Download A Brief Economic History of the United States

Chapter 1
A Brief Economic History of the
United States
The National Railroad Network
• The completion of the transcontinental railroads
– 1850
The United States had 10,000 miles of track
– 1890
The United States had 164,000 miles of track
• This made possible mass production, mass
marketing, and mass consumption, which
brought the country together into a huge social
and economic unit
• This made it possible to go almost anywhere in
the U.S. by train except in the south (i.e.,
transcontinental lines by-passed the south
– This severely retarded its economic
development well into the 20th century
The Age of the Industrial Capitalist
• The last quarter of the 19th century was
the age of the industrial capitalist
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–
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–
–
Carnegie (steel)
Du Pont (chemicals)
McCormick (farm equipment)
Rockefeller (oil)
Swift (meat packing)
Industrial Development
• By the turn of the 20th century
– America was primarily an industrial
economy
• Fewer than 4 of 10 people lived on farms
• The U.S. was among the world leaders in
production of steel, coal, steamships, textiles,
apparel, chemicals, and agricultural machinery
The Great Depression
• Started with the August 1929 recession
– Had the stock market not crashed and had
the federal government acted more quickly,
this could have been a fairly short recession
• The economy hit bottom in March, 1933
– National output was one third what it was in
1929
– Official unemployment was 25 percent
– 16 million Americans were out of work
• The population was less than ½ its present size
The Recession of 1937-38
• A lot of credit goes to Franklin D. Roosevelt’s
“New Deal” administration for the 1933 – 1937
expansion
– Banks were reopened
– The Government confiscated America’s gold
– The Securities and Exchange Commission (SEC)
came into being
– The Federal Deposit Insurance Commission (FDIC)
was set up
– An unemployment insurance benefit program was
started
– The Social Security System was started
• This was the most significant reform
What Went Wrong?
• The Federal Reserve greatly tightened credit
– This reduced the money supply
• The Roosevelt administration suddenly got the
urge to balance the budget
– This would have made sense during an economic
boom but not when the unemployment rate was
12%
– This caused
• Industrial production to fall by 30%
• Five million more people to be put out of work
What Went Wrong?
(Continued)
• In April, 1938 the Federal Reserve and the
Roosevelt Administration reversed course
• War broke out in Europe
• America mobilized in 1940 – 41 and then
entered the war on December 7, 1941
• America was back on the road to recovery
What Finally Brought the
United States Out of the Great
Depression?
• The massive federal government
spending that was needed to prepare for
and fight World War II?
– This was deficit spending (borrowed money)
– In other words the federal budget ran a
deficit
The End World War II
• The country that emerged from WW II
was very different from what it had been
four years earlier
– Prosperity had replaced depression
– Inflation was now the number one economic
problem
– The U.S. accounted for ½ of the world’s
manufacturing output
• With just 7 percent of the world’s population
– The U.S. and the Soviet Union were the only
superpowers left standing
The Suburbanization of
America After WW II
• Twelve million men and several hundred
thousand women returned to civilian
lives
• There was a tremendous shortage of housing
• The V.A. offered affordable mortgages
– One percent interest and nothing down
– The FHA supplemented this need
• The only place to build was outside cities
– This required roads and cars
– The Federal Government subsidized an interstate
highway network along with state freeways, state
highways, roads, and local streets
1940s and 1950s
• One big construction boom
• The automobile industry prospered
– Supplied America’s pent up demand and
became the world’s leading exporter of cars
• Birth rates shot up
• Congress passed the G.I. Bill of Rights
(1944)
– Provided loans for home mortgages, business,
and education
The 1950s: The Eisenhower Years
• The advent of television and the Korean
War stimulated the economy
• The Eisenhower administration
– Ended the Korean War and inflation
– Made no attempt to undo the legacies of the
New Deal
– The role of the federal government as a
major economic player became a permanent
one
The Soaring Sixties: The Years of
Kennedy and Johnson
• The country was in recession when Kennedy
was elected
– He was assassinated and replaced by Johnson in
1963
• Johnson enacted a tax cut planned by Kennedy
– The tax cut and the spending on the Vietnam war
ended the recession
• The federal budget deficit and the money
supply grew
• Inflation began and lasted until the mid-80s
The Soaring Sixties: The Years of
Kennedy and Johnson
(Continued)
• Johnson enacted three programs in 1965
that would have profound long-term
effects
– Medicare
– Medicaid
– Food stamps
The Sagging Seventies: The
Stagflation Decade
• Nixon became President in 1968
• The decade began with the problems of
inflation and ending the Vietnam war
– Wage and price controls were initiated
– Ford became President when Nixon
resigned
The Sagging Seventies: The
Stagflation Decade
(Continued)
• 1973 Economic disaster began
– OPEC quadrupled oil prices
– The U.S. was hit by the worst recession since
the 1930s
– The U.S. faced double digit inflation
• The U.S. experienced stagflation
– Economic stagnation + inflation
The Sagging Seventies: The
Stagflation Decade
(Continued)
• Jimmy Carter was President in 1976
–
–
–
–
He presided over mounting budget deficits
The money supply grew rapidly
Inflation rose almost to double digit levels
He faced the Iranian revolution in 1979
• Gasoline prices went through the ceiling
• In October, 1979 the Fed stopped the growth of the money
supply
– By January, 1980 the country was in recession
• The inflation rate was 18 percent
• The nation’s productivity growth was at one percent, one
third the postwar rate
The1980s: The Age of Reagan
• Supply-Side vs. Keynesian economics
– The objective of both is to stimulate output
• Keynesian economics
– The government should spend more money
– This would give business the incentive to produce
more
• Supply-Side economics
– The government should cut tax rates
– Consumers would then have
• More incentive to work
• More of their own money to spend and business
would produce more
The1980s: The Age of Reagan
(Continued)
• The country was in a severe recession 1981
•
•
•
•
It was the worst since WW II
Unemployment reached nearly 11 percent in 1982
Inflation had been brought under control
Unemployment rates began falling
– They seemed to stick around 6 percent
– Deficits were a problem: $79 billion in 1981 and
$290 billion in 1992
– Personal income taxes were cut
– Business taxes were cut
The “New Economy” of the Nineties
• It was a decade of major technological
change
– Marked by low inflation, low
unemployment, and rapidly growing
productivity
– The 1920s and the 1960s could be similarly
described
– One of the most prosperous decades ever
– The stock market soared
• The length of the economic expansion ended in
March, 2001 (a period of 120 months) an all-time
record
The “New Economy” of the Nineties
(Continued)
• The last two decades our economy has become
increasingly integrated with the global economy
• This has resulted in
– An exodus of jobs making shoes, electronics, toys and clothing
to developing countries
– Service work like writing software code and processing credit
card receipts shifted to low-wage countries
– White collar jobs now moving offshore
– Routine service and engineering tasks are now going to India,
China, and Russia
• Educated workers are paid a fraction of what their American
counterparts earn
The “American Economy” in the
New Millennium
• 2001 was not a good year for America
– March, 2001 the 10 year economic expansion
ended (a recession started)
– The stock market started down
– Unemployment began to creep up
– 9/11 occurred
– Unbridled optimism gave way to uncertainty
• 2003 the war with Iraq began