The 1980s: Business and the Economy: Overview

THE 1980s: BUSINESS AND THE ECONOMY: OVERVIEW

Economic Malaise

Many Americans perceived the 1980s as a prosperous and pleasant decade, especially in contrast to the 1970s. As the 1980s unfolded, however, others argued that the ailments of the nation had not been cured but instead were being pasted over and ignored. The 1970s had been filled with tumultuous events such as oil shocks, the Watergate affair, and the Iran hostage crisis. President Jimmy Carter's suggestion that the country suffered from a national malaise only seemed to prove America's weakness and decline both at home and abroad. Stagflation, a term referring to an economy suffering from both inflation and stagnation (a combination that was thought impossible before the 1970s), was a matter of great concern. Perhaps no other circumstance better symbolized the perceived decline of American business than the near collapse of the Chrysler Corporation, the third of the Big Three automobile makers and a bulwark of the American economy. In 1979 Chrysler had assets of $13.6 billion and thousands of employees, but it was also on the verge of bankruptcy. To save the faltering giant, Lee Iacocca, Chrysler's new chairman of the board, asked Congress for a $1 billion loan, special tax concessions, and relief from environmental regulations. Iacocca pointed out that Congress had recently aided the troubled Lockheed Corporation and that the government regularly aided small businesses. Near the end of 1979 Congress agreed to a $1 billion loan if Chrysler raised $2 billion on its own.

Recession

The economic recession that began in 1979 and lasted into 1982 was the low point of the economic malaise. In the late 1970s Carter cut federal programs to reduce deficit spending, which contributed to the economy's moving into the recession. In the two years after Ronald Reagan assumed the presidency in 1980, the unemployment rate increased from 5.6-7.8 percent, where it had hovered in the Carter administration, to 10.8 percent by 1982. More than 12 million Americans were out of work. Business bankruptcies rose 50 percent between 1981 and 1982, resulting in 584 business failures in June 1982, nearing the record of 612 business failures in one month set in 1932 at the height of the Great Depression. Some segments of the population fared less well than others. Black Americans, for example, suffered from an unemployment rate of more than 20 percent. Industrial workers also faced hard times, particularly those who lived in the area stretching in a broad band from Pennsylvania to Michigan. This area, the center of America's industrial heartland, was described as the "rust belt" by observers who were struck by the declining status of American industry. The Youngstown, Ohio, area lost five steel mills and twenty-five thousand jobs in the recession. Nearly a third of the nation's industrial capacity lay idle, leading to the popularization in the early 1980s of the new term deindustrialization.

Standing Tall

The economy and the national malaise dominated the presidential election of 1980 that pitted Republican Ronald Reagan against incumbent Democrat Jimmy Carter. Making the economy a central issue, Reagan asked voters, "Are you better off today than you were four years ago?" Reagan assured the nation that the best course of action to bring economic recovery was to have the federal government take no decisive action. Reagan proposed reducing the size of the federal government (a course that Carter was already following), reducing taxes, and letting market forces correct economic problems. While many of the underlying problems of the 1970s did not go away, public confidence did begin to improve during the 1980s with Reagan's election. The new president tried to restore public confidence by emphasizing the virtues of American business and stressing the importance of the private sector over that of the public sector.

Business First

Reagan, who had served as the host for General Electric Television Theater in the 1950s, was not the only prominent spokesperson for business. Many company presidents and chief executive officers moved into public view as representatives of their companies. Corporate leaders such as Lee Iacocca of Chrysler and Dave Thomas of Wendy's regularly promoted their companies and in the process achieved celebrity status.

Government Seen as the Problem

Disciples of the Reagan revolution, as the election of 1980 was called, fundamentally challenged the assumption by which the United States had been governed since World War II. Believing in the power of the free market and the private sector, Reagan and his followers worked to remove the federal government from people's lives, "to get government off their backs." This effort took many forms, from deregulation to tax cuts to diminished social spending.

Changing Priorities

Although the trend toward larger government did not change markedly, Reagan did change the spending priorities of the government dramatically. A cornerstone of the prosperity of the 1980s was Reagan's support for increased military spending. While Reagan praised the virtues of the private sector, he condemned the Soviet Union as the "Evil Empire" and argued that the United States must have a strong national defense. He fondly quoted the Preamble of the Constitution, which called for the national government to provide for the common defense, to justify the largest peacetime military buildup in American history. Federal spending on human resources fell during the Reagan administration from 28 percent of the budget to 22 percent while defense spending increased from 23 percent to 28 percent by 1987. Such dramatic shifts in spending had strong effects on the American economy.

Bush Closes out the Decade

George Bush, who faithfully served as Reagan's vice president for eight years, won the Republican nomination and election to the presidency in 1988. Despite Bush's position as one of Reagan's leading critics when the two vied for the 1980 Republican nomination, Bush steadfastly supported Reagan's policies as his vice president and continued many of them as his successor. Bush not only benefited from Reagan's popularity, but he also suffered from many of the problems that had developed during the Reagan years. Against his better political judgment, Bush raised taxes in an attempt to deal with the massive national debt.

Scandals

The business-first attitude of the government perhaps inevitably led to some of the economic excesses of the 1980s. Early in Bush's presidency it was discovered that during the Reagan administration highly placed Republicans had received large fees from developers in return for helping wealthy clients win Department of Housing and Urban Development (HUD) contracts. In part a product of the climate of deregulation, the savings and loan crisis cost taxpayers billions of dollars as the government bailed out failed savings and loan associations throughout the country. The deregulation, and the lack of enforcement of existing regulations, of high finance also led to disastrous results on Wall Street. The nation was rocked by a series of scandals marked by insider trading (where financiers make use of illegally obtained information that grants them an unfair advantage over competitors) as some of the most successful businessmen of the 1980s were proven to be criminals. In some instances stockbrokers and investment bankers were breaking into the offices of coworkers and rivals to gain information. By the end of the decade polls showed that such revelations were causing many Americans to reassess the direction the nation had taken.