"The crisis of the seventies was finally dealt with in 1979 when Carter appointed Paul Volcker as Chairman of the Federal Reserve; it was the opening salvo of a 'new class war.' Late in 1979 Volcker dramatically tightened the money supply by boosting interest rates, thus cutting borrowing power and buying power, and diminishing economic activity in general. This monetarist squeeze accelerated when Regan took office, until interest rates, which had been 7.9 percent in 1979, reached 16.4 percent in 1981. As a direct result, the U.S. economy plunged into its most severe recession since the Great Depression.
In the eyes of Paul Volcker this was a good thing. For the economic stagnation and low profits of the seventies to be vanquished the American people would have to learn how to work harder for less; Regan's plan was to cut taxes on the rich, gut welfare, and attack labor. As Volcker told the New York Times: 'The standard of living of the average American has to decline...I don't think you can escape that.'
In 1981, as the recession was reaching new depths and many in Congress were calling for relief, Volcker again explained the utility of his artificial economic disaster: 'in an economy like ours with wages and salaries accounting for two-thirds of all costs, sustaining progress [in price reduction] will need to be reflected in moderation o growth of nominal wages. The general indexes of worker compensation still show relatively little improvement, and prices of many services with high labor content continue to show high rates of increase.' The chairman's goal was labor discipline. The recession- though hard on many businesses, particularly small firms- had not yet achieved its purpose: wages were still rising.
Not until the behemoth First Illinois Bank collapsed under the weight of its bad loans and Mexico seriously threatened a default on its $90 billion foreign debt did Volcker relent and open the Fed's spigots, easing interest rates and making credit available throughout the economy, thus stimulating economic activity.
But according to Harrison and Bluestone, 'The deep recession did what it was designed to. With more than ten million people unemployed in 1982 it was impossible for organized labor to maintain wage standards let alone raise them. Reductions in wages rippled from one industry to the next and from the center of the country outward. The real average weekly wage fell more than 8 percent between 1979 and 1982, and failed to recover at all in the next five years. Essentially, with wage growth arrested by unemployment, what growth occurred during the Reagan period rebounded mostly to the profits side of the capital-labor ledger.'" -From, "Lockdown America" By: Christian Parenti
[SIDEBAR: Draw any parallels??? Do you see why I wrote in a previous post that, "We are NOT in a recession?"]