A Brief Economic History of the United States

1
Chapter 1

• A Brief Economic History of the United States

2
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

3
The Age of the Industrial Capitalist

• The last quarter of the 19th century was the age
  of the industrial capitalist
• Carnegie (steel)
• Du Pont (chemicals)
• McCormick (farm equipment)
• Rockefeller (oil)
• Swift (meat packing)

4
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

5
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

6
The Recession of 1937-38

• A lot of credit goes to Franklin D. Roosevelts
  New Deal administration for the 1933 1937
  expansion
• Banks were reopened
• The Government confiscated Americas 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

7
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

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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

9
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

10
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 worlds
  manufacturing output
• With just 7 percent of the worlds population
• The U.S. and the Soviet Union were the only
  superpowers left standing

11
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

12
1940s and 1950s

• One big construction boom
• The automobile industry prospered
• Supplied Americas pent up demand and became the
  worlds 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

13
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

14
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

15
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

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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

17
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

18
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 nations productivity growth was at one
  percent, one third the postwar rate

19
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

20
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

21
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

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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

23
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