Recession – Past, Present, And Politics

Though the National Bureau of Economic Research (NBER) has yet to classify the current economic slump as a “recession,” most commentators would agree that the economy is heading in that direction. Martin Feldstein, Professor of Economics at Harvard University, recently noted that, “we have been sliding into recession [and]…I think it could go on longer than the last two recessions (which) lasted eight months peak to trough.” With a presidential election knocking on our door, coupled with Professor Feldstein’s grim outlook for America’s economy, it is important to analyze our recent economic and political history, specifically with regards to recession, in order to match any correlations from the past with the present. Such an analysis may offer clues as to whether or not we are currently in an economic recession and provide direction for our current and future political leaders.

This article does not intend to be a comprehensive exploration of America’s economic and political history; such an analysis is beyond its scope. It does intend however to make certain connections between the U.S. economic recessions of past 30 years and draw some conclusions about where America’s economy and politics may be heading. Officially there have been four U.S. recessions in the last 30 years – each with distinct economic and political ramifications. This article details give a brief overview of the recession of the early 1980s. Three subsequent articles will provide the same level of respective analysis for the recessions in the late 1980s, the 1990s and at the beginning of the 21st century, with a fifth and final article detailing any correlations with the current economic recession.

Before going further, it is important to provide a working definition of “recession.” Recession has been commonly defined as a decline in a country’s GDP coupled with negative economic growth for two or more successive quarters. This definition is tenuous however, as it causes numerous theoretical problems, not least of which is the problem of identifying when a recession begins and when it ends; if a recession begins in the third month of the second quarter, does that mean the entire quarter is in a recessed mode? A less troublesome way of thinking about recession is presented by Lakshman Achuthan and Anirvan Banerji of the Economic Cycle Research Institute. They state, “A recession is a self reinforcing downturn in economic activity, when a drop in spending leads to cutbacks in production and then jobs, triggering a loss of income that spreads across the country from industry to industry, hurting sales and in turn feeding back into a further drop in production – in effect, a vicious cycle.” This is the definition of recession used here.

The Early 1980s Recession

On October 18, 1981 President Ronald Reagan declared that America’s economy was in a “slight recession.” This may have been an understatement, as many economists would agree that, at the time, it was the worst recession since the Great Depression. Though Reagan had not been in office when the economy began to take a nose dive in the 1970s, the negative growth in the housing, steel, manufacturing, and automotive industries cast a dark shadow over the rest of the economy and, consequently, the Gipper’s popularity. Reagan had ridden a wave of popularity in to the White House, championing policies of low government interference, strong national defense, and, notably, tax cuts to spur economic growth. As a result he crushed incumbent Jimmy Carter and assumed the post of Commander in Chief, but was soon met with ultra-low approval ratings, bottoming out at 35% in 1983. With stagflation running rampant, Reagan instituted sweeping tax cuts to try and boost the economy. According to Jonathan Fuerbringer of the New York Times,

President Reagan’s surprise remark that the nation’s economy was in a ”slight recession” may have startled his economic advisers, but it is not likely to send this Administration on the search for new policy initiatives. In the face of a recession, there is remarkably little pressure on the Administration to change its economic policy. The reason is that, taken together, the President’s huge personal tax cuts and the promised increases in military spending could turn out to be the stimulative (sic) spark the economy needs to escape the doldrums.

And escape the doldrums the economy did (for a while at least). Through deficit spending and the lowering of interest rates, the economy began to move in a positive direction. Though Reagan avoided any major political fallout as a result of the recession of the early 1980s, his Republican party did not fair as well. In the mid-term elections of 1982, the Republican Party lost 27 seats in the House of Representatives, which many saw as a referendum on the Republican Party’s handling of Americas economic situation. But by 1984, Reagan’s strategy appeared to have pulled America out of the recession: inflation had shrunk and the American workforce was going back to the office. And as he had done to Carter in 1980, Reagan again destroyed his Democratic opposition at the polls, winning a landslide victory over Walter Mondale.

Though Reagan survived to see another term in the White House, America was not rid of her economic woes. Part Two of the Recession: Past, Present, and Politics articles will briefly detail the economic and political events of the Recession of the late 1980s and early 1990s.

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