‘Reduced Growth,’ ‘Major Rise in Energy Costs,’ ‘Fall-Off in Investment and Labor Force Growth,’ ‘Something Will Have to Give’—CIA on USSR, 1981

October 11, 2012 - 5:23 PM

The assessment painted a bleak picture for the newly elected American president. Economic growth had slowed, investment had diminished, and growth in the labor force had declined. Oil and coal production were down and energy costs were up.

The situation made it impossible for the government to continue to increase defense spending or improve the lot of consumers.

“Simply stated,” the assessment concluded, “something will have to give.”

The report was published in January 1981, just as President Ronald Reagan was about to take office. But it was not about the United States. It was the Central Intelligence Agency’s classified assessment of the Soviet economy.

As Reagan prepared to begin his first term, the CIA concluded that the economic prospects in the USSR were “gloomier and policy choices more difficult than at any time since Stalin’s death.”

The CIA’s "key judgments" included: “During the past few years, the USSR has experienced: A major slowdown in oil production growth and a decline in coal production. A major rise in energy costs. A fall-off in investment and labor-force growth.”

“Their problem,” said the CIA, “is that annual increments to national output in the early 1980s will be too small to permit: The increases in investment in industry, agriculture, and transportation needed to revive the economy in the latter part of the decade. Continued growth in defense spending at the rates of the past (4 to 5 percent per year on average since 1965). Greater support to Eastern Europe. Any substantial increase in consumer welfare. Simply stated, something will have to give.”

Before the end of that decade, the Soviet Union collapsed. In November 1989, the Berlin Wall came down. The United States and its allies won the Cold War.

More than two decades have passed.  Here is new data that needs to be assessed:

__According to the U.S. Energy Information Agency, U.S. domestic crude oil production averaged 7.355 million barrels per month in 1990. By 2011, that had dropped to an average of 5.658 million barrels per month.

__In 1990, coal production in the United States was 1.029 billion short tons. In 2008, it peaked at 1.172 billion short tons. By 2011, it had dropped to 1.096 billion short tons. In the first eight months of 2012, it was 684.8 million tons, down from the 718.8 million tons produced in the first eight months of 2011.

__In November 1989, when the Berlin Wall fell, the average price for a gallon of unleaded gasoline in the United States was 99.9 cents a gallon. This August, it was about $3.71. Had the price for a gallon of unleaded gas increased at the same rate as overall inflation since 1989, it would now cost about $1.86.

__In November 1989, according to BLS, the average price for a kilowatt-hour of electricity was 8.0 cents. Almost thirteen years later, in April 2002, it was still only 8.8 cents. In August, it was 13.3 cents. Had the price of a kilowatt of electricity risen only at the overall rate of inflation since 2002 it would now be only 11.27 cents, not 13.3 cents.

__In 2011, according to the Bureau of Economic Analysis, real gross domestic private investment declined to just 80.2 percent of what it had been in 2005, while real gross domestic government investment increased to 101.9 percent of what it had been in 2005. Overall investment—including investment by both the private sector and government—declined to only 83.6 percent of what it was in 2005. Government is “investing” more, but that “investment” does not nearly make up for the decrease in investment by the private sector.

__Foreign aid distributed by the U.S. government hit a ten-year low of $11.427 billion in 2008, according to the U.S. Treasury. By 2011, it had increased 80 percent to $20.599 billion.

__In fiscal 2002, the year after the 9/11 terror attacks, the U.S. spent $402.3 billion in constant inflation-adjusted 2005 dollars on national defense, according to the Office of Management and Budget. In fiscal 2012, the U.S. spent $604.7 billion on national defense in constant inflation-adjusted 2005 dollars. Since 2002, real national defense spending has increased by 50 percent.

__In November 1989, 66.6 percent of the American civilian population age 16 or older participated in the labor force, meaning they either had a job or were actively seeking one. By September 2012, that had dropped 63.6 percent. In November 1989, there were 124,637,000 Americans in the civilian labor force. From November 1989 to November 1999, the labor force grew by 15,388,000 to 140,025,000—an average annual increase of about 1.54 million. From November 1999 to November 2009, the labor force grew an additional 13,808,000 to 153,833,000—an average annual increase of about 1.38 million. From November 2009 to September 2012, the labor force grew by 1,230,000 to 155,063,000—an average monthly increase of about 37,273, or an annual pace of only 447,276. In August, the number of Americans not in the labor force—meaning they are at least 16 years old, are not in the military or an institution, and are not looking for a job—hit a record high of 88,921,000.

__In the decade from 1981 through 1990, the average annual growth of real Gross Domestic Product in the United States was 3.27 percent, according to the Bureau of Economic Analysis. In the decade from 1991 through 2000, it was 3.42 percent. Over the past 11 years, from 2001 through 2010, it has been 1.56 percent—not even half the average of the previous two decades. In 2011, it was 1.8 percent.

__In 1989, 31.528 million Americans—or 12.8 percent of the nation’s population—lived below the poverty level, according to the Census Bureau. In 1999, 32.791 million Americans—or 11.9 percent of the population—lived below the poverty level. In 2009, 43.569 million Americans—or 14.3 percent of the population—lived below the poverty level. In 2011, 46.247 million Americans—or 15.0 percent of the population lived below the poverty level.

__At the end of November 1989, according to the U.S. Treasury, the total debt of the U.S. government was $2,923,589,000,000. At the end of November 1999, it was $5,693,600,000,000. At the end of November 2009, it was $12,113,048,000,000. At the close of business on Tuesday, it was $16,167,932,295,919.57.

Since Berlin Wall came down, the U.S. government has increased its debt by $13,244,343,295,919.57. That works out to an additional $115,226 in debt for each of the 114,328,000 households the Census Bureau estimated there were in the United States as of July.

In January 1981, when it looked at the Soviet Union and saw a reduced rate of economic growth, a decline in oil and coal production, a rise in energy costs, and a fall-off in investment and labor force growth, the CIA assessed that “something will have to give.”

History proved the CIA right. Something did give.