Economic Report of the President

CHAPTER 1Inflation and Growth in the 1980sIN THE 1980s THE UNITED STATES will confront a variety ofstubborn problems that have developed during the past 15 years.Chief among these problems is one that is shared by most other industrialcountries—the persistence of large wage and price increases,even in the face of high unemployment and slack production. Thisproblem poses the single most important challenge to U.S. economicpolicy—reducing inflation while maintaining a reasonably prosperousand growing economy.Many other problems are themselves closely related to inflation,either as cause or as consequence. Our Nation's productivity growthhas virtually halted in recent years. The era of cheap energy hasended, the world has grown vulnerable to supply disruptions, and thecourse of domestic inflation and unemployment has become closelydependent on economic and political developments in the oil-richbut politically unstable Middle East. Meanwhile, the struggle to find aproper balance between a clean, healthy, and safe environment, onthe one hand, and satisfactory economic growth with lower inflation,on the other, will continue. All of these developments, together withthe growing interdependence of the world economy, have set inmotion major changes in economic structure, occupational skill requirements,and industrial location that will continue to pose sizableadjustment problems to many industries, communities, and workers.While the magnitude of these economic challenges is cause for seriousconcern, it does not warrant pessimism. During the 1970s theU.S. economy performed quite well in many important respects. Overthat decade our country outperformed most other major countries inproviding jobs for its people (Table 1). Employment grew almost 25percent as the American economy created jobs not only for millionsof youths entering the labor market for the first time but also for millionsof women, who found job opportunities in growing numbers.This performance continued through the last years of the decade atan increased pace. While the growth in the number of employed personswas temporarily interrupted by the recession of 1980, the basicperformance was virtually unparalleled.333-540 0 - 81 - 3 :QL 329