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The US Economy: Performance and Prospects

Published online by Cambridge University Press:  26 March 2020

Peter Oppenheimer  and
Brian Reddaway
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Extract

Problems arising in the US economy and financial system are frequently of global significance, and the inauguration of a new President provides a convenient occasion for taking stock of the US economy's recent performance and prospects. In this article we include some tonger-term background as well as an assessment of the current situation. The article is a sequel to one which we wrote nearly four years ago and which focused mainly on the remarkable recovery from recession achieved by the US economy in the period 1982-4.

Type
Articles
Information
National Institute Economic Review , Volume 127 , February 1989 , pp. 52 - 63
Copyright
Copyright © 1989 National Institute of Economic and Social Research

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Footnotes

This is the second article from members of the CLARE Group to appear in the Review. Future articles will normally appear about twice a year. The Review is pleased to give hospitality to the deliberations of the CLARE Group but is not necessarily in agreement with the views expressed. Members of the CLARE Group are M.J. Artis, A.J.C. Britton, W.A. Brown, C.H. Feinstein, C.A.E. Goodhart, D.A. Hay, J.A. Kay, R.C.O. Matthews, M.H. Miller, P.M. Oppenheimer, M.V. Posner, W.B. Reddaway, J.R. Sargent, M. F-G. Scott, Z.A. Silberston, J.H.B. Tew, J.S. Vickers, S. Wadhwani.

References

(1) ‘The US economy: an overview’, Midland Bank Review, 1985.

(2) Summarised in table 3 of box 1.

(3) For further details, see Economic Report of the President, 1988, p. 67.

(4) It should be noted that the fall in personal savings (which is also apparent in table 3 of box 1) came in spite of the rise in disposable income produced by the cuts in tax-rates: President Reagan's ‘strategy’ had envisaged a large rise in personal savings, which would help to finance any budget deficit that his policies might produce. (The UK has also seen a big fall in personal savings, despite cuts in tax-rates.)

(5) It is hard to assess progress in implementing this Act. In 1987 the deficit was reduced by the temporary timing effect on revenue produced by the Tax Reform Act of 1986. In 1988 this lower level deficit was roughly maintained, thanks largely to the higher level of activity; but the OECD projection (Economic Outlook, December 1988, p. 70) shows little progress in 1989 or 1990 unless further political action is undertaken.

(6) It is of course possible that the US figures for the balance of payments deficit are too high : the sum total for the recorded payments balances on current account for all countries in the world has been substantially negative for some years and part of this world discrepency might well be attributed to the US. This point will not be mentioned again but must not be forgotten.

(7) The change in structure (which might of course be reversed later) is seen from the fact that imports of goods and services at 1982 prices were fairly steady at around 11 per cent of GDP (or a bit less) from 1977 to 1982, but have been over 14 per cent in each year from 1986-8; moreover this percentage has continued to rise somewhat, the fall in the exchange rate. For an alternative view, see P. Krugman ‘Long-run of the strong dollar'in R.C. Marston (ed.), (1988) Mis-alignment of exchange rates: effects on trade and industry.

(8) In the early years of the Reagan expansion, the US deficits on current account increased the demand for other countries' exports in ways which were very helpful for their growth. With the higher level of activity now prevailing, this benefit to the rest of the world is much reduced,

(9) In this it may get substantial help from effective agreement(s) about international disarmament. These might lead to a substantial reduction in the deficit on the US federal budget, which would help to reduce the US payments deficit.

(10) See for example the symposium on productivity growth in the Joumal of Economic Perspectives, vol. 2, no. 4,1988.