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Chapter 1

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

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Chapter 1

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  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. 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

  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

  8. 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 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

  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 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

  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

  16. 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 nation’s 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

  22. 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

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