real GDP per capita increased by nearly 23%; in the same span of time, the value of the stock market more than tripled.20
