75-09-B2
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Recession's Cause
TranscriptWhat was the cause of the current recession? I'll be right back. The present business recession and the numerous hardships it's caused has been with us long enough that we tend to forget how unexpected it was. Just last September the Ford Administration was discounting the possibility of recession, the President of General Motors was predicting a five percent increase in 1975 model car sales and a forecast by 50 eminent economists announced we were heading for a fourth quarter economic upturn. Not a single one of those fifty economists predicted what actually occurred-the worst economic slump in America since the Depression of the 1930s. In the last six months, industrial production has dropped nearly thirteen percent and unemployment has risen fifty percent to a figure higher than at any time since 1941. With an expanded worker market there are two and a half million fewer jobs than there were six months ago. If we're going to avoid a similar economic disaster in the future we'd better understand how we got into this one. There's not a single member of our Executive or Legislative branches who should fail to read a survey by James P. Gannon that appeared in a recent addition to the Wall Street Journal or at least this part of it, and I quote, "Extensive interviews with academic economists, business forecasters, corporate executives and other analysts across the country indicate that they are still sifting the debris of their shattered expectations for the answers. That process may go on for months or years but the most important conclusion already is evident. The root cause of this recession was rampant inflation." Unquote. Let me repeat that last sentence. "The root cause of this recession was rampant inflation." For some people, particularly some of our national policy makers in both the Legislative and Executive branch, this statement cannot be repeated often enough. Some of them are proposing budget deficits and monetary expansion which would cause a repetition of the inflation that got us into this trouble in the first place. In other words they're taking the cause of the recession and adopting it as a cure. The result of such folly this time is all too predictable. A repetition of extreme inflation followed by extreme recession, probably an even more exaggerated form. How did inflation cause the recession? "Well," says Mr. Gannon and the analysts he interviewed, "there were really two recessions. The first was a consumer recession which in turn triggered the business recession we're now feeling all through the high inflation years of 73 and 74," says Mr. Gannon, quote, "Consumers ran a losing race with prices. The working man's income just couldn't keep up with double-digit inflation. Real spendable earnings, take-home pay after tax, and price increases are considered, fell 8.8 percent between November 1973 and last month. Consumers lapsed into a state of inflation shock. Frightened and confused they cut back spending postponing purchases of things that weren't absolutely essential." Unquote. Because of this decline in demand, business belatedly cut back its production which is the last part of the recession, the one that's been visible. have our policy makers learn the lesson of this recession that the primary enemy is inflation or will they cause a new bout of even worse inflation and the consumer recession that will go with it? The price for ignoring history this time may be a depression. This is Ronald Reagan. Thanks for listening. |
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