No Early 90s recession

[<Alexander>]

Let's assume that the US government's Domestic policies remain the same throughout the 80s, with the exception of the United States Congres shooting down the legislation pertaining the deregulation of the banking/financial sectors during the Reagan era (which in turn lead to the 1987 stock market crash, which spurred the early 90s recession). What would have happend in the United States, Canada and The UK assuming that the early 1990s recession (1990-1993) didn't happen? In Canada and the The UK in particular, the countries neoliberal reforms were starting to show signs of success. The Economies were growing at a steady rate and becoming competitive again while the high levels of unemployment that piqued in both countries in 1982 (The UK at over 13% in the middle of 1982 With Canada's highest rate being over 14% in the the summer of that year) had both decreased to around half their 1982 levels and productivity was increasing again. Before the recession hit, both countries had their annual rates back to 1979 levels and without the recession or a substantial reduction in growth rates, unemployment seemed likely to dip further. Particularly since Canada and the UK didn't go as far as to deregulate their banking sectors during that period as well.

Now this begs the question, how would this effect the governments in power at the time by giving them more material success in the early 90s to boast about?

-In Canada would Brian Mulroney not suffer the erosion of support he had in in the OTL and if so, would a stronger economy and more electoral support for the PC's be enough to keep the Reform Party at bay?. Would the PC's try and enact the OTL Austerity that the Liberals did in 1995 to pay down the debt incurred by financing the massive debt transfer payments from the Trudeau Era, or would they continue the policy of small incremental cuts and try to grow the economy to make the debt more sustainable?

-In the UK, would this help avoid the whole Black Wednesday debacle due to the stronger economy and a more stable Unemployment rate? Would this also reduce the chances of John Major putting forward the exceedingly unpopular VAT on fuel? Would this improve the Conservatives chances of re-election in 1996-1997?

-Would the continuation of a stable economy in the early 90s be enough to get George H.W Bush re-elected in 1992, or was losing to Clinton Inevitable?

-Would this lead to a more conclusive vindication of Mulroney and Thatcher's polices and lead them to be regarded as less divisive figures today?

-How much bigger would the GDP's of the three countries be before the 2008 recession and would unemployment be any lower between 2000-2008 than it was in the OTL?

 

[Apollo 20]

To avoid this recession, you need to eliminate the Iraqi invasion of Kuwait and the doubling of oil prices that followed. You may also need to get rid of the end of the Cold War, which resulted in massive defense cutbacks in the US. The recession ended in 1991, but the jobless recovery that followed was what contributed to political dissatisfaction.

 

[<Alexander>]

To avoid this recession, you need to eliminate the Iraqi invasion of Kuwait and the doubling of oil prices that followed. You may also need to get rid of the end of the Cold War, which resulted in massive defense cutbacks in the US. The recession ended in 1991, but the jobless recovery that followed was what contributed to political dissatisfaction.

Maybe Saddam dies shortly after the Iran-Iraq war as either the product of a bombing or assassination. The new leader of Iraq is more of a pragmatist and doesn't think that invading Kuwait will end well for Iraq. Instead he decides to focus on continuing modernization efforts while trying to normalize Iraq's relations with its neighbors during the 90s and early 2000s. Eventually mass public opinion is turned against him in the early 2000s and democratic elections are held to replace him. Another option is maybe the Kuwaiti government becomes concerned with Iraq's attempt at expansion during the Iran-Iraq War, which leads them to cozy on up to the US government to get them to station troops in Kuwait for the sake of defense and Reagan or Bush gladly accepts the deal. The second scenario would make Saddam unlikely to opt to invade Kuwait since he'd be directly attacking US forces in the process of an invasion. Plus even if Saddam invades at that point, its unlikely that Iraqi forces would be able to make much progress with an invasion into Kuwait and would probably be swiftly repelled by US forces + air strikes without being able to make any significant incursion into Kuwait. This would make Iraq more vulnerable to retaliation from the US/Coalition forces after the attempted invasion. It would also be likely to see increased investment in Kuwait during this timeline since the US military presence would make Kuwait a more secure place to invest in and reduce the chances of a significant decline in oil production.

The Cold war was really already ending that point Gorbachev had normalized Soviet relations with the rest of the World and was gradually trying to modernize/liberalize the countries economy by letting the free market in. So I think that keeping the Cold war going is a bit too much of a deviation from the original timeline, the biggest change I could see happening in this period is a more stable Russian Transition to to a market based economy. Maybe the August 1991 coup is prevented and Gorbachev is able to implement their transformation into the Union of Sovereign States. This leads to a more stable and gradual transition and doesn't cause the Soviet Union to cut back on international trade like it did in the OTL because of the coup. This prevents the Economic crises in countries like Finland, that suffered because of temporarily losing 70% of its trade with the Soviet Union. That's the best case scenario I can imagine with the limited POD of 1990-1993 for The Soviet Union.

So now, assuming that this recession is avoided. How do the countries affected by the recession fare compared to the OTL and do the incumbent governments avoid the erosion of support that they suffered in the OTL as well?

 

[GeographyDude]

To avoid this recession, you need to eliminate the Iraqi invasion of Kuwait and the doubling of oil prices that followed. . .

It was another "financial industry" bubble, overextended in real estate as I remember. Then any hit to the economy, the whole house of cards comes tumbling down.

Remember Savings & Loans? No more S & Ls.

will look for link about period, whether it agrees with this or not

 

[GeographyDude]

Here's a Los Angeles Times article from Oct. '92.

It's mainly about the stock market, but still damn interesting.

http://articles.latimes.com/1992-10-18/business/fi-781_1_wall-street-demands

 

[Apollo 20]

It was another "financial industry" bubble, overextended in real estate as I remember. Then any hit to the economy, the whole house of cards comes tumbling down.

Remember Savings & Loans? No more S & Ls.

will look for link about period, whether it agrees with this or not

I had actually forgotten about the S&L mess in responding, but it does play a part here. It weakened things such that when the oil price increase happened, things fell off a cliff fast. As in virtually overnight. As I recall, business in the firm I worked in in NYC slowed to a trickle within a month or two. These were corporate transactions like M&A, bond and stock offerings. It all goes to my point that the 1990 recession was about more than a cyclical downturn. There were some big things going on in the world that drove it and that makes it hard to get rid of looking back on it, even while recognizing that the cyclical business cycle also played a role. 1983 to 1990 was, until that point, the longest peacetime economic expansion in US history.

 

[GeographyDude]

As I recall, business in the firm I worked in in NYC slowed to a trickle within a month or two. These were corporate transactions like M&A, bond and stock offerings. It all goes to my point that the 1990 recession was about more than a cyclical downturn. There were some big things going on in the world that drove it and that makes it hard to get rid of looking back on it, even while recognizing that the cyclical business cycle also played a role. 1983 to 1990 was, until that point, the longest peacetime economic expansion in US history.

and thus due for some fundamental corrections?

I've heard the '90s boom and expansion as companies finally getting IT right, as one big factor. I think companies still don't get IT right!

 

[Dunning Kruger]

Let's assume that the US government's Domestic policies remain the same throughout the 80s, with the exception of the United States Congres shooting down the legislation pertaining the deregulation of the banking/financial sectors during the Reagan era (which in turn lead to the 1987 stock market crash, which spurred the early 90s recession). What would have happend in the United States, Canada and The UK assuming that the early 1990s recession (1990-1993) didn't happen?

The stock market crash was the result of derivatives and portfolio strategies (portfolio insurance) that backfired in a big way. There were some economic issues related to interest rates and the dollar leading up. But by and large, it was simply a matter of too many people trying to sell the same things too fast and the market couldnt handle it.

People also forget that the 80s werent quite as great as people perceive. There was this persistent overhang of gloom that would occassionally reassert itself. Homelessness was pervasive. Crime and drugs were peaking. Inflation had declined substantially but it was felt still not quite tamed.

The S&L crisis was the primary issue related to deregulation as they were allowed to expand the pool of potential investments to include junk bonds, which didnt work so well. While the S&L crisis was a major issue, I wouldnt say the recession was due to deregulation in the same way you might say it about 2008-2009. In fact, I would say deregulation was an important factor for the economy's strong performance from 1982-2007.

-Would the continuation of a stable economy in the early 90s be enough to get George H.W Bush re-elected in 1992, or was losing to Clinton Inevitable?

-How much bigger would the GDP's of the three countries be before the 2008 recession and would unemployment be any lower between 2000-2008 than it was in the OTL?

Bush would have won had the economy rebounded more quickly in 1991-1992. War winning leaders rarely lose and as of late 1991, his re-election seemed inevitable.

I dont think the GDP's of the respective countries would have been any bigger. Recessions are normal self-correcting mechanisms and as they go, this one was rather mild at least in the US. Britain, Germany and Japan are very different matters though.

 

[<Alexander>]

I wouldnt say the recession was due to deregulation in the same way you might say it about 2008-2009. In fact, I would say deregulation was an important factor for the economy's strong performance from 1982-2007.

I'd agree as well. My opinion is that generally deregulation is a good thing, but banking deregulation seems to be the major exception to the rule. Even Milton Friedman who championed deregulation at the time seemed to think it was a mistake to deregulate banks. I think the success of the Canadian and Swedish economies at enduring the 2008 recession proved that as well since they pursued neoliberal deregulation of their economies during the 80s/90s to early 2000s, but kept their banks fairly regulated. The UK in comparison started the process of deregulating its banks under Blair, which appeared to have left the UK in a worse position post recession than Canada or Sweden was after the crash.

Also, if the economy continues to rebound in the early 90s and Bush does seem poised win re-election, what happens to Ross Perot the 1992 elections? Will Perot still get enough support to be in the debates, or does Bush's increased support make Perot's support dissolve during the election? Also if Perot isn't as big a deal in the 1992 election does that make the formation of the Reform Party in America less likely?

 

[Dunning Kruger]

I'd agree as well. My opinion is that generally deregulation is a good thing, but banking deregulation seems to be the major exception to the rule. Even Milton Friedman who championed deregulation at the time seemed to think it was a mistake to deregulate banks. I think the success of the Canadian and Swedish economies at enduring the 2008 recession proved that as well since they pursued neoliberal deregulation of their economies during the 80s/90s to early 2000s, but kept their banks fairly regulated. The UK in comparison started the process of deregulating its banks under Blair, which appeared to have left the UK in a worse position post recession than Canada or Sweden was after the crash.

Also, if the economy continues to rebound in the early 90s and Bush does seem poised win re-election, what happens to Ross Perot the 1992 elections? Will Perot still get enough support to be in the debates, or does Bush's increased support make Perot's support dissolve during the election? Also if Perot isn't as big a deal in the 1992 election does that make the formation of the Reform Party in America less likely?

Which part of deregulation? Taking banking back to pre-1978 would be a huge mistake. Banks essentially had local oligopolies due to interstate banking regulation. Interest rates on everything including credit cards, home loans, auto loans and personal lines of credit were much higher relative to underlying treasury rates. Further, given advances in communications, it gets to be very difficult to avoid deregulation. The internet disintermediates so much, including money.

The problem with banking isnt deregulation. It's that lawmakers and overseers havent kept up with all the changes. Greenspan himself said he believed the banks would self regulate risk in a Randian fashion. Epic stupidity particularly when something as simple as clearing corporations for the shadow banking system would have alleviated so much.

But to the original post, much of this wasnt an issue yet in 1992, the S&L crisis excepting, which should have served as a wake up call to the risks. And then Long-Term Capital in 1998 was another canary in the coal mine that went ignored. So, I dont think deregulation was a huge issue outside of the S&L crisis and that was relatively, if expensively, contained by the government rescue.

 

[GeographyDude]

Which part of deregulation? Taking banking back to pre-1978 would be a huge mistake. Banks essentially had local oligopolies due to interstate banking regulation. Interest rates on everything including credit cards, home loans, auto loans and personal lines of credit were much higher relative to underlying treasury rates.

Honest to gosh, when I was a kid in the 1970s regular savings accounts paid "the highest interest allowed by law," which was around 4%, plus no fees whatsoever.

 

[GeographyDude]

Five Years After The Crash, Wall Street and Main Street Again Seem : Out of Touch
Los Angeles Times, Tom Petruno, Oct. 18, 1992.

http://articles.latimes.com/1992-10-18/business/fi-781_1_wall-street-demands

What are Allmon's credentials? At age 71, he has seen plenty of market cycles. But it's also worth noting that he has been bearish since just before the 1987 crash. While he got his clients out of the market ahead of the crash, he missed the huge profits in the 1988-89 rally that followed.

In contrast, many other investors who stayed in stocks during the crash or re-entered the market afterward have profited handsomely. That experience appears largely responsible for Wall Street's steadfast patience with stocks over the last two years despite the morose economy: Investors have come to believe that any severe drop in stocks is a buying opportunity--because since 1987, all have been.

I think this goes a good way towards explaining why investors, and esp. Wall Street professionals, are herd animals. And heck, if the economy really tanks, we're all going to be unemployed.

 

[darklordoftech]

- Bush Sr. becomes a two-term President.
- More teenagers have jobs throughout the 90s and 00s. The early 90s recession was the end of the majority of teenagers having jobs.

 

[<Alexander>]

- Bush Sr. becomes a two-term President.
- More teenagers have jobs throughout the 90s and 00s. The early 90s recession was the end of the majority of teenagers having jobs.

Also, with 18 years of continued growth and economic stability (counting out the shallow 2000-2001 recession) before the crash, would America, UK and Canada be more resilient to the rescission and come out of it stronger than the OTL, or would it make little to no difference?

 

[GeographyDude]

The early 90s recession was the end of the majority of teenagers having jobs.

did not know this and would like a reference on this if possible.

I certainly think there should be jobs available for teenagers if they so choose. And I know unemployment among African-American teens is significantly higher than average.

 

[GeographyDude]

Also, with 18 years of continued growth and economic stability (counting out the shallow 2000-2001 recession) before the crash, would America, UK and Canada be more resilient to the rescission and come out of it stronger than the OTL, or would it make little to no difference?

More resources to more confidently run Keynesian economics?

 

[darklordoftech]

did not know this and would like a reference on this if possible.

I certainly think there should be jobs available for teenagers if they so choose. And I know unemployment among African-American teens is significantly higher than average.

Here's a source: http://www.pewresearch.org/fact-tank/2015/06/23/the-fading-of-the-teen-summer-job/

Obama asked all the states to raise their school leaving age to 18, which I think would only further decrease the value of a high school diploma.

 

[Dunning Kruger]

Also, with 18 years of continued growth and economic stability (counting out the shallow 2000-2001 recession) before the crash, would America, UK and Canada be more resilient to the rescission and come out of it stronger than the OTL, or would it make little to no difference?

If anything it would be the opposite. The longer the time between recessions the greater the inefficiencies, greater the propensity to take risk/overlook risk.

 

[GeographyDude]

Here's a source: http://www.pewresearch.org/fact-tank/2015/06/23/the-fading-of-the-teen-summer-job/

Thank you for the source.

I've read that following downturns companies try to run with fewer employees. For example, from the '80s, using one administrative assistant for each two executives, this kind of thing. Maybe in some cases this is a positive change, in others not so much.

 

[GeographyDude]

http://www.pewresearch.org/fact-tank/2015/06/23/the-fading-of-the-teen-summer-job/

The decline of summer jobs is, in fact, a specific instance of the decline in overall youth employment, a trend that’s also been observed in other advanced economies. Researchers have advanced multiple explanations for why fewer young people are finding jobs: fewer low-skill, entry-level jobs than in decades past; more schools restarting before Labor Day; more students enrolled in high school or college over the summer; more teens doing unpaid community service work as part of their graduation requirements or to burnish their college applications; and more students taking unpaid internships, which the Bureau of Labor Statistics does not consider being employed.

Maybe good for the businesses.

But decline in overall youth employment, not good for the young people.