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The US Economic Boom of the 1990s

Instructor: Dr. Douglas Hawks

Douglas has two master's degrees (MPA & MBA) and is currently working on his PhD in Higher Education Administration.

Financially speaking, the last decade of the 20th century was a good one for the United States. In this lesson, we'll discuss how employment, financial markets, GDP, and the government's surplus all improved throughout the '90s.

The Recession of 1990-1991

The beginning of the decade didn't start out encouraging investors or economists. The Savings and Loan Scandal of 1989 - a situation much like the financial crisis of 2007, when banks became too aggressive in their real estate lending - triggered a recession that started in 1990 and lasted into the fourth quarter of 1991.

But, luckily, 1992 was a presidential election year and regardless of which party is going out or coming in, election years tend to have good economies. In fact, the period of economic growth that started in 1991 began what the National Bureau of Economic Research reports as the longest period of economic growth in U.S. History: ten years, from 1991 - 2001.

The Economic Boom of the 1990s

The economic boom of the 1990s began in the second quarter of 1991 when the total value of all goods and services produced in the economy, or gross domestic product (GDP) increased from -1.8% to 3.14%. From that point forward, for the next ten years, GDP growth was positive, with the highest quarter being the second quarter of 2000 when GDP was 7.7%! From 1990 - 1991, GDP grew from $5.5 trillion to $9.8 trillion.

But how? There are three answers to that question. First, globalization and technology was changing the economy and helping produce more goods and service. Second, economic growth feeds off itself by creating jobs. And third, the government slightly increased taxes and constrained spending to turn the budget deficit from the early 1990s to a budget surplus in the mid-to-late 1990s.

Globalization and Technology

Globalization, the increase in the amount of trade between countries, has rapidly expanded in the last thirty years. Technology has aided this expansion - inventions such as fax machines, cell phones and email have made this possible so people can work together from long distances.

These two factors are really partners, because technology encourages globalization and globalization increases technology, as new needs are identified and met. The 1990s was the period of rapid growth of both of these areas, including the signing of the North American Free Trade Agreement, which allowed Mexico, the United States and Canada to trade together much more easily, and other trade agreements throughout the world.

Employment Creation

In total, over 23.6 million jobs were created in the 1990s, which made the unemployment rate drop to less than 5% in 1997, the lowest unemployment rate since 1973. It eventually dropped to 3.8% in March of 2000. While many of these jobs were in new sectors created by the technology boom, most were created as part of the business cycle: as the economy grows, people buy more 'stuff,' so companies need to make more of that 'stuff,' so they hire people to help make the 'stuff,' so people have more money.

That business cycle continues until inflation spikes, and soon prices rise to where people can't afford the 'stuff,' at which point companies make less, lay off people, and the cycle winds back down. That's what started to happen in March 2001. Then, with the aftermath of the 9/11 attacks, the economy that had been so strong in the 1990s came to an end.

Government Spending

In 1990, tax cuts from the 1980s and continued government spending had created a $220 billion deficit, meaning the government was spending $220 billion more than it generated, each year. This deficit flipped over to a surplus, a time when there's more money coming in than going out between 1997 and 1998 with a 1998 surplus of about $70 billion. In just two more years, the surplus had grown to $236 billion. When the government runs a surplus, it is able to invest that surplus in infrastructure, such as federal highways and bridges. This creates more jobs. So again, government spending is another big reason that led to the economic boom of the 1990s.

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