158 Business and the economy in the United States The Eighties in America
Volcker to chair the Federal Reserve Board. The
election results strengthened Volcker’s resolve to
slow monetary growth.
The short-term result of this slowdown was eco-
nomic recession. Each of the quarterly estimates of
real gross national product (GNP) for 1982 was
lower than the corresponding estimate for the previ-
ous year. The unemployment rate, which had been
around 6 percent in 1978-1979, rose to exceed 10
percent by late 1982. The recession passed quickly,
however. The world price of petroleum was declin-
ing, and this decline reduced general costs to con-
sumers and helped eliminate inflationary expecta-
tions.
Recovery The recession and the waning of infla-
tionary expectations helped bring about a rapid de-
cline in interest rates. Home mortgage rates, for in-
stance, which went above 16 percent in late 1981,
were down to 12 percent by late 1983, helping stimu-
late housing expenditures.
Federal fiscal policy provided strong antireces-
sionary stimulus. President Reagan persuaded Con-
gress to pass the Economic Recovery Tax Act of- By 1984, a four-person family with median in-
come owed about $1,100 less in income tax than it
would have under previous rates. Between 1981 and
1988, the top federal income-tax rate was reduced
from 70 percent to 28 percent. The 1981 law also
provided for automatic adjustment for inflation of
income-tax brackets. Greater opportunity was of-
fered for households to contribute to tax-deferred
Individual Retirement Accounts (IRAs). By 1984,
about 15 million persons were saving for retirement
through IRAs. This was also the period when 401(k)
retirement accounts made their appearance. These
often involved matching, tax-deferred contributions
by employer and employee, often invested in com-
mon stocks.
The decrease in taxes was not accompanied by a
decrease in government expenditure, however. As a
result, the federal budget deficit expanded, and the
national debt increased from about $900 billion in
1980 to more than $2.8 trillion in 1989. Some econo-
mists feared this ballooning debt would drive up
interest rates and harm the market for productive
U.S. Production Output and Employment in Major Sectors, 1980 and 1989Sector Output (in billions of 1992 dollars)^1 Number Employed (in thousands)^2
1980 1989 Change 1980 1989 Change
Agriculture 58 89 31 3,364 3,199 − 165
Mining 82 93 11 1,027 692 − 335
Construction 215 252 37 4,346 5,171 +825
Manufacturing 823 1,106 283 20,285 19,391 − 894
Transportation
and utilities 385 475 90 5,146 5,614 +468
Wholesale and
retail trade 601 920 391 20,310 25,662 +5,352
Finance 863 1,102 239 5,160 6,668 +1,508
Services 811 1,150 339 17,890 26,907 +9,017
Government 749 848 99 16,241 17,779 +1,538
Total^3 4,615 6,062 +1,147 93,770 111,083 +17,3131) Output is value added; data for all sectors add up to gross national product.
2) Wage and salary workers except agriculture.
3) Totals include some miscellaneous items not in listed sectors.
Source: Economic Report of the President,1998.