Back in the 1970s, Wolfman Jack and American Grafitti gave us one of the great lines of the decade: "Where were you in 62"?
Today, I ask you where were you in '82? Well, you probably remember President Reagan, Fed Chairman Paul Volcker and the fight against inflation. This is the story:
Prior to the 2007-09 recession, the 1981-82 recession was the worst economic downturn in the United States since the Great Depression. Indeed, the nearly 11 percent unemployment rate reached late in 1982 remains the apex of the post-World War II era (Federal Reserve Bank of St. Louis). Unemployment during the 1981-82 recession was widespread, but manufacturing, construction, and the auto industries were particularly affected. Although goods producers accounted for only 30 percent of total employment at the time, they suffered 90 percent of job losses in 1982. Three-fourths of all job losses in the goods-producing sector were in manufacturing, and the residential construction industry and auto manufacturers ended the year with 22 percent and 24 percent unemployment, respectively (Urquhart and Hewson 1983, 4-7).
The economy was already in weak shape coming into the downturn, as a recession in 1980 had left unemployment at about 7.5 percent. Both the 1980 and 1981-82 recessions were triggered by tight monetary policy in an effort to fight mounting inflation.
Does any of this sound similar to the events of 2022? Well, time will tell but I was there in 1982 and remember the harsh recession that the country endured to bring down inflation.
Some of today's columns are eerie similar: "Rapid rate of rising prices overwhelms wage hikes."
They called it "Reaganomics" back then; now it's Biden inflation.
Back in 1982, President Reagan had a terrible midterm election. He kept the GOP Senate but lost 26 House seats.
President Reagan survived for two reasons:
First, the economy began to recover in 1983 and exploded in 1984. The anti-inflation effort turned out to work in the long run; and,
Second, President Reagan had a strong base of support. He had people like me who stuck with him during the worst days of the 1982 recession. President Biden does not enjoy that kind of loyalty.
Time will tell how all of this plays out in November. Nevertheless, 2022 reminds me a lot of 1982.
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