history. At only eight months in length, the eco-
nomic contraction of 1990-1991 was less than the av-
erage of nearly eleven months for the nine reces-
sions that occurred during the twentieth century
after 1945, and with a drop in real GDP of about
1.3 percent, the 1990-1991 recession recorded the
second-lowest drop in real GDP among these nine
recessions.
Cause of Recession The causes of recessions are
the subject of numerous disagreements, and the
1990-1991 recession is no exception. The disagree-
ments arise as a result of differences in how econo-
mists view the workings of the economy. Since a re-
cession occurs when the economy produces less
output, this may result from two basic sources: one
being that less output is demanded, causing pro-
ducers to produce less, and the other being that pro-
ducers supply less output as a result of a reduction in
the availability of resources. John Maynard Keynes
(1883-1946), the founder of macroeconomics, built
his theory regarding the cause of recessions on a re-
duction in the demand for output. Although many
economists have continued in this tradition, others
have developed theories based on the role reduced
supply plays in explaining recessions. While there is
general agreement among economists that reduc-
tions in either the demand for output or the supply
of output may lead to recessions, there is less agree-
ment about which has led to a specific recession and
what factors caused either a reduction in demand or
a reduction in supply to occur.
These differing views can be seen in some of the
explanations economists have offered for the cause
of the 1990-1991 recession. Viewing a reduction in
demand as the cause, some economists have argued
that the recession may have been brought on by a re-
duction in consumer purchases due to concerns
about the economy. Others suggest that a decline in
demand for output may have been due to efforts by
the Federal Reserve to reduce the growth of the
money supply in the year prior to the recession. Still
others argue that the increase in oil prices that ac-
companied Iraq’s invasion of Kuwait reduced the
supply of output. As a result, no agreed-upon expla-
nation has emerged regarding the cause of the 1990-
1991 recession.
The Federal Reserve, the central bank of the
United States, is responsible for monetary policy in
the United States and as such often takes the lead in
dealing with recessions. Under the leadership of
Federal Reserve chairman Alan Greenspan, the Fed
began taking steps to increase the money supply
once there were signs that the economy was con-
tracting. Increasing the money supply tends to lower
interest rates and thereby increase the demand for
output. President George H. W. Bush criticized
these efforts as insufficient and cited them as the
reason he was not reelected in 1992.
Impact Effects of the recession can be seen in the
impact that it had on the unemployment rate and
wages during the early 1990’s. Just prior to the start
of the recession, the June, 1990, unemployment rate
was 5.2 percent. Over the course of the next two
years, it reached a high of 7.8 percent in June, 1992.
The economy did not achieve an unemployment
rate of 5.2 percent again until August, 1996. The in-
crease in the unemployment rate was accompanied
by a slight reduction in average hours worked per
week and wage rates that remained stagnant during
the first several years of the decade.
While the 1990’s will be better remembered for its
long uninterrupted period of economic growth, the
1990-1991 recession is a reminder that recessions
are an inevitable part of market economies. Oc-
curring between two of the longest periods of eco-
nomic expansion in U.S. history, the 1990-1991 re-
cession is often dismissed as a minor deviation from
the slow but steady growth of the U.S. economy. Nev-
ertheless, this recession, though mild in comparison
to other post-World War II recessions, did adversely
impact life in the United States.
Further Reading
Heilbroner, Robert, and Lester Thurow.Economics
Explained. Rev. ed. New York: Touchstone, 1998. A
concise overview of key economic concepts such
as unemployment, inflation, and recessions and
how they have affected society.
Knoop, Todd A.Recessions and Depressions: Under-
standing Business Cycles. Westport, Conn.: Praeger,- A comprehensive look at recessions in the
United States and a review of the difficulties en-
countered in trying to predict and prevent them.
Woodward, Bob. Maestro: Greenspan’s Fed and the
American Boom. New York: Simon & Schuster, - An engaging look at the workings of the
Federal Reserve during the 1990’s under the
guidance of Alan Greenspan.
Randall Hannum
704 Recession of 1990-1991 The Nineties in America