- 1964 Civil Rights Act: A civil rights bill proposed by congressional Democrats and supported by the Johnson administration needed significant bipartisan support to pass and become law. Democratic majority leader Mike Mansfield worked with his counterpart, Republican Senator Everett Dirksen, to get the bill passed.<\/li>
- 1969 Moon Landing: The National Aeronautics and Space Administration (NASA) was created in 1958 through bipartisan Congressional support. NASA led the development of the U.S. space program, resulting in the 1969 launch of Apollo 11 and Neil Armstrong walking on the moon. <\/li>
- 1983 Social Security Reform: In the early 1980s, the Social Security Trust Fund was trending toward a deficit. Party leaders Republican Senator Bob Dole and Democratic Senator Daniel Patrick Moynihan led a bipartisan group of legislators that were able to transform recommendations into legislation that financially strengthened and reformed Social Security. <\/li>
- 1990 Americans with Disabilities Act: Long overdue, the act finally made it illegal to discriminate against people with disabilities. The act was passed with bipartisan support; Republican Senator Bob Dole and Democrat George Mitchell played leading roles in the act\u2019s passage.<\/li>
- 2010 Tax Deal: The 2003 Bush Tax cuts were set to expire at the end of 2010, unless extended by Congress. The Obama administration worked a bipartisan compromise that kept the tax cuts in place but increased the rate in the top tax bracket.<\/li><\/ul>\n\n\n\n
For further information on what can be accomplished with political working together, from the Bipartisan Policy Center: History of Bipartisanship<\/a><\/p>\n\n\n\n
And now, the challenges for 2021. <\/p>\n\n\n\n
Challenge #1: COVID-19 and the 2021 Economy<\/strong><\/h3>\n\n\n\n
The primary driver of U.S. economic growth in 2021 will likely be a repeat of 2020: COVID-19. The importance of the interrelationship between individual health, health care and the economy has never been so apparent. <\/p>\n\n\n\n
The United States economy typically\nchugs along at a pretty good pace unless there is a bump or shock to derail its\nprogress. The key is to get the economy moving forward \u2013 precipitating a\nsnowballing effect, where economic growth continues until something happens to\nstop it. When economic growth occurs, increased employment leads to more\nconsumer spending, which leads to more economic growth. Consumer spending is\ngenerally the primary driver of U.S. economic growth, as it comprises\napproximately two-thirds of Gross Domestic Product (GDP). GDP is the benchmark\nfor economic growth and measures the value of goods and services produced in a\ngiven period. Likewise, a snowballing effect can occur in the opposite direction.\nIf consumer spending declines economic contraction continues until something\nhappens to reverse it. If something happens to derail consumer spending, that\u2019s\nwhere fiscal policy (spending by the U.S. government) and\/or monetary policy\n(the Federal Reserve reducing interest rates) can be used to put consumer\nspending back on track.<\/p>\n\n\n\n
Fiscal policy can include spending on specific programs by the federal government and stimulus programs featuring direct payments to individuals. Although a variety of factors influence interest rates, the Federal Reserve\u2019s monetary policy (buying and selling Treasury securities) strongly influences the movement of interest rates. The Federal Reserve targets the fed funds rate, a very short-term interest rate, which is the overnight borrowing rate between banks. When the Federal Reserve changes this rate, there is generally a rippling effect on other interest rates in the financial markets. Lower interest rates generally increase consumer spending. Higher interest rates generally lower consumer spending. The goal of the Federal Reserve \u2013 balance economic growth with acceptable levels of inflation.<\/p>\n\n\n\n
The table below shows U.S. economic\ngrowth as measured by the annual percentage change in GDP over the last 3\ndecades. As stated earlier, generally the U.S. economy chugs along unless there\nis a bump or shock to derail it. Over the last three decades economic growth\nwas positive in 27 out of 30 years. <\/p>\n\n\n\n
Annual Percentage Change in GDP<\/em><\/h4>\n\n\n\n
![\"Annual](\"https:\/\/blog.uwsp.edu\/cps\/wp-content\/uploads\/sites\/2\/2020\/11\/cbei20201201-a-1024x221.jpg\")
<\/a>Source: Bureau of Economic Analysis<\/em><\/figcaption><\/figure>\n\n\n\n An economic bump occurred in 1991\ndue to the Federal Reserve increasing interest rates and an oil price shock. By\n1990 the rate of inflation (as measured by the change in the Consumer Price\nIndex) exceeded 5%; the Federal Reserve countered by increasing the fed funds\nrate to lower consumer spending and reduce inflation. It might seem hard to\nbelieve given the low interest rates of the last decade, but in July 1990 the\nfed funds rate stood at 8.0%. An oil price shock also occurred as oil prices\nmore than doubled in 1990 in response to the Iraqi invasion of Kuwait.\nDecreasing inflation and a reversal of oil prices led to a slashing of interest\nrates by the Federal Reserve from 8.0% in July 1990 to only 3.0% in September\n1992. Low interest rates and the dot.com boom, the rise of internet and\ntechnology companies, paved the way for strong economic growth in the 1990s\nwith four years of economic growth of 4.0% or greater.<\/p>\n\n\n\n
The United States began the new century with a variety of bumps to the economy. The dot.com bubble was over, with over-hyped tech and internet stocks crashing back to reality. The technology heavy Nasdaq index declined over 75% between March 2000 and October 2002. The September 11, 2001, terrorist attacks contributed to the economic decline, as uncertainty and fear gripped the economy. In addition, the financial markets were plagued by accounting scandals (Enron). Although GDP growth was positive for the entire 2001 year at 1.0%, economic growth was negative for two quarters resulting in a minor recession. <\/p>\n\n\n\n
Fiscal and monetary policy were jointly used to combat the effects of the 2001 recession. The strong economy in the 1990s caused the Federal Reserve to gradually ramp up interest rates with the fed funds rate hitting 6.5% in May 2000. The economic decline in 2001 caused the Federal Reserve to change course, and the fed funds rate was reduced 10 times in 2001 to a year-end low of 1.75%. In 2003 the rate was lowered to 1.00%, and fiscal policy included the Bush Tax Cuts. In addition to lowering tax rates by income bracket, the Bush Tax Cuts lowered taxes on certain dividends (cash payments to shareholders) and long-term capital gains (gains on financial assets). The resulting combination of fiscal and monetary policy contributed to economic growth that lasted through late 2007.<\/p>\n\n\n\n
By\nlate 2007, a major shock to the U.S. economy was beginning. Credit was easy and\nmortgage backed securities allowed a transfer of risk from lenders to investors\nin mortgage backed securities. Although a myriad of factors contributed to the\nfinancial crisis, rising interest rates lit the fuse for the economic\nimplosion. As the economy rebounded from the 2001 recession and concerns over\ninflation grew, the Federal Reserve increased rates multiple times, from 1.00%\nin 2003 to 5.25% in 2006. The increasing rate not only dampened the economy,\nbut it also paved the way for increasing monthly mortgage payments on\nadjustable rate mortgages. The up-tick in interest rates resulted in many home\nbuyers not being able to pay monthly mortgage payments; many homes were put up\nfor sale. The result \u2013 home prices plummeted, defaults occurred on mortgage\nloans and mortgage-backed securities, foreclosures increased significantly, and\nthe economy and stock market began a decline in late 2007 that lasted until\nearly 2009 (the S&P 500 declined by nearly 60%).<\/p>\n\n\n\n
The\ndefaults on mortgage loans and mortgage backed securities led to a credit\ncrisis in the financial markets (banks did not have the liquidity to make\nloans) and a lack of\nconsumer and investment spending by business. The Federal\nReserve began slashing interest rates in an effort to counter the negative\neconomic impact of the financial crisis. In 2008 the Federal Reserve cut the\nfed funds rate 7 times; by year-end, the rate was at a historical low of 0.00-0.25%.\nFiscal policy included an $800\nbillion stimulus package that was implemented in 2009 and a temporary reduction\nin the Social Security withholding tax from 6.2% to 4.2% in 2011 and 2012. The resulting combination of fiscal and monetary\npolicy contributed to the longest period of economic growth on record \u2013 128\nmonths, from July 2009 through February 2020.<\/p>\n\n\n\n
In 2020 the economic shock was COVID-19. After a brief, temporary kick-up in economic growth in 2018 due to the 2018 tax cuts, the economy began slowing in 2019 and came to a screeching halt in 2020.<\/p>\n\n\n\n
Percent Change from Quarter One Year Ago – Real GDP<\/em><\/h4>\n\n\n\n
![\"Percent](\"https:\/\/blog.uwsp.edu\/cps\/wp-content\/uploads\/sites\/2\/2020\/11\/cbei20201201-b-1024x80.jpg\")
<\/a>Source: Bureau of Economic Analysis<\/em><\/figcaption><\/figure>\n\n\n\n The Bureau of Economic Analysis\n(BEA) began tracking quarterly GDP growth data in 1947. The 2020 second quarter\ndrop was the worst on record, and much greater than the worst quarterly decline\nduring the financial crisis. When comparing economic growth to the previous quarter\nof a year ago, the 2020 second quarter decline of -9.0% was significantly worse\nthan the largest financial crisis quarterly decline, which was -3.9% in the\nsecond quarter of 2009. Third quarter 2020 GDP was still 2.9% lower than a year\nago.<\/p>\n\n\n\n
Once again, a combination of fiscal and monetary policy was used to combat the effects of an economic shock. The Federal Reserve had already reduced interest rates 3 times in 2019 as the economy slowed due to trade wars and the effects of the tax cuts subsiding. However, in 2020, the fed funds rate was once again reduced to a historical low of 0.00-0.25% to counter the effects of COVID-19. In March, a $2 trillion fiscal stimulus package was passed that more than doubled the $800 billion stimulus package that was implemented in 2009 to overcome the financial crisis. The fiscal and monetary measures would help combat the problem, but they couldn\u2019t solve the problem.<\/p>\n\n\n\n
COVID-19 put the brakes on consumer spending, resulting in an economic downturn in 2020. Unfortunately, COVID-19 also became political. There became an illusion of an economic choice: 1) limit the growth of the pandemic by closing the economy down and minimizing economic growth, or 2) maximize economic growth by completely opening-up the economy and accepting the spread of COVID-19. In reality, COVID-19 was going to impact the economy, whether the economy was closed down or opened-up. The primary factor to future economic growth and minimizing any economic downturn was not about re-opening the economy, the primary factor was getting the virus under control. If Americans felt safe shopping, traveling and spending at retail businesses, consistent economic growth would return. The promising vaccine news in November will hopefully lead to a quick return to more normal conditions; however, even distribution of the vaccine will take some time. In the meantime, appropriate policy planning could allow fiscal policy to be used preemptively to offset the damaging economic effects of the virus on individuals and businesses, especially small business. <\/p>\n\n\n\n
The greater the unity by Americans in fighting the virus, the faster the virus will be controlled and the faster consistent economic growth returns. That\u2019s the key for this pandemic, and any future pandemic. COVID-19 was going to impact the economy, the question was how much and how long it would impact the economy. The quicker the virus was controlled then the quicker consistent economic growth would return. Exactly when that happens is the big question for 2021. <\/p>\n\n\n\n
For further information:<\/strong><\/p>\n\n\n\n
- GDP Growth (and other national data) from the Bureau of Economic Analysis: GDP Growth<\/a><\/li>
- Info on Economic cycles from the National Bureau of Economic Research: Economic Cycles<\/a><\/li>
- Info on inflation from the Federal Reserve Economic Database (FRED): FRED Database – Inflation<\/a><\/li>
- The fed funds rate since 1990 from the Federal Reserve: Fed Funds Rate<\/a><\/li><\/ol>\n\n\n\n
![\"Divisiveness](\"http:\/\/blog.uwsp.edu\/cps\/wp-content\/uploads\/sites\/2\/2020\/11\/cbei20201201c-1.jpg\")
<\/figure><\/div>\n\n\n\nCBEI Series: Divisiveness and the Economic Challenges of 2021<\/strong>
Challenge #1: COVID-19 and the 2021 Economy<\/a>
Challenge #2: Controlling U.S. Debt and Federal Budget Deficits<\/a>
Challenge #3: Manufacturing and Trade<\/a>
Challenge #4: Healthcare<\/a>
Challenge #5: U.S. Economic Leadership<\/a>
Challenge #6: Wages<\/a><\/p>\n\n\n\n<\/figure>\n\n\n\n - Info on Economic cycles from the National Bureau of Economic Research: Economic Cycles<\/a><\/li>
- GDP Growth (and other national data) from the Bureau of Economic Analysis: GDP Growth<\/a><\/li>
![\"Kevin](\"http:\/\/blog.uwsp.edu\/cps\/wp-content\/uploads\/sites\/2\/2019\/11\/CPS-BusEcon-Bahr-Kevin-683x1024.jpg\")
<\/figure>