• Military Menu                       

• Introduction
• Systems
• Facilities
• Agencies
• Industry
• Operations
• Countries
• Hot Documents
• News
• Reports
• Policy
• Budget
• Congress
• Links

• WMD
• Intelligence
• Homeland Security
• Space

Recession of 1980

The recession which occurred in the early 1980's was the most severe and the most significant in terms of economic policy of the post-World War II recessions. The cause was Paul Volcker's tight money policy which the Federal Reserve carried out to kill the chronic inflation that had developed in the US economy during the 1970s.

The recession of 1980-1982 was more severe than the subseqent 1990-1991 and 2000-2001 recessions. The 1981-82 recession was quite severe by many usual measures, but these measures themselves have a relative meaning, and the recession was much less severe than what was predicted as needed to achieve the substantial reduction in inflation. The recession was a by-product of wringing inflation out of the economy, a policy begun by the Federal Reserve at the end of the Carter Administration.

Though the recession of 1980 did begin to edge up the unemployment rate, it never reached the levels that it had been when Carter took office. It was too high - it was not at a satisfactory level. It was too high - perhaps 7.7% in 1980.

President Carter and his administration had done a reasonably good job under difficult economic circumstances in carrying the burden of explanation, the burden of persuasion in what in fact was causing inflation and what they were doing about it.

When Ronald Reagan first ran for president in 1980, the United States was suffering economic problems relatively more severe than at any time since Franklin Delano Roosevelt's first presidential campaign in 1932. Like Roosevelt (post-election), Reagan promised a dramatic change in direction.

In 1980 the Reagan campaign team was saying, or implying, that a large tax cut would raise the revenue, that inflation could be sharply reduced without a recession, and that tens of billions of dollars of expenditures could be cut out of the budget without injury to anyone except a few bureaucrats. None of these things turned out to be true or should have been expected to be true.

Reagan strongly endorsed the Federal Reserve's disinflation policy, despite extreme pressure to abandon it during the 1981-82 recession. He called for, and received, a substantial defense buildup. He also proposed, and partially received, large cuts in nondefense spending. The President got most of the large tax cuts he called for, cuts that focused on marginal tax rates and (until the 1986 Tax Reform Act) other factors, such as depreciation schedules, which stimulate economic activity. He also proposed limiting government regulation, continuing work begun under President Carter, and establishing a new federalism to shift responsibilities from the federal to state and local government.

This recession differed from the others in the time pattern. The real GDP from 1980 onward was fluctuating up and down and on average not trending in either direction. After the second quarter of 1980 there was an actual fall in GDP of about $5 billion, then another fall of $9 billion in the next quarter. The economy then recovered in the fourth quarter of 1980 and added $100 billion in the first quarter of 1981. The economy then fell in the second quarter only to rise in the third and fall in the fourth. The erratic pattern continued in 1982, but in 1983 the economy commences to grow again.

The unemployment rate rose as the period of no growth in output persisted while the labor force grew. The peak unemplyment rates persisted after the economy began to grow again in 1983 because of the backlog of unemployed workers that had accumulated during the period of no growth. Ater the recovery of growth the unemployment rate stayed at a higher level than it had been at before the recession.

Instead of the promised Reagan recovery, there was the Reagan recession. The Hoover depression, the Roosevelt recovery, and even the Kennedy expansion were quite visible. A remarkable reduction in inflation was achieved at a much lower cost of lost output and (temporary) increased unemployment than many expected. But the results of Reagan economics that can be seen with the naked eye were quite limited. The inflation rate has come down substantially and the national debt, the budget deficit, and the trade deficit have gone up substantially.