Latin American-u.s. Economic Relations, 1982-1983

Avraham Sela

• Publisher: Routledge
• Year: 2019
• eBook ISBN:
  9780429717758
• Topic: Economia
• Subtopic: Economia internazionale

This book, prepared by the Permanent Secretariat of the Latin American Economic System (SFXA), analyzes a range of factors in the current economic policies of the United States that affect Latin American and Caribbean countries. In particular, it pinpoints the effects of U.S. monetary policy on the region's economies and trade relations and on the

1
U.S. Economic Policy: The Internal Dimension

The State of the U.S. Economy Toward the End of the Seventies

The problems facing the U.S. economy are not new. On 15 August 1971, President Richard Nixon announced his new economic policy as the "broadest attempt . . . made in four decades" to "achieve a higher level of employment, greater price stability and a more solid international position for the nation."¹ Almost a decade later, President Ronald Reagan outlined his Economic Recovery Program (ERP) to Congress as follows:

I have painted a discouraging picture, but I believe that I am correct. It is within our power to change this picture and we can act accordingly. . . . We have an economic recovery program, one which will balance the budget and place us decisively on the path to achieving our ultimate goals of completely eliminating inflation, increasing productivity and creating millions of new jobs.²

The seventies was a period of clear deterioration in the performance of the U.S. economy, at least in comparison with the two and a half decades following the Second World War. This decline involved slow and unstable economic growth accompanied by high levels of unemployment, increasing difficulty in controlling inflationary pressures, and a significant decline in the productivity growth rate. From 1974 to 1980, the real gross national product (GNP) grew at a rate of 2.5 percent per annum, whereas from the end of the forties to the beginning of the seventies the average rate had been 4 percent. As measured by the growth of the consumer price index, inflation rose from 3 percent in 1974 to 8 percent in 1980.

The productivity growth rate decreased from 2.5 percent in 1970 to —0.1 percent per annum in 1979-1981 (see Table 1). If, as has been suggested by some observers, a "poverty index" were created by adding inflation and unemployment rates, a significant decline would be recorded for the last part of the seventies (see Chart 1).

Added to this overall performance were the effects of decreased competition in the postwar U.S. economy within such key sectors as the steel industry, the auto industry, and other producers of durable and nondurable consumer goods. These developments caused economic and political tensions that were further aggravated by a general stagnation in productivity.

The external sector also began to show signs of significant transformation and growing instability, which resulted in trade deficits in all but three years: 1970, 1973, and 1975. At the same time, as shown in Table 2, the surplus derived from profit remittances and other services showed significant gains that partially compensated for the adverse effects of merchandise trade on the current account balance. Capital movements also fluctuated significantly during the seventies. The widespread adoption of variable exchange rates in 1973 did not substantially check this trend toward growing instability in the external sector.

As the U.S. economy opened up, international economic phenomena began to play a more significant role in the evaluation of the domestic economy. Exports, which had averaged 3.9 percent of the gross national product between 1965 and 1969, doubled to 7.6 percent between 1978 and 1982. This openness significantly modified the United States' traditional economic links with the rest of the world. It also made the dollar vulnerable to short-term international capital movements (associated with the development of an international market deprived of capital), which on several occasions called for economic policy measures to uphold the international standing of the U.S. dollar. The steps taken by the Carter administration in November 1978 provide one example.

Table 1. Postwar U.S. Economic Performance, 1947-1982

	1947-57	1957-67	1967-73	1973-82^a
Demand(Annual growth rates,%)
Nominal GNP	6.7	6.0	8.6	9.7
Money(M2)	2.8	5.8	8.6	9.7
Rate of M2	3.9	0.2	0.0	0.0
Real GNP	3.8	4.0	3.4	1.8
Non durable consumption	2.9	3.7	2.1	1.9
Durable consumption and household investment	4.3	3.9	7.6	-0.3
Non house hold fixed investment	3.0	4.6	4.0	2.0
Federal outlays	9.5	3.4	-4.3	2.1
State and local expenditure	6.0	5.8	3.6	1.1
Real government transfers to individuals	3.5	7.4	10.0	5.4
Supply(Annual gtrth rates,%)
Real private sector GNP	3.5	4.5	3.7	1.8
Hours	0.3	1.3	1.6	1.0^b
Output per hour	3.2	3.2	2.1	0.1^b
GNP deflator	2.9	2.0	5.2	7.7
Average Values(%)
Unemploymentrate
Mean	4.3	5.3	4.7	7.0
Standard deviation	1.0	1.0	1.0	1.4
Nonhousehold fixed investment/GNP	9.7	9.7	10.2	10.8
Government outlays/GNP	22.6	26.4	29.7	30.8
Goods and services	18.5	20.8	21.8	19.8
Transfer payments	4.1	5.6	7.9	11.0

^aFigures for 1982 are provisional.

^bNonagricultural private sector.

Sources:Robert J.Gordon,"Postwar Macroeconomics:The Evolution of Events and Ideas,"in M.Feldstein,The American Economy in Transition(Chicago:University of Chicago Press,1980);Office of the President,Economic Report of the President,1983(Washington,D.C.:GPO,1983).

Chart 1. "Poverty Index" of Unemployment and Inflation Rates (%)^a Source: U.S., Office of the President, Economic Report of the President, 1983 (Washington, D.C....

Table of contents

• Cover
• Half Title
• Title
• Copyright
• Contents
• List of Tables and Charts
• Introduction
• 1. U.S. Economic Policy: The Internal Dimension
• 2. U.S. International Economic Policy
• 3. Economic Relations Between Latin America and the United States in the Early Eighties
• Annex—U.S. Foreign Policy and the Economy: Decision Making and Levels of Negotiation
• Index
• About the Book