Download The Second Brief History of the United States

The Second Brief History of the
United States
Things to remember from last time
• 2nd Industrial Revolution launches US to #1
GDP
• Prosperity in 1920’s leads to greater crash in
1929
▫ The stock market crash reduced the economy
by about 50%
 The crash was caused by overspeculation
• The Great Depression occurs
Herbert Hoover – lengthened the
Depression
• Herbert Hoover enacted
higher taxes to boost the
government’s budget deficit
• He also signed the SmootHawley Act
– Charged high tariffs on
foreign goods
– Other countries retaliated
• Unemployment – 25%, 1/3 of
the money supply was gone
FDR – Created the New Deal which
made some jobs
• Franklin Delano Roosevelt
created the New Deal
which increased the size of
the government and their
involvement in the
economy
• Helped boost the U.S.
economy out of the
depression
• Deficit spending was an
idea espoused by John
Maynard Keynes, the
father of modern macro
Depression Data
Table 2:
Depression 1929
Data[33]
Real Gross
National
101.4
Product
(GNP) 1
Consumer
Price Index
122.5
1931
1933
1937
1938
1940
84.3
68.3
103.9
103.7
113.0
108.7
92.4
102.7
99.4
100.2
109
75
69
112
89
126
46.6
42.7
32.2
45.7
49.3
55.2
5.24
2.42
1.67
3.35
3.18
4.02
2
Index of
Industrial
Production
2
Money
Supply M2
($ billions)
Exports ($
billions)
Unemploy
ment (% of
WWII
• The main reason for the
United States’ economy
flourishing through the 1940’s
was the war economy driven
by WWII
• Six million women became
new workers
• After WWII, the suburbs grew
out of pent-up demand for
new housing
• Eisenhower built the interstate
highway system, strengthening
our infrastructure
Postwar prosperity
• The GI Bill encouraged
many veterans to invest
in their education.
▫ Our productivity was
increased greatly and
our GDP grew
• Kennedy cut taxes and
the US went through a
kind of golden age of
economic growth
▫ Gave people an
opportunity to focus on
other things
 Music, Politics, being a
hippie, etc
Great Society
• Under Lyndon Johnson, the
government took greater control of
the economy
▫ The Great Society focused on
Medicare, Medicaid, welfare
initiatives, etc.
▫ Johnson also wanted to complete
the war in Vietnam, continue Cold
War
• This is a classic example of guns vs
butter
Inflation in the 1970’s
• Under Presidents Nixon and
Ford in the 1970’s the US
suffered from increasing prices
▫ Inflation – the increase in
currency causes increasing
prices, while the value of
currency remains constant or
decreases
• Prices went up because of
supply shocks
OPEC
• Organization of Petroleum
Exporting Countries
• Founded in the late 60’s
▫ Saudi Arabia, Venezuela, Iraq
• The US oil production peaked
in 1970, so we had to rely on
the higher prices of OPEC.
• These higher prices were felt
across the economy
• The government experimented
with price controls to stop
inflation
▫ Ford: “WIN” (Whip Inflation
Now!)
Reaganomics
• In the early 1980’s there were
back to back recessions
▫ Prices stabilized
• Reagan advocated for lowering
taxes for the rich, lowering
borrowing rates, and less
intrusion of trade
▫ Basically, the rich got very rich and
the poor stayed sort of poor
• This is the first use of “trickle
down” economics
▫ Let the rich control the wealth, and
they will put it to the best use, and
the money will eventually trickle
down the economy into the pockets
of the poor
Gini index
• Gini index – remember it
measures the inequality of the
economy
▫ 0 means perfect equality
▫ 1 means 1 person has all of the
money
• Does trickle down really work?
▫ Does income equality even
matter?
 Remember why minimum
wage is ineffective
The 90’s
• Clinton carried over some of
other Democratic President’s
ideas about economy, but
largely let the economy loose
▫ Like Reagan
• In addition to some sweet
music and hairstyles, the 90’s
provided a growth in the
economy due to the
Technological Revolution
▫ The advent of computers as a
tool for businesses and
consumers
▫ The internet also aided in this
revolution
2001 – The Dot Com Recession
• In late 2000 and early 2001,
many new businesses were
started because of the internet.
• Stock speculation was high, and
people rode the market wave on
new innovative companies
▫ Like Geocities, Hotmail, amazon,
Ebay, pets.com
• The market crashed once it was
realized that ordering pets and
groceries online was a dumb
idea
▫ Trust was lost in the internet: loss
of trust -> crash
Dot Com Bubble Burst
• Bubble
▫ Caused by “irrational
exuberance” – Greenspan
 Stock traders were
overoptimistic about the
impact of new start-up
websites
▫ When the bubble becomes over
inflated it pops causing a
market crash
The survivors prospered
• Certain investors and CEOs
survived and made goo-gobs of
money in the second half of
the 2000s
• The war economy under
George W. Bush also led to
prosperity
The 2008 Housing Market Crash
• We’ll get to this next week