brief and minor interruption; then, boom condi-
tions continued. The stock decline was buffered by
Federal Reserve action to raise bank reserves and
the money supply and to lower interest rates.
International Economic Developments The 1980’s
brought radical change to the international eco-
nomic position of the United States. Since World
War II, the United States had normally generated a
surplus in its international current accounts. That is,
the value of exported goods and services plus the in-
vestment income coming into the country generally
exceeded the value of goods and services purchased
from abroad by Americans and U.S. investments in
foreign businesses and governments. In the 1980’s,
however, despite the decline in petroleum prices,
the dollar value of U.S. imports of goods and ser-
vices grew much more rapidly than the correspond-
ing value of export transactions. As a result, current-
account deficits exceeded $100 million a year from
1985 to 1989.
Two main factors were responsible for these defi-
cits. First, the business-cycle upswing was more vigor-
ous in the United States than in other major trading
countries. Second, profits and the overall invest-
ment climate in the United States were so attractive
to foreign investors that a vast flow of international
investment entered the country, providing funds
to buy imports without foreign-exchange complica-
tions. As a result, the United States became, from the
mid-1980’s, a net debtor on international account.
These developments were highly controversial.
Complaints were numerous from the sectors that
felt particular pressure from foreign competition,
including textiles, automobiles, and steel. Despite
these complaints, U.S. foreign and trade policy con-
tinued to favor reducing international trade barriers
worldwide. The government consistently attempted
to influence other nations to reduce trade barriers
and open foreign markets to American products.
Much of this influence was felt in the activities of the
General Agreement on Tariffs and Trade (GATT).
Under U.S. leadership, GATT member nations
began a new round of multilateral negotiations in
Uruguay in September, 1986. A major effect of trade-
barrier reduction was to create an atmosphere favor-
able to rapid economic growth in many low-income
countries. This was most notably true for China,
which had opened its economy to trade and invest-
ment after the death of Mao Zedong in 1976.
Impact The favorable economic climate of the
1980’s worked to the advantage of the Republican
Party, which achieved comfortable victories in the
presidential elections of 1984 and 1988. In 1987,
Alan Greenspan took over as head of the Federal
Reserve. Monetary policy continued to be well man-
aged. The inflation rate and interest rates continued
to decline. Prosperity appeared to affirm their pre-
vailing philosophy, giving greater emphasis to eco-
nomic freedom and enterprise and less to big gov-
ernment. These developments were reinforced by
the collapse of the Soviet empire in 1989 and by the
steady expansion of economic cooperation in the
European Union. Japan’s economy lost its luster, en-
tering a stagnation period lasting more than a de-
cade. The economy began to sour somewhat after
President Reagan left office, however, and economic
woes were the primary factor in President George
H. W. Bush’s failure to win a second term in 1992.Further Reading
Blank, Rebecca M.Do Justice: Linking Christian Faith
and Modern Economic Life. Cleveland: United
Church Press, 1992. Identifies moral shortcom-
ings of the U.S. economy, based mainly on the de-
velopments and conditions of the 1980’s.
Dertouzos, Michael L., Richard K. Lester, and Rob-
ert M. Solow.Made in America: Regaining the Pro-
ductive Edge. New York: Harper & Row, 1989. Re-
views the history and condition of a number of
major American industries to judge whether the
United States is systematically falling behind. Also
reviews government-industry relations and the
nation’s facilities for education and training.
Friedman, Benjamin.Day of Reckoning: The Conse-
quences of American Economic Policy Under Reagan
and After. New York: Random House, 1988. Argues
that economic policy put present comforts ahead
of provision for the future. Evidence is increased
public debt, decreased international assets, and
preference for consumption over investment.
Hughes, Jonathan, and Louis P. Cain.American Eco-
nomic Histor y. 4th ed. New York: HarperCollins,- This college text provides a good descrip-
tion and analysis of the transition from an indus-
trial economy to a service economy.
Page, Benjamin I., and James R. Simmons.What
Government Can Do. Chicago: University of Chi-
cago Press, 2000. Objective, historical, descriptive
assessment of government economic programs,
162 Business and the economy in the United States The Eighties in America