Chapter 1 A Brief Economic History of the United States.

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Chapter 1 A Brief Economic History of the United States
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Transcript of Chapter 1 A Brief Economic History of the United States.

Page 1: Chapter 1 A Brief Economic History of the United States.

Chapter 1

A Brief Economic History of the United States

Page 2: 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

Page 3: Chapter 1 A Brief Economic History of the United States.

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)

Page 4: Chapter 1 A Brief Economic History of the United States.

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

Page 5: Chapter 1 A Brief Economic History of the United States.

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

Page 6: Chapter 1 A Brief Economic History of the United States.

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

Page 7: Chapter 1 A Brief Economic History of the United States.

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

Page 8: Chapter 1 A Brief Economic History of the United States.

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

Page 9: Chapter 1 A Brief Economic History of the United States.

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

Page 10: Chapter 1 A Brief Economic History of the United States.

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

Page 11: Chapter 1 A Brief Economic History of the United States.

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

Page 12: Chapter 1 A Brief Economic History of the United States.

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

Page 13: Chapter 1 A Brief Economic History of the United States.

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

Page 14: Chapter 1 A Brief Economic History of the United States.

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

Page 15: Chapter 1 A Brief Economic History of the United States.

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

Page 16: Chapter 1 A Brief Economic History of the United States.

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

Page 17: Chapter 1 A Brief Economic History of the United States.

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

Page 18: Chapter 1 A Brief Economic History of the United States.

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

Page 19: Chapter 1 A Brief Economic History of the United States.

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

Page 20: Chapter 1 A Brief Economic History of the United States.

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

Page 21: Chapter 1 A Brief Economic History of the United States.

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

Page 22: Chapter 1 A Brief Economic History of the United States.

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

Page 23: Chapter 1 A Brief Economic History of the United States.

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