Jim Lounsbury: The year 1979 in business was notable for a number of things: the revolution and the Federal Government's policy, record-high interest rates and goals soaring to new highs almost daily, it seemed. But most of all, 1979 highlighted just how closely the policies of business and the outlook of Americans toward their own personal fates, fortunes and frustrations are intertwined. It's a pubic recognition that more and more has eliminated laissez faire economics and signals a warning to big business to tread carefully where the public's interest is concerned. UPI Audio's Business Editor Mike Alaba reports on the state of the economy in 1979.
Mike Alaba: "The top economic story of '79 had to be inflation, an insidious thief of borrowing power continuing to move ahead at a double-digit pace, forcing the average family to earn twice what they made in 1970 to just stay even. A family of four earning $13,200 in 1970 had to make $25,000 in '79 to equal its purchasing power just a decade ago, soaring energy, food, housing costs, as well as increased medical costs taking some 70% of the budget for four out of five American homes.
"In an effort to cut inflation, Paul Volcker took the reins of the Federal Reserve Board from then-to-be Treasury Secretary G. William Miller, immediately instituting what amounted to a revolution in the country's monetary policy. The Fed would now let interest rates float free, concentrating on the money supply almost entirely, the immediate result of which saw interest rates head for record territory. Wall Street got a bad case of whiplash, including 26 and a half point drop on October 9th, followed by the heaviest trading day in Wall Street history, when nearly 82 million shares crossed the tape on the 10th. Nonetheless, as the new Fed Chairman saw it, his medicine was bitter, but badly needed."
Chairman Paul Volcker: "When the money supply is clearly brought under control and expectations of inflations dissipate, interest rates will tend to decline. Our recent actions should bring that day sooner, whatever the initial impact and interest rates. Developments of this sort are in no way inconsistent. We're maintaining a firm discipline on Federal spending and growth in the money supply that will be required over a long period of time to restore price stability."
Mike Alaba: "As Volcker predicted, interest rates did begin to decline, but only at year's end when the prime backed off a record 15¾%. Loan demand was dropping off, and Volcker's primary target speculators were finding money not only more expensive, but more difficult to obtain.
"1979, the year that saw the dollar under increasing pressure due to rising oil costs, still oil-company profits checking in with three-digit percentage increases, causing a political and public hew and cry for a windfall-profit's tax.
"It was the 50th anniversary of the 1929 Stock Market Crash and a public's need to know the why behind the crash of a McDonald Douglas DC-10 crash in Chicago.
"General public utilities, also the subject of a public eyeballing due to troubles at its Three Mile Island atomic-power plant; consumers on a borrowing binge in 1979 as they sought to buy products they felt would be only more expensive later on, thanks to inflation. At the start of the year, the average American owed $5500. By year's end, it would be considerably higher.
"Business battled its own problems with the urge to merge, with twice as many mergers in '79 as in '78. It also appears the power to make decisions is going to fewer and fewer people, who find more and more concentrated power. According to US News & World Report, 1% of the population now owns more than 14% of all bank deposits in real estate, half the stocks and bonds and one-quarter of everything of value owned in the United States.
"In business, only 100 of the million-and-a-half corporations get half the profits in manufacturing, and 200 firms get 70% of the profits. The end result: a big upswing in Government antitrust activity. This is Mike Alaba for Recap '79."