The U.S. economy’s restored health is the reason most experts give for President Reagan’s landslide victory in November. Just three years ago, the economy had struck bottom. Nearly 11 percent of the nation’s workers–more than 12 million people–were out of a job. The nation’s output of goods and services had dropped steadily for over a year. The nation was caught in the worst economic slowdown since the dark days of the Great Depression of the 1930s.
But tax cuts and increased government spending sparked a dramatic recovery in 1983. Unemployment plummeted, to 7 percent of the labor force by November, 1984. Employment soared, to about 107.5 million. More Americans had jobs than ever before in history.
Keeping this “incredible job machine” strong won’t be easy. The reason, experts point out, is that the economy is a delicate mechanism. Repairing one problem may worsen another one.
THE DEFICIT DILEMMA
Take the high cost of borrowed money, for instance. High interest rates make it more costly for businesses to finance expansion and for consumers to buy houses or cars. Lowering the U.S. budget deficit could bring down interest rates, experts say. But if the U.S. trims the deficit by raising taxes, consumers will have less money to spend. So, the cure for one woe, higher taxes, could make the economy sicker by cutting consumer spending.
The economic recovery has already slowed down since the summer. “We’ve been in a mild recession for almost six months and will stay athere for another three to six months,” says Roger Brinner of Data Resources, an economic forecasting firm.
Still, the slowdown doesn’t worry most economists. In fact, some say it’s a good thing, allowing the economy time to digest last year’s rapid growth. Others predict moderate growth in 1985 of at least 3 percent–the level that’s needed to absorb the flow of new workers into the labor force. And interest rates, though still high, are falling. So, the economic picture for the short term looks good. THE LONG TERM
Gauging the economy’s potential for long-term growth is harder to do, although analysts are watching two trends. One troubling trend is the creation of most new jobs in services–fast-food restaurants, computer repair, health care, and the like. Many of the new service jobs pay low wages, compared to manufacturing jobs. And they aren’t concentrated in urban areas, where unemployment is highest. “It’s made the problem of minorities worse,” Thomas M. Stanback, a senior researcher at Columbia University, told UPDATE. “There’s evidence a lot of these low-wage white collar jobs are really dead-end jobs.”
On the bright side, the number of young people entering the labor market is falling. The labor force exploded in the 1970s as the baby-boom generation–children born during the decade after World War II–began their careers, and more women sought jobs outside the home. With the labor force’s growth slowing down, competition for new jobs should ease.
Despite good economic prospects for 1985, “we really haven’t escaped from the basic problem,” Brinner told UPDATE. “President Reagan is determined to keep taxes low, Congress is determined not to give up its spending plans, and the Federal Reserve–the nation’s central bank–is determined to keep inflation low. We have to get some agreement among Washington policy makers.”