Between 1960 and 1978 the gross national product of the USA at current prices increased at an average annual rate of 8.2%, reaching 2,100 billion dollars in 1978. In the decade 1960-69 there was an increase rate of 7.1%, which increased to 9.4% in the period 1970-78. However, the acceleration is due to a faster rate of inflation: at constant prices, the average increase was 4.3% in the 1960s, but fell to 2.8% over the next nine years. After the recession of 1960-61, the American economy experienced a long period of sustained development, which gradually ended in conditions of excess aggregate demand: in the second half of the 1960s, effective gross national product was systematically above the potential. Many politicians and economists believed that the use of neo-Keynesian economic analysis schemes made it possible to overcome the cyclical difficulties, and that interest should now focus mainly on the problems of growth: so, for example, conferences on the theme “Is has the economic cycle become obsolete? “. However the long run of boom recorded between 1965 and 1969 had led to growing inflationary pressures and a notable deterioration in the balance of payments position in the USA. The concomitant action of monetary and fiscal expansionary stimuli, put in place, also as a consequence of the war in Vietnam, was abruptly reversed in 1969, so that just in 1970 there was a serious recession. The. internal cyclical difficulties were exacerbated by weakness in external payments, making the dollar’s position increasingly vulnerable. In 1971, however, it was decided to continue to give priority to the objectives of economic recovery, while accepting the consequences in terms of external stability of the dollar. The forecasts of a rapid and significant autonomous reversal of the cycle as early as 1971 were based primarily on the expectation of a recovery in consumer spending; however, despite the pronounced monetary stimuli given to the economy, this type of expenditure reacted only slowly, also following the uncertainties associated with the persistence of inflationary pressures. The American economic authorities therefore continued to maintain strongly expansionist policies in the course of 1972. Thus, in the first quarter of 1973, a situation was reached in which actual output again exceeded potential: conditions of shortage of workforce and above all limitations in labor were recorded. production capacities of many key sectors. This resulted in severe pressure on prices and wages, despite the administrative measures imposed in the later stages of the so-called “law on economic stabilization”.
Domestic inflationary pressures, fueled by further depreciation of the dollar, reached peaks never previously reached in the post-war period: consumer and wholesale prices increased at rates of 10 and 20%, respectively, on an annual basis. The boom contributed significantly to this prices of internationally traded products, which in turn essentially originated from the synchrony in the cyclical evolution that the economies of all the main industrial countries showed. In this context, the oil crisis and the subsequent quadrupling of the price of crude oil were inserted in October 1973. The rise in oil prices took place in the presence of an underlying serious structural imbalance in the development of energy supply and demand on a global scale, to which the rapid increase in consumption and net imports of oil by the USA had contributed significantly., which at the beginning of the seventies, although still the world’s largest oil producer, were at the same time the main importer. L’ the explosion in the price of oil involved both recessive impulses, similar to those deriving from the introduction of a strong indirect tax on consumer goods, and, directly, inflationary pressures; in these circumstances the USA, which already in 1973 had gradually moved towards policies to contain demand, accentuated the restrictive orientations, giving priority to the objective of putting the inflationary process under control. Thus the premises were laid for the most serious recession experienced by the USA in the post-war period, which would have led, in the three-year period 1974-76, to an overall gap between potential and actual output of 330 billion dollars. Between the cyclical maximum of November 1973 and the minimum reached in April 1975 industrial production fell by 13.5%, and only in June 1976 did production return to the levels reached in November 1973. The extent and severity of the cyclical phase of recession was accompanied by a considerable slowness in achieving of positive results in the fight against inflation. The coexistence in 1974 and in the first part of 1975 of recession and inflation – a phenomenon for which the term “stag-inflation” was coined (stagflation) – accentuated the interest in propositions of the “monetarist” school, expounded in particular by M. Friedman. The difficulties in managing the economic system in the 1970s and the gravity of the inflationary problem have accentuated the attention paid by the American economic authorities to the control of the main monetary stocks: monetary base, M 1, M 2. As early as 1970, the Federal Reserve Board began to formulate development objectives for monetary aggregates; since the spring of 1975 these objectives – consisting in the determination of an allowed margin of expansion on an annual basis – have been made public.
The recovery phase, which began in 1975, lasted for four years: the period of prolonged expansion ended in the second quarter of 1979, when the national product (at constant prices) showed a slight contraction, however it was higher on a basis annual rate of 18.3% compared to the cyclical minimum of 1975. One of the most important aspects of the expansion phase is the disappointing evolution of productivity; the absorption of employment was in fact considerable and explains, after cyclical adjustments, almost all of the increase in output: at the beginning of 1979 the number of employees exceeded by about 12% that recorded at the previous peak of the demand in 1973, while production had increased by 13% over the same date. The stagnation of productivity is one of the factors which, together with the fall in the external value of the dollar, contribute to explaining the notable acceleration of inflation since the end of 1976: the rate of increase in consumer prices has increased since 4, 8% to over 10% in the first part of 1979, re-proposing conditions of stagflation. Consequently, restrictive measures – monetary and fiscal – were used which interacting with endogenous factors of the economy led to the reversal of the cycle. re-proposing conditions of stagflation. Consequently, restrictive measures – monetary and fiscal – were used which interacting with endogenous factors of the economy led to the reversal of the cycle. re-proposing conditions of stagflation. Consequently, restrictive measures – monetary and fiscal – were used which interacting with endogenous factors of the economy led to the reversal of the cycle.
