Americans are going into 1985 a little older, maybe a little wiser and, in most cases, a little richer. From an economic standpoint, 1984 was a year to cheer. Unemployment dipped, interest rates finally slipped, and inflation stayed cowering in its cage. Many businesses raked in record profits. Most important, Americans relished an estimated 5.3% rise in real disposable income, which is the amount of money people have left after taxes, adjusted for inflation. That fueled a feeling of prosperity and helped propel President Reagan in his re-election romp.
But, while it was a year of living well, it was a year of living dangerously. The financial system, still feeling the aftershocks of the last recession, wobbled and might have toppled if Uncle Sam had not rushed to the rescue of the Continental Illinois bank. In addition, the economy was menaced by those terrible twin deficits in the federal budget and foreign trade. These two monsters dragged down the rate of growth in the second half of the year and threatened to stall the recovery.
Early in 1984, though, the economy seemed unstoppable. For the first half of the year, growth in the gross national product, after adjustment for inflation, reached 8.6%. Some economists feared that so exuberant an expansion ) would cause inflation to accelerate. To prevent that, the Federal Reserve Board in the spring tightened the money supply and let interest rates rise. The prime rate, which banks charge for corporate loans, climbed from 11% in March to 13% by June.
As the election campaign heated up, the Administration had harsh words for the Federal Reserve, where Chairman Paul Volcker stood firm for a restrictive policy. Said Treasury Secretary Donald Regan in May: "If the Fed continues on its tight path now, it will have an effect on November and December. Is that politics, and does that have us worried? You bet your life it has us worried."
The growth rate dropped to 1.6% in the July-September quarter, but the slowdown came too late to have much impact on the election. Moreover, the Federal Reserve realized that it had been too stringent and opened up the money-supply spigot. That helped send the prime rate down to 10.75% by late December. In the fourth quarter, growth picked up to an estimated 2.8% pace. Concluded Commerce Secretary Malcolm Baldrige: "This year the economy came in like a lion and is going out like a lamb."
On average, 1984 was more lion than lamb. For the year as a whole, growth amounted to about 5.3%. That was enough to slash the civilian unemployment rate from 8.2% to 7.2%. The number of Americans with jobs rose by nearly 3 million, to 106 million.
Despite that record, the Roman Catholic bishops of the U.S. felt compelled to speak up for those who have not shared in the general prosperity. A controversial draft of a pastoral letter presented to the National Conference of Catholic Bishops criticized the "massive and ugly" failures of American capitalism. Noting that more than 15% of the U.S. population lives below the official poverty level, the bishops called for increased Government spending on welfare and jobs programs. Critics maintained that the bishops' economic prescriptions had been tried in the past and failed. Said William Simon, a former Secretary of the Treasury: "We threw a trillion dollars at poverty, and we have more poverty now than ever before."