1980s Economy

The 1980s are commonly referred to as the decade of excess, but it took getting over a left over recession from the 70s economy that extended into the early 80s, and included both an oil and energy crisis.

As usual, politics played a major role in the recovery and growth of the 1980s economy.

People were unhappy with a number of federal policies that contributed to a rough start to the 80s economy.

Interest rates and inflation were out of control, with the highest prime seen at 21.5 percent and agriculture was suffering while exports and crop prices fell drastically.

In 1981, the people took their frustration to the polls and elected Ronald Reagan as their president.

The government was still spending too much and the people were spending too little, keeping the country in a recession through 1982.

Reagan focused on lowering taxes, making the government smaller, and controlling government spending. The term Reaganomics was used to describe Reagans economic theories and was a hot topic throughout his presidency.

On July 29, 1981, the U.S. Congress passed Reagans proposal to cut taxes by $750 billion over the next five years. Reagans theory was to end the recession by allowing people to keep more of the money they earned, thereby spending and investing more.

Most of the tax cuts ended up benefitting the wealthy, but in theory, it would encourage investing and create new jobs with higher pay for lower economic classes. Reagan also increased taxes for large corporations to bring in some revenue.

President Reagan also cut government spending, controversially cutting many social and domestic programs, while also lifting regulations the government imposed on businesses, the workplace, and the environment. Government spending focused strongly on defense with the Vietnam War still fresh in the mind of the entire country.

Once the recession ended and taxes were lower, things got a little easier. Inflation and interest rates came down while wages went up. Another good sign in the 1980s economy was between 1982 and 1987, when there were more than 13 million new jobs created.

The federal budget deficit grew from $74,000 million in 1980 to $221,000 million in 1986 because of government spending and borrowing, but in order to control prices, the Federal Reserve would raise rates if it looked like things were getting out of control again.

The average salary in 1980 was around $17,000. By 1989, the average household income increased to $28,000. This was because of the increase in jobs and wages in general and partly due to many women returning to the workforce.

Mortgage rates that had been as high as 15 percent and up started to come down slowly; by 1989, the average rate was around 9 percent, allowing people to save even more.

With the falling interest rates, fewer taxes to pay, and higher paychecks, people felt a lot more comfortable spending a little more.

People were spending on everyday necessities like homes, cars, clothes, and utilities, but now they upgraded – bigger homes, cooler cars, and designer clothes.

They could also afford all the fun extras such as computers, video game consoles and games, cell phones, and enjoyed every minute of their newly discovered financial freedom, thanks to the recovering, and growing, 1980s economy.

A nice pen on top of an economy chart.