Chap001-A Brief Economic History Of The United States

8/14/2019 Chap001-A Brief Economic History Of The United States

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Chapter 1

A Brief Economic History of the

United States

Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved.


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Chapter Objectives How we did we grow from a primarily

agriculture nation of 4 million people to anindustrial power of 300 million?

How the Civil War, World War I, and WorldWar II affected our economy

How our nation was shaped by suburbanizationafter World War II

What major factors affected our economic

growth decade by decade from the 1920s intothe new millennium

What the new economy is and how it differsfrom the old economy

1-2Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved.


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Introduction: A Study in Contrast(The United States)

In the midst of plenty

Expanding

technologies Losing the trade war

22 + million new jobssince 1990-91

Baby boomers betteroff than previousgenerations

Poverty

Dying industries

Won the cold war Thousands of college

graduates looking forjobs in 2002 & 2003

Todays generation isgenerally worse offthan parents



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The Downside of the Worlds

Largest Economy & One of the

Highest Standards of Living The federal budget is at a record high

The US trade deficit is at a record high

The federal government is borrowing $2billion dollars a day from foreigners tofinance the budget & trade deficits

Social Security & Medicare trust funds willrun out of money well before most of youreach retirement age

Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved. 1-4


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The Downside of the Worlds

Largest Economy & One of the

Highest Standards of Living When you graduate, you may not be able to

get a decent job

The savings rate in the United States is

close to zero

The real hourly wage (adjusted for

inflation) of the average worker is lowertoday than it was in 1973



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The American Economy in the

19th Century Agricultural Development

The National Railroad Network

The Age of the Industrial Capitalist



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Agriculture Development

At the start of the American revolution,America had an almost limitless supply of land Nine of ten Americans lived on a farm

One hundred years later, fewer than one in two

Today, fewer than two in one hundred These two feed America and create a huge surplus thathelps to feed the rest of the world

The abundance of land was the most influentialfactor in our economic development in the 19th

century Brought millions of immigrants

Encouraged large families

Encouraged rapid technological development



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Economic Conflicts Leading to

the Civil War

North Benefited from high

protective tariffs

Had an economybased onmanufacturing

Opposed extension ofslavery westward

South Had to pay higher

prices than theywould have paid for

British goods

- Had an economybased on agricultureand slave labor

- Knew this would bepolitically untenable



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After the Civil War

New England, the middle Atlantic states,

and the mid-west were poised for major

industrial expansion and experiencedsignificant economic growth

The south remained primarily an

agriculture region and experiencedeconomic doldrums until the early 1960s



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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, whichbrought the country together into a huge socialand 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 economicdevelopment well into the 20th century



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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)



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20th Century Until the last quarter of the 19th century,

American economic history was largely

agricultural The beginning of the 20th century

witnessed a shift to manufacturing

By the end of WW I, agriculture played arelatively minor role in our economicdevelopment



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Industrial Development

By the turn of the 20th

centuryAmerica was primarily an industrial

economy Fewer than 4 of 10 people lived on farms

The U.S. was among the world leaders inproduction of steel, coal, steamships, textiles,apparel, chemicals, and agricultural machinery

Americas trade balance was positive

America exported most of her agriculturalsurpluses

America began to export manufacturedgoods



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Americas Population 1789 4 million people

1812 8 million people 1835 16 million people

1858 32 million people

1915 100 million 1968 200 million

2007 Estimate of 300 million



(Continued)


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Americas large and growing population

was extremely important as a market for

our farmers and manufacturersForeign countries also targeted the

American market

Especially Japan after WW II Japan largely financed its industrial development withAmerican dollars



(Continued)


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Industrial Development(Continued)

America was on the way to becoming the

worlds first mass consumption society

Americas development of theautomobile industry was right around

the corner



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Industrial Development(Continued)

Americas first plane would soon be

flying at Kitty Hawk

Commercial aviation was still a few decadesaway

American technological progress made

possible the era of mass consumption and

higher living standards



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20th Century The Roaring Twenties

The Great Depression

The New Deal



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The Roaring Twenties

Actually began and ended withdepressions

Early in 1920 the country had a brief

depressionBetween 1921 and 1929 national output rose

by 50 percent and most Americans thought

prosperity would last forever

However the stock market crashed in1929

The Great Depression had arrived



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The Great Depression

Started with the August 1929 recessionHad 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 its present size



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The Recession of 1937-38

An expansion began in March 1933 andlasted until May 1937

Output however did not reach 1929 levels

Seven million people were still unemployed

in 1937A system similar to todays workfare (work

for your welfare check) was put in place About 6 million people were put to work on

public works type projects



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The Recession of 1937-38(Continued)

A lot of credit goes to Franklin D. RooseveltsNew Deal administration for the 1933 1937expansion 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 wasstarted

The Social Security System was started This was the most significant reform



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What Went Wrong?

The Federal Reserve greatly tightened credit This reduced the money supply

The Roosevelt administration suddenly got theurge to balance the budget This would have made sense during an economic

boom but not when the unemployment rate was12%

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 andthe 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 torecovery



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What Finally Brought the

United States Out of the Great

Depression?

The massive federal government

spending that was needed to prepare forand fight World War II?

This was deficit spending (borrowed money)

In other words the federal budget ran adeficit



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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 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



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The End of World War II(Continued)

The U. S. spent tens of billions of dollarsto prop up the economies of WesternEurope and Japan

It spent hundreds of billions more for theirdefense

Since WW II The U.S. has expended 6 percent of

national output on defense

The Soviet Union expended at least 18percent of national output on defensewhich contributed to its collapse in 1990



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The 1940s: World War II and

Peacetime Prosperity WW II required a total national effort

It consumed nearly half of the nations output

It mobilized 12 million men and women The Unemployment rate fell below 2 percent

1939 1944 Output of goods and services doubled

Government spending rose more than 400 percent

Mainly for defense

The economy grew 10 11 percent a year

The government instituted wage and price controls andissued ration coupons for meat, butter, gasoline, and otherstaples

Business and workers strived to produce goods of thehighest quality possible, believing it a prerequisite to win thewar



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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



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1940s and 1950s

One big construction boom

The automobile industry prosperedSupplied Americas pent up demand andbecame 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 1-32Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved.


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The 1950s: The Eisenhower Years

The advent of television and the KoreanWar stimulated the economy

The Eisenhower administrationEnded the Korean War and inflation

Made no attempt to undo the legacies of theNew Deal

The role of the federal government as amajor economic player became a permanentone



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The Soaring Sixties: The Years of

Kennedy and Johnson

The country was in recession when Kennedywas 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 moneysupply grew

Inflation began and lasted until the mid-80s




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Kennedy and Johnson

(Continued) Johnson enacted three spending programs in

1965 that would have profound long-termeffects on the economy

Medicare

Medicaid

Food stamps


The Sagging Seventies: The


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Stagflation Decade

(Stagnation + Inflation = Stagflation) Nixon became President in 1968

The decade began with the problemsof inflation and ending the Vietnam

war

Wage and price controls were initiatedFord became President when Nixon

resigned



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Stagflation Decade(Continued)

1973 Economic disaster began

OPEC quadrupled oil pricesThe 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




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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 1-38Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved.


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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 producemore

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 more1-39Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved.


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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



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George Bush

Read my lips: no new taxesBush won the election of 1988

Two years later, he agreed to a major taxincrease

Supposedly to reduce the deficit

But, the deficit continued to rise

A recession began in early 1992 and endedlate in 1992

Bush failed in his bid for reelection



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The State of American Agriculture

The story is one of vastly expandingproductivity

1850 to 1900 output doubled

1900 to 1947 output doubled1947 to 1960 output doubled

In 1800, it took370 hours to

produce 100

bushels of wheat.

In 1960, it tookjust 15 hours to

produce 100

bushels of wheat.

In 1820, one

farmer fed 4.5

people. Today

one farmer

feeds 100

people.




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The State of American Agriculture(Continued)

Agriculture is one of the most productive

sectors of our economy

Yet, only 4.5 million people live on farms

today and less than half farm full time

The U.S. exports more than one-third of its

crops

35 million Americans make use of food

pantries and other food distributionprograms

In the Great Depression, Americans resorted to

soup kitchens




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The State of American Agriculture(Continued)

Despite hundreds of billions of dollars in

government aid (subsidy payments) since WWII

Family farms are disappearing

7 out of 10 are now gone

The average farm has gone from 139 acres to 435 acres

Family farms are being squeezed out by huge

agriculture combines

Today you have to become big to survive!

The Farm Act of 1996 was supposed to reducesubsidy payments and eventually phase them out

Nevertheless, as crop prices sank to 10 and 20 year lows in

1999, subsidy payments to farmers were a record $23

billion



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Subsidy Payments

In 2002 President Bush signed a 10 year $190billion farm bill that provides the nationslargest farmers with subsidies of $19 billion.

Defenders point out that the European union givesits farmers $60 billion in annual subsidies

To compete in world markets so do we.

Critics contend that subsidies provide farmers with

essentially a guaranteed income so they keepproducing more than the market wants

This keeps prices low and the farmers have to continuallyask the government for more subsidies



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The New Economy of the Nineties

It was a decade of major technologicalchange

Marked by low inflation, low unemployment,and rapidly growing productivity

The 1920s and the 1960s could be similarlydescribed

One of the most prosperous decades ever

The stock market soared The length of the economic expansion ended inMarch, 2001 (a period of 120 months) an all-timerecord



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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 clothingto developing countries

Service work like writing software code and processing creditcard 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 Americancounterparts earn



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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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Current Issue

Americas Place in History In the early years of the 20th Century the

United States

Emerged as the worlds leading industrialpower

Had the largest economy and the largest

consumer market

Emerged as the worlds greatest military

power



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Tomorrows Concerns

Rising budget deficits

Trade deficits

Concern about

Social Security being there when you retire

Medicare being there when you need it

Will we be able to live as well as our

parents?



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Tomorrows Concerns

In the nineteenth century, the sun never set on theBritish empire The drain of two world wars compelled the British to give up

their empires

By the mid 20th century to the present, Americanmilitary bases do the globe

We have become the worlds policeman, perhaps self-anointed, We are currently involved in Iraq, Afghanistan, A World war

on terror that has come to our shores, and huge problems withsecuring our on borders

Many believe we are overextended and stretched too thin bothmilitarily and economically

This would mean we will have to cut back both militarily andeconomically

The big question is will you be able to live as well asyour parents?



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Weve never been better off,

but can America keep the

party going?

Jonathan Alter, Newsweek,

February 7, 2000


Apparently NOT!


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Apparently NOT!

Benjamin Franklin said Aquestion is halfway to

wisdom.

Hopefully your generation can

up with better answers than

that of your parents.

Chap001-A Brief Economic History Of The United States

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