As growth surges and inflation stays low, companies slim down and shape up
For the first time in a long time, Americans will be able to toast the new year with the feeling that it will bring greater prosperity and brighter prospects. With unemployment falling, incomes rising, inflation at bay and shoppers crowding into stores, the economy is entering 1984 on a roll rather than in a rut. Looking back, businessmen and consumers can celebrate 1983 as a year of rebound and turnaround. For many industries and labor unions, it was also a year of transition and turmoil that will permanently reshape the economic landscape. Serious threats to growth remain, most notably the ballooning federal deficit and the formidable challenge of foreign competition. Nonetheless, millions of revelers will ring out 1983 this weekend with a rousing and heartfelt cheer.
The year marked the centennial of the birth of John Maynard Keynes, and the tonic that jolted the U.S. out of recession was just what the famed economist might have prescribed: easier money, lower taxes and heavy Government spending. Ironically, the chief architect of the recovery had never been known as a disciple of Keynes'. Ronald Reagan came to the White House pledging to balance the budget and trim the size of Government. Instead, his Administration ran up a fiscal 1983 deficit of $195.4 billion, which is more than the entire budget was less than 15 years ago. But the President was too pleased with the results to worry much about whether his policies were considered Keynesian, monetarist, supply side or all of the above. Said Reagan in an October speech: "You know that the best clue that our program is working is our critics don't call it Reaganomics any more."
Much of the credit for the recovery, however, belongs to Federal Reserve Board Chairman Paul Volcker. After squeezing the money supply enough to reduce inflation from 12.4% in 1980 to 3.9% in 1982, the central bank eased up considerably in the last half of 1982 and early 1983. The change in policy helped push down the prime rate that banks charge for corporate loans, from 16.5% to 10.5%, and triggered an economic upturn last spring that was much brisker than expected. From April through September, the gross national product, adjusted for inflation, expanded at an 8.6% annual pace. The economy was so exuberant, in fact, that the Reserve Board decided to tighten slightly in late spring, and the prime rate later rose a notch, to 11%. Government figures released last week showed that G.N.P. growth slowed to a more sustainable 4.5% pace in the fourth quarter and that consumer prices rose in November at a modest 3.6% annual rate.
The recovery defused much of the public criticism aimed at Volcker, who had often been accused of bringing on the recession to tame inflation. He stopped receiving two-by-fours in the mail from homebuilders protesting his policies. In a congressional hearing, Republican Senator John Heinz of Pennsylvania told Volcker that "the only things I can think of that you haven't been blamed for are herpes and giving up the Panama Canal." But the Senator added, "We're lucky to have you as chairman."