Vietnam War dragged on until 1975, President Richard Nixon (1969-1973) resigned under a cloud of impeachment
charges, and a group of Americans were taken hostage at the U.S. embassy in Teheran and held for more than a
year. The nation seemed unable to control events, including economic affairs. America's trade deficit swelled as
low-priced and frequently high-quality imports of everything from automobiles to steel to semiconductors flooded
into the United States.
term "stagflation" -- an economic condition of both continuing inflation and stagnant business activity,
together with an increasing unemployment rate -- described the new economic malaise. Inflation seemed to feed on
itself. People began to expect continuous increases in the price of goods, so they bought more. This increased
demand pushed up prices, leading to demands for higher wages, which pushed prices higher still in a continuing
upward spiral. Labor contracts increasingly came to include automatic cost-of-living clauses, and the government
began to peg some payments, such as those for Social Security, to the Consumer Price Index, the best-known gauge
of inflation. While these practices helped workers and retirees cope with inflation, they perpetuated inflation.
The government's ever-rising need for funds swelled the budget deficit and led to greater government borrowing,
which in turn pushed up interest rates and increased costs for businesses and consumers even further. With
energy costs and interest rates high, business investment languished and unemployment rose to uncomfortable
desperation, President Jimmy Carter (1977-1981) tried to combat economic weakness and unemployment by increasing
government spending, and he established voluntary wage and price guidelines to control inflation. Both were
largely unsuccessful. A perhaps more successful but less dramatic attack on inflation involved the
"deregulation" of numerous industries, including airlines, trucking, and railroads. These industries had been
tightly regulated, with government controlling routes and fares. Support for deregulation continued beyond the
Carter administration. In the 1980s, the government relaxed controls on bank interest rates and long-distance
telephone service, and in the 1990s it moved to ease regulation of local telephone service.
the most important element in the war against inflation was the Federal Reserve Board, which clamped down hard
on the money supply beginning in 1979. By refusing to supply all the money an inflation-ravaged economy wanted,
the Fed caused interest rates to rise. As a result, consumer spending and business borrowing slowed abruptly.
The economy soon fell into a deep recession.
The Economy in the
nation endured a deep recession throughout 1982. Business bankruptcies rose 50 percent over the previous year.
Farmers were especially hard hit, as agricultural exports declined, crop prices fell, and interest rates rose.
But while the medicine of a sharp slowdown was hard to swallow, it did break the destructive cycle in which the
economy had been caught. By 1983, inflation had eased, the economy had rebounded, and the United States began a
sustained period of economic growth. The annual inflation rate remained under 5 percent throughout most of the
1980s and into the 1990s.