The Economy in the 1980s and 1990s

In 1980, the American people expressed their discontent with the federal government's policies of the 1970s through the election of President Ronald Reagan. Reagan based his economic program on the theory of supply-side economics, which mandated reducing marginal tax rates to encourage people to work harder and longer. This in turn leads to more saving and investment, resulting in more production and stimulating the economy as a whole, according to supply-side economic theory.

The central theme of Reagan's national agenda, however, was his belief that the federal government had become too big and intrusive. In the early 1980s, the Reagan administration pushed through a series of tax cuts, at the same time that it proposed huge slashes in social programs. Throughout his tenure, Reagan also undertook a campaign to reduce or eliminate government regulations affecting the consumer, the workplace and the environment.

The nation endured a deep recession throughout 1982. Business bankruptcies rose 50 percent over the previous year. Farmers were especially hard hit, as agricultural exports declined, crop prices fell and interest rates rose.

But the recession, combined with falling oil prices and the Federal Reserve's tight control of money and credit, helped to curb runaway inflation. By 1983, the economy had rebounded and the United States entered into one of the longest periods of sustained economic growth since World War II. The annual inflation rate remained under 5 percent from 1983 through 1987.

Still, serious problems remained. Farmers' problems continued, and their suffering was compounded by serious droughts in 1986 and 1988. Federal deficits soared throughout the 1980s. From $74 thousand-million in 1980, the federal budget deficit rose to $221 thousand-million in 1986 before falling back to $150 thousand-million in 1987. The U.S. trade deficit hit a record $152 thousand-million that same year. A stock market crash in the autumn of 1987 led many to question the stability of the economy.

In fact, the U.S. economy did slow and dipped into recession in 1991, and then began a slow recovery in 1992. As a result of the slowing economy and other factors, the federal budget deficit began heading upward again. Although the stock market recovered, the financial industry was particularly plagued with problems, with numerous savings institutions, as well as some banks and insurance companies, either collapsing or falling into such a shaky state that the federal government had to take them over. Well into the 1990's, credit market and other problems lingered on. By contrast, other sectors of the economy, such as computers, aerospace and export industries generally showed signs of continuing growth.