Chapter I: Precolonial and Colonial Era

In 1492, Christopher Columbus, sailing under the Spanish flag, set out to find Asia and happened
upon a "New World" !or the ne"t 1## $ears, Spanish, %ortuguese, &ut'h, (nglish and !ren'h
e"plorers sailed from (urope for the New World, loo)ing for gold, ri'hes, religious merit, honor, and
imperial power *ut north of +e"i'o there was little glor$ and less gold, so most did not sta$ ,he
people who e-entuall$ did settle arri-ed later In 1./. a small fort at St Augustine, !lorida, was
founded b$ the Spanish, and in 1/#0 a small band of settlers built (ngland1s first permanent settlement
in what was to be'ome the 2nited States at 3amestown While the$ traded among themsel-es, Nati-e
Ameri'ans la')ed immunities when (uropean e"plorers began arri-ing after 1492, bringing new
mi'robes ,heir e'onomi' s$stems, for e"ample the e'onom$ of the Iro4uois, in-ol-ed -arious
'ombinations of hunting and gathering and farming Nati-e Ameri'an e'onomies were profoundl$
altered b$ the arri-al of (uropeans and the resulting arri-al of new diseases, influ" of (uropean goods,
business relations with the (uropeans regarding the fur trade, a'4uisition of horses, firearms and
al'ohol, engagement in wars, loss of land, and 'onfinement to reser-ations
Colonial bubbles
(arl$ settlers had a -ariet$ of reasons for 'oming to Ameri'a
,he %uritans of +assa'husetts wanted to 'reate a purified religion in New (ngland 5ther 'olonies,
su'h as 6irginia, were founded prin'ipall$ as business -entures (ngland1s su''ess at 'oloni7ing what
would be'ome the 2nited States was due in large part to its use of 'harter 'ompanies Charter
'ompanies were groups of sto')holders 8usuall$ mer'hants and wealth$ landowners9 who sought
personal e'onomi' gain and, perhaps, wanted also to ad-an'e (ngland1s national goals While the
pri-ate se'tor finan'ed the 'ompanies, the :ing also pro-ided ea'h pro;e't with a 'harter or grant
'onferring e'onomi' rights as well as politi'al and ;udi'ial authorit$ ,he 'olonies generall$ did not show
4ui') profits, howe-er, and the (nglish in-estors often turned o-er their 'olonial 'harters to the settlers
,he politi'al impli'ations, although not reali7ed at the time, were enormous ,he 'olonists were left to
build their own li-es, their own 'ommunities, and their own e'onom$
*$ the 1<th 'entur$, regional patterns of de-elopment had be'ome 'lear= the New
(ngland 'olonies relied on shipbuilding and sailing to generate wealth> plantations 8man$
using sla-e labor9 in +ar$land, 6irginia, and the Carolinas grew toba''o, ri'e, and indigo> and the
middle 'olonies of New ?or), %enns$l-ania, New 3erse$, and &elaware shipped general 'rops and
furs ("'ept for sla-es, standards of li-ing were generall$ high@higher, in fa't, than in (ngland itself
New England
,he benefits of growth were widel$ distributed in New (ngland Wages for men went up steadil$
before 100.> new o''upations were opening for women, in'luding wea-ing, tea'hing, and tailoring ,he
region bordered New !ran'e, and in the numerous wars the *ritish poured mone$ in to pur'hase
supplies, build roads and pa$ 'olonial soldiers Combined with growing urban mar)ets for farm
produ'ts, these fa'tors allowed the e'onom$ to flourish despite the la') of te'hnologi'al inno-ation
American Revolution
Ameri'ans in the ,hirteen Colonies demanded their rights as (nglishmen, as the$ saw it,
to sele't their own representati-es to go-ern and ta" them A whi'h *ritain refused ,he Ameri'ans
attempted resistan'e through bo$'otts of *ritish manufa'tured items, but the *ritish responded with a
re;e'tion of Ameri'an rights and the Intolerable A'ts of 1004 In turn, the Ameri'ans laun'hed
the Ameri'an Be-olution, resulting in an allCout war against the *ritish and to independen'e for the new
2nited States of Ameri'a ,he *ritish tried to 'rush the Ameri'an e'onom$ with a blo')ade of all ports,
but with 9#D of the people in farming, and onl$ 1#D in 'ities, the Ameri'an e'onom$ pro-ed resilient
and able to support a sustained war, whi'h lasted from 100. to 10<E ,he Ameri'an Be-olution
brought a dedi'ation to unalienable rights to "life, libert$, and the pursuit of happiness," whi'h
emphasi7e indi-idual libert$ and e'onomi' entrepreneurship, and simultaneousl$ a 'ommitment to the
politi'al -alues ofliberalism and republi'anism, whi'h emphasi7e natural rights, e4ualit$ under the law
for all 'iti7ens, 'i-i' -irtue and dut$, and promotion of the general welfare *eginning in 1000, Congress
repeatedl$ as)ed the states to pro-ide mone$ *ut the states had no s$stem of ta"ation either, and
were little help *$ 10<# Congress was ma)ing re4uisitions for spe'ifi' supplies of 'orn, beef, por) and
other ne'essities@an ineffi'ient s$stem that )ept the arm$ barel$ ali-e

New Nation
,he 2S Constitution, adopted in 10<0, established that the entire nation was a unified, or
'ommon mar)et, with no internal tariffs or ta"es on interstate 'ommer'e ,he e"tent of federal power
was mu'h debated, with Ale"ander Familton ta)ing a -er$ broad -iew as the first se'retar$ of the
treasur$ during the presidential administration of George Washington Fe su''eeded in building strong
national 'redit based on ta)ing o-er the state debts and bundling them with the old national debt into
new se'urities sold to the wealth$ ,homas 3efferson and 3ames +adison opposed a strong 'entral
go-ernment 8and, 'onse4uentl$, most of Familton1s e'onomi' poli'ies9, but the$ 'ould not stop
Familton, who wielded immense power and politi'al 'lout in the Washington administration In 1<#1,
howe-er, 3efferson be'ame president and turned to promoting a more de'entrali7ed, agrarian
demo'ra'$ 'alled 3effersonian demo'ra'$ 8Fe based his philosoph$ on prote'ting the 'ommon man
from politi'al and e'onomi' t$rann$ Fe parti'ularl$ praised small farmers as "the most -aluable
'iti7ens"9 Fowe-er, 3efferson did not 'hange Familton1s basi' poli'ies
Chapter II: Expansion and Growth
Expansion and growth
%resident Andrew 3a')son 81<29A1<E09, leader of the new &emo'rati' %art$, opposed the
Se'ond *an) of the 2nited States, whi'h he belie-ed fa-ored the entren'hed interests of ri'h When he
was ele'ted for a se'ond term, 3a')son blo')ed the renewal of the ban)1s 'harter 3a')son opposed
paper mone$ and demanded the go-ernment be paid in gold and sil-er 'oins ,he %ani' of
1<E0stopped business growth for three $ears
Railroads
Bailroads made a de'isi-e impa't on the 2S e'onom$ espe'iall$ in the 1<.#A1<0E era, ma)ing
possible the transition to an urban industrial nation with high finan'e and ad-an'ed managerial s)ills
Bailroads opened up remote areas, drasti'all$ 'ut the 'ost of mo-ing freight as well as passenger
tra-el, and stimulated new industries su'h as steel and telegraph$, as well as the profession of 'i-il
engineering Bailroad e"e'uti-es in-ented modern methods for running largeCs'ale business
operations, 'reating a blueprint that all large 'orporations basi'all$ followed ,he$ 'reated 'areer tra')s
that too) 1< $ear old bo$s and turned them into bra)emen, 'ondu'tors and engineers &ue to these
radi'al inno-ations, the railroad be'ame the first largeCs'ale business enterprise and the model for most
large 'orporations
%ani's did not 'urtail rapid 2S e'onomi' growth during the 19th 'entur$ Hong term
demographi' growth, e"pansion into new farmlands, and 'reation of new fa'tories 'ontinued New
in-entions and 'apital in-estment led to the 'reation of new industries and e'onomi' growth As
transportation impro-ed, new mar)ets 'ontinuousl$ opened ,he steamboat made ri-er traffi' faster and
'heaper, but de-elopment of railroads had an e-en greater effe't, opening up -ast stret'hes of new
territor$ for de-elopment Ne-ertheless, a 'ombination of -ision and foreign in-estment, 'ombined with
the dis'o-er$ of gold and a ma;or 'ommitment of Ameri'a1s publi' and pri-ate wealth, enabled the
nation to de-elop a largeCs'ale railroad s$stem, establishing the base for the 'ountr$1s industriali7ation
Urbanization
*$ 1</#, on the e-e of Ci-il War, 1/D of the people li-ed in 'ities with 2.## or more people and
one third of the nation1s in'ome 'ame from manufa'turing 2rbani7ed industr$ was limited primaril$ to
the Northeas +ost of the wor)ers in the new fa'tories were immigrants or their 'hildren *etween 1<4.
and 1<.., some E##,### (uropean immigrants arri-ed annuall$ +an$ remained in eastern 'ities,
espe'iall$ mill towns and mining 'amps, while those with farm e"perien'e and some sa-ings bought
farms in the WestFistorians ha-e debated whether or not the Ci-il War sped up the rate of e'onomi'
growth in the fa'e of destru'tion throughout the South and the di-ersion of resour'es to militar$
supplies and awa$ from 'i-ilian goods In an$ 'ase the war taught new organi7ational methods,
prioriti7ed engineering s)ills, and shifted the national attention from politi's to business
Treasury
In 1</# the ,reasur$ was a small operation that funded the smallCs'ale operations of the
go-ernment through the low tariff and land sales ,he Northern finan'ial s$stem was highl$ su''essful
in raising mone$ and turning patriotism into profit, while the Confederate s$stem impo-erished its
patriots,he 2nited States needed IE1 billion to pa$ for the immense armies and fleets raised to fight
the Ci-il War @ o-er I4## million ;ust in 1</2 Apart from ta"es, the se'ond ma;or sour'e was
go-ernment bonds
Land grants
,he 2S go-ernment owned -ast amounts of good land ,he 'hallenge was to ma)e the land
useful to people and to pro-ide the e'onomi' basis for the wealth that would pa$ off the war debt Hand
grants went to railroad 'onstru'tion 'ompanies to open up the western plains and lin) up to California
,ogether with the free lands pro-ided farmers b$ the Fomestead Haw the lowC'ost farm lands pro-ided
b$ the land grants speeded up the e"pansion of 'ommer'ial agri'ulture ,he North1s most important war
measure was perhaps the 'reation of a s$stem of national ban)s that pro-ided a sound 'urren'$ for the
industrial e"pansion (-en more important, the hundreds of new ban)s that were allowed to open were
re4uired to pur'hase go-ernment bonds ,hereb$ the nation moneti7ed the potential wealth
represented b$ farms, urban buildings, fa'tories, and businesses, and immediatel$ turned that mone$
o-er to the ,reasur$ for war needs
Collapse o !outh
,he wartime de-astation of the South was great and po-ert$ ensued> in'omes of whites dropped,
but in'ome of the former sla-es rose &uring Be'onstru'tion railroad 'onstru'tion was hea-il$
subsidi7ed , but the region maintained its dependen'e on 'otton !ormer sla-es be'ame wage
laborers, tenant farmers, or share'roppers ,he$ were ;oined b$ man$ poor whites, as the population
grew faster than the e'onom$ As late as 194# the onl$ signifi'ant manufa'turing industries were te"tile
mills and some steel in Alabama ,he industrial ad-antages of the North o-er the South helped se'ure
a Northern -i'tor$ in the Ameri'an Ci-il War 81</1A1</.9 ,he Northern -i'tor$ sealed the destin$ of
the nation and its e'onomi' s$stem ,he sla-eClabor s$stem was abolished> the world pri'e of 'otton
plunged, ma)ing the large southern 'otton plantations mu'h less profitable Northern industr$, whi'h
had e"panded rapidl$ before and during the war, surged ahead Industrialists 'ame to dominate man$
aspe'ts of the nation1s life, in'luding so'ial and politi'al affairs
Chapter III : Four Important Eras
"#The $ilded Age% "&'()"*++
,he rapid e'onomi' de-elopment following the Ci-il War laid the groundwor) for the modern 2S
industrial e'onom$ *$ 1<9#, the 2SA leaped ahead of *ritain for first pla'e in manufa'turing output
An e"plosion of new dis'o-eries and in-entions too) pla'e, a pro'ess 'alled the "Se'ond
Industrial Be-olution" Bailroads greatl$ e"panded the mileage and built stronger tra')s and bridges
that handled hea-ier 'ars and lo'omoti-es, 'arr$ing far more goods and people at lower rates
Befrigeration railroad 'ars 'ame into use ,he telephone, phonograph, t$pewriter and ele'tri' light were
in-ented *$ the dawn of the 2#th 'entur$, 'ars had begun to repla'e horseCdrawn 'arriages
%arallel to these a'hie-ements was the de-elopment of the nation1s industrial infrastru'ture Coal
was found in abundan'e in the Appala'hian +ountains 5il was dis'o-ered in western %enns$l-ania> it
was mainl$ used for lubri'ants and for )erosene for lamps Harge iron ore mines opened in the Ha)e
Superior region of the upper +idwest Steel mill sthri-ed in pla'es where these 'oal and iron ore 'ould
be brought together to produ'e steel Harge 'opper and sil-er mines opened, followed b$ lead mines
and 'ement fa'tories
,he "Gilded Age" of the se'ond half of the 19th 'entur$ was the epo'h of t$'oons +an$
Ameri'ans 'ame to ideali7e these businessmen who amassed -ast finan'ial empires 5ften their
su''ess la$ in seeing the longCrange potential for a new ser-i'e or produ't, as 3ohn & Bo')efeller did
with oil ,he$ were fier'e 'ompetitors, singleCminded in their pursuit of finan'ial su''ess and power
5ther giants in addition to Bo')efeller and !ord in'luded 3a$ Gould, who made his mone$ in
railroads> 3 %ierpont +organ, ban)ing> and Andrew Carnegie, steel While upperC'lass (uropean
intelle'tuals generall$ loo)ed on 'ommer'e with disdain, most Ameri'ans@li-ing in a so'iet$ with a
more fluid 'lass stru'ture@enthusiasti'all$ embra'ed the idea of mone$ma)ing ,he$ en;o$ed the ris)
and e"'itement of business enterprise, as well as the higher li-ing standards and potential rewards of
power and a''laim that business su''ess brought
%ani' of 1<0E had New ?or) Sto') ("'hange 'losed for ten da$s, of the 'ountr$1s E/4 railroads,
<9 went ban)rupt, a total of 1<,### businesses failed between 1<0E and 1<0., unemplo$ment rea'hed
14D b$ 1<0/, during a time whi'h be'ame )nown as the Hong &epression ,he end of the Gilded Age
'oin'ided with the %ani' of 1<9E, a deep depression that lasted until 1<90 and mar)ed a ma;or politi'al
realignment in the ele'tion of 1<9/
,# -rogressive Era% "&*+)"*,+
In the earl$ $ears of Ameri'an histor$, most politi'al leaders were relu'tant to in-ol-e the federal
go-ernment too hea-il$ in the pri-ate se'tor, e"'ept in the area of transportation *$ the start of the
2#th 'entur$, a middle 'lass had de-eloped that was leer$ of both the business elite and the somewhat
radi'al politi'al mo-ements of farmers and laborers in the +idwest and West :nown as %rogressi-es,
these people fa-ored go-ernment regulation of business pra'ti'es to, in their minds, ensure 'ompetition
and free enterprise When &emo'rat Woodrow Wilson was ele'ted %resident with a &emo'rat
'ontrolled Congress in 1912 he implemented a series of progressi-e poli'ies In 191E, Fenr$ !ord,
adopted the mo-ing assembl$ line, with ea'h wor)er doing one simple tas) in the produ'tion of
automobiles ,a)ing his 'ue from de-elopments during the progressi-e era, !ord offered a -er$
generous wage@I. a da$@to his wor)ers, arguing that a mass produ'tion enterprise 'ould not sur-i-e
if a-erage wor)ers 'ould not bu$ the goods
(le'trifi'ation in the 2S started in industr$ 'a 19## and b$ 19E# about <#D of power used in
industr$ was ele'tri' (le'tri' utilities with 'entral generating stations using steam turbines greatl$
lowered the 'ost of power with businesses and houses in 'ities be'oming ele'trified(le'tri' street
railwa$s de-eloped into a ma;or mode of transportation, and ele'tri' interCurban ser-i'e 'onne'ted
man$ 'ities in the northeast and midCwest ,ra'tors began being massCprodu'ed
.orld .ar /
,he World War in-ol-ed a massi-e mobili7ation of mone$, ta"es, and ban)ing resour'es to pa$
for the Ameri'an war effort and, through go-ernmentCtoCgo-ernment loans, most of the Allied war effort
as well
0# Roaring twenties% "*,+)"*,*
2nder Bepubli'an %resident Warren G Farding, who 'alled for normal'$ and an end to high
wartime ta"es, Se'retar$ of the ,reasur$ Andrew +ellon raised the tariff, 'ut other ta"es, and used the
large surplus to redu'e the federal debt b$ about a third from 192# to 19E# Se'retar$ of
Commer'e Ferbert Foo-er wor)ed to introdu'e effi'ien'$, b$ regulating business pra'ti'es ,his period
of prosperit$, along with the 'ulture of the time, was )nown as the Boaring ,wenties ,he rapid growth
of the automobile industr$ stimulated industries su'h as oil, glass, and roadCbuilding ,ourism soared
and 'onsumers with 'ars had a mu'h wider radius for their shopping Small 'ities prospered, and large
'ities had their best de'ade e-er, with a boom in 'onstru'tion of offi'es, fa'tories and homes ,he new
ele'tri' power industr$ transformed both business and e-er$da$ life ,elephones and ele'tri'it$ spread
to the 'ountr$side, but farmers ne-er re'o-ered from the wartime bubble in land pri'es +illions
migrated to nearb$ 'ities Fowe-er, in 5'tober 1929, the Sto') mar)et 'rashed and ban)s began to fail
in the Wall Street Crash of 1929
4Great &epression= 1929C1941
!ollowing the sto') mar)et 'rash, the worldwide e'onom$ plunged into the $reat 1epression
Congress in 19E2 worried about the rapidl$ growing defi'it and national debt, and raised in'ome ta"
rates ('onomists generall$ agree that these measures deepened an alread$ serious 'risis *$ 19E2,
the unemplo$ment rate was 2.D Conditions were worse in hea-$ industr$, lumbering, e"port
agri'ulture 8'otton, wheat, toba''o9, and mining Conditions were not 4uite as bad in white 'ollar
se'tors and in light manufa'turing
!ran)lin &elano Boose-elt was ele'ted %resident in 19E2 without a spe'ifi' program Fe relied on
a highl$ e'le'ti' group of ad-isors who pat'hed together man$ programs, )nown as the New &eal
2an3ing crisis
In 1929AEE the e'onom$ was destabili7ed b$ ban) failures ,he initial reasons were substantial
losses in in-estment ban)ing, followed b$ ban) runs *an) runs o''urred when a large number of
'ustomers lost 'onfiden'e in their deposits and rushed to withdraw their deposits Buns destabili7ed
man$ ban)s to the point where the$ fa'ed ban)rupt'$ *etween 1929 and 19EE 4#D of all ban)s 89,49#
out of 2E,/90 ban)s9 went ban)rupt+u'h of the Great &epression1s e'onomi' damage was 'aused
dire'tl$ b$ ban) runsFoo-er had alread$ 'onsidered a bank holiday to pre-ent further ban) runs, but
re;e'ted the idea be'ause he was afraid to trip a pani' Boose-elt a'ted as soon as he too) offi'e> he
'losed all the ban)s in the 'ountr$ and )ept them all 'losed until he 'ould pass new legislation

5n
+ar'h 9, Boose-elt sent to Congress the (mergen'$ *an)ing A't, drafted in large part b$ Foo-er1s top
ad-isors ,he a't was passed and signed into law the same da$ It pro-ided for a s$stem of reopening
sound ban)s under ,reasur$ super-ision, with federal loans a-ailable if needed ,hreeC4uarters of the
ban)s in the !ederal Beser-e S$stem reopened within the ne"t three da$s *illions of dollars in hoarded
'urren'$ and gold flowed ba') into them within a month, thus stabili7ing the ban)ing s$stem *$ the
end of 19EE, 4,##4 small lo'al ban)s were permanentl$ 'losed and merged into larger ban)s ,heir
deposits totalled IE/ billion> depositors lost a total of I.4# million, and e-entuall$ re'ei-ed on a-erage
<. 'ents on the dollar of their deposits8 it is a 'ommon m$th that the$ re'ei-ed nothing ba')9
Chapter IV : Wartime and Postwar Prosperity
Wartime output and controls: 19401945
Unemployment dropped to 2%, relief programs largely ended and the
industrial economy grew rapidly to new heights as millions of people moved
to new o!s in war centers and "# million men and $%%,%%% women were
drafted or volunteered for military service&
'll economic sectors grew during the war& (he War Production
)oard coordinated the nation*s productive capa!ilities so that military
priorities would !e met& Converted consumer+products plants filled many
military orders& 'utoma,ers !uilt tan,s and aircraft, for e-ample, ma,ing the
United .tates the /arsenal of democracy&/ In an effort to prevent rising
national income and scarce consumer products from causing inflation, the
newly created 0ffice of Price 'dministration rationed and set prices for
consumer items ranging from sugar to meat, clothing and gasoline, and
otherwise tried to restrain price increases& It also set rent in war centers&
.i- million women too, o!s in manufacturing and production1 most were
newly created temporary o!s in munitions& .ome were replacing men away
in the military& (hese wor,ing women were sym!oli2ed !y the fictional
character of 3osie the 3iveter& 'fter the war many women returned to
household wor, as men returned from military service& (he nation turned to
the su!ur!s, as a pent+up demand for new housing was finally unleashed&
Postwar prosperity: 19451973
(he period from the end of World War II to the early "45%s was a golden era
of 'merican capitalism& 62%% !illion in war !onds matured& (he middle
class swelled, as did 78P and productivity& (he U&.& underwent a ,ind of
golden age of economic growth& (his growth was distri!uted fairly evenly
across the economic classes, which some attri!ute to the strength of la!or
unions in this period9la!or union mem!ership pea,ed historically in the
U&.& during the "4:%s, in the midst of this massive economic growth& ;uch
of the growth came from the movement of low income farm wor,ers into
!etter paying o!s in the towns and cities9a process largely completed !y
"4#%& Congress created the Council of <conomic 'dvisors, to promote high
employment, high profits and low inflation& (he <isenhower administration
="4:$>"4#"? supported an activist contracyclical approach that helped to
esta!lish @eynesianism as a !ipartisan economic policy for the nation&
<specially important in formulating the C<' response to the recession9
accelerating pu!lic wor,s programs, easing credit, and reducing ta-es9
were 'rthur A& )urns and Beil C& Daco!y& //I am now a @eynesian in
economics,/ proclaimed 3epu!lican President 3ichard Bi-on in "4#4&
'lthough this period !rought economic e-panding to the country as whole, it
was not recession proof& (he recessions of "4E:, "4E4, "4:$, "4:F, and
"4#% saw a drastic decline in 78P&
(he /)a!y )oom/ saw a dramatic increase in fertility in the period "4E2>
"4:51 it was caused !y delayed marriages and child!earing during
depression years, a surge in prosperity, a demand for su!ur!an single+family
homes =as opposed to inner city apartments? and new optimism a!out the
future& (he !oom crested a!out "4:5, then slowly declined&
Liberal programs
Aederal ta-es on incomes, profits and payrolls had risen to high levels during
World War II and had !een cut !ac, only slowly1 the highest rates for
individuals reached the 4%% level& Congress cut ta- rates in "4#E&
President Gyndon )& Dohnson ="4#$>#4? dreamed of creating a /7reat
.ociety/, and !egan many new social programs to that end, such
as;edicaid and ;edicare& (he government financed some of private
industry*s research and development throughout these decades, most
nota!ly '3P'B<( =which would !ecome the Internet?&
n!lation woes: 1970s
(he postwar !oom ended with a num!er of events in the early "45%s:
the collapse of the )retton Woods system in "45"
the growing influ- of imported manufacturing goods, such as
automo!iles and electronics
the "45$ oil crisis,
the "45$>"45E stoc, mar,et crash,
and the ensuing displacement of @eynesian economics !y monetarist
economics, especially !y the free+mar,et Chicago .chool of <conomics,
led !y economist ;ilton Ariedman& 't the same time, the consensus
among e-perts moved against Bew+8eal+style regulation, in favor of
deregulation&
In the late "4#%s it was apparent to some that this uggernaut of economic
growth was slowing down, and it !egan to !ecome visi!ly apparent in the
early "45%s& (he United .tates grew increasingly dependent on oil
importation from 0P<C after pea,ing production in "45%, resulting in oil
supply shoc,s in "45$ and "454& (he )retton Woods 'greement collapsed
in "45">"452, and President Bi-on closed the gold window at the Aederal
3eserve, ta,ing the United .tates entirely off the gold standard&
President 7erald Aord introduced the slogan, /Whip Inflation Bow/ =WIB?&
In "45#, Dimmy Carter won the Presidency& Carter would later ta,e much of
the !lame for the even more tur!ulent economic times to come, though some
say circumstances were outside his control& Inflation continued to clim!
s,yward& Productivity growth was small, when not negative& Interest rates
remained high, with the prime reaching 2%% in Danuary "4F"1 'rt
)uchwald Huipped that "4F% would go down in history as the year when it
was cheaper to !orrow money from the ;afia than the local !an,&
Unemployment dropped mostly steadily from "45: to "454, although it then
!egan to rise sharply&
(his period also saw the increased rise of the environmental and consumer
movements&
8eregulation and 3eaganomics: "45#>"442
8eregulation gained momentum in the mid+"45%s, spurred !y slow
productivity growth and increasing operation and capital costs in several ,ey
sectors& It was not until "45F that the first meaningful deregulation
legislation, the 'irline 8eregulation 'ct, was cleared !y Congress&
(ransportation deregulation accelerated in "4F%, with the deregulation of
railroads and truc,ing& 8eregulation of interstate !uses followed in "4F2& 0n
a !roader front, the economy initially recovered at a !ris, pace from
the "45$>5: recession& Incoming president Dimmy Carter instituted a large
fiscal stimulus pac,age in "455 in order to !oost the economy& Cowever,
inflation !egan a steep rise !eginning in late "45F, and rose !y dou!le digits
following the "454 energy crisis& In order to com!at inflation, Carter
appointed Paul Volc,er to the Aederal 3eserve, who raised interest rates and
caused a sharp recession in the first si- months of "4F%& In ;arch "4F%,
Carter introduced his own policies for reducing inflation, and the Aederal
3eserve !rought down interest rates to cooperate with the initiatives&
8uring the "4F% recession, manufacturing shed "&" million o!s, while
service industries remained intact& <mployment in automotive
manufacturing in particular suffered, e-periencing a $$% reduction !y the
end of the recession& Collectively these factors contri!uted to the election
of 3onald 3eagan in "4F%& (he Aederal 3eserve once again !egan to raise
interest rates in "4F", which plunged the economy !ac, into recession&
Unemployment rose to a pea, of "%&F% in 8ecem!er "4F2, a post+war high&
In "4F", 3onald 3eagan introduced 3eaganomics& (hat is, fiscally+
e-pansive economic policies, cutting marginal federal income ta- rates !y
2:%& Inflation dropped dramatically from "$&:% annually in "4F% to ust
$% annually in "4F$ due to a short recession and the Aederal
3eserve Chairman Paul Volc,er*s tighter control of the money supply and
interest rates& (he unemployment rate continued to rise to a pea, of "%&F%
!y late "4F2, !ut dropped well under #% unemployment at the end of
3eagan*s presidency in Danuary "4F4& 2% million o!s were created under his
presidency + which were made up of F2 percent high+paying and long+term
o!s& 'n economic !oom too, place from "4F$ until a recession !egan in
"44%& )etween "4F$ and "4F4 the amount of people !elow the poverty line
decreased !y $&F million& (he !oom saw the increasing popularity of
electronic appliances li,e computers, cell phones, music players and video
games& Credit cards were a sym!ol of the !oom& (he 3eagan ta- cuts
seemed to wor, and 'mericans were a!le to shrug off the crash of "4F5 !y
the !eginning of "4FF& (he growth ended !y "44% after seven years of stoc,
mar,et growth and prosperity for the upper and middle class& (he federal
de!t spawned !y his policies tripled, reaching record levels& (hough de!t
almost always increased under every president in the latter half of the 2%th
century, it declined as a percentage of 78P under all Presidents after "4:%
and prior to 3eagan& In addition to the fiscal deficits, the U&.& started to have
large trade deficits& 'lso it was during his second term that the (a- 3eform
'ct of "4F# was passed& Vice President 7eorge C& W& )ush was elected to
succeed 3eagan in "4FF& (he early )ush Presidency*s economic policies
were sometimes seen as a continuation of 3eagan*s policies, !ut in the early
"44%s, )ush went !ac, on a promise and increased ta-es in a compromise
with Congressional 8emocrats& Ce ended his presidency on a moderate note,
signing regulatory !ills such as the 'mericans With 8isa!ilities 'ct, and
negotiating the Borth 'merican Aree (rade 'greement& In "442, )ush and
third+party candidate 3oss Perot lost to 8emocrat )ill Clinton&
(he advent of deindustriali2ation in the late "4#%s and early "45%s saw
income ineHuality increase dramatically to levels never seen !efore& )ut at
the same time, most orthodo- economists, and most policy ma,ers, pointed
to the fact that consumers could !uy so many goods, even with the inflation
of the "45%s, as evidence that the general shift away from manufacturing and
into services was creating widespread prosperity& Critics of economic
policies favored !y 3epu!lican and 8emocratic administrations since the
"4#%s, particularly those e-panding /free trade/ and /open mar,ets/ say that
these policies, though !enefiting trading as well as the cost of products in the
U&.&, could have ta,en their own on the prosperity of the 'merican middle+
class& )ut in this period, consumers were !uying as never !efore with so
many products and goods at such low costs and in high Huantities& Critics
however argued that this consumer !ehavior was giving a false reading of
the health of the economy, !ecause it was !eing paid for !y ta,ing on
rapidly increasing levels of inde!tedness, thus covering up the stagnating
wages and earnings of most of the wor,force&
Chapter V : (he 3ise of 7lo!ali2ation and a World .uperpower
1990s"late #000s
8uring the "44%s, the national de!t increased !y 5:%, 78P rose !y #4%,
and the stoc, mar,et as measured !y the .IP :%% grew more than threefold&
Arom "44E to 2%%% real output increased, inflation was managea!le and
unemployment dropped to !elow :%, resulting in a soaring stoc, mar,et
,nown as the 8ot+com !oom& )y 2%%%, however, it was evident a !u!!le in
stoc, valuations had occurred, such that !eginning in ;arch 2%%%, the
mar,et would give !ac, some :%% to 5:% of the growth of the "44%s& (he
economy worsened in 2%%" with output increasing only %&$% and
unemployment and !usiness failures rising su!stantially, and triggering a
recession that is often !lamed on the .eptem!er "" attac,s&
'n additional factor in the fall of the U. mar,ets and in investor confidence
included numerous corporate scandals&
(hrough 2%%" to 2%%5, the red+hot housing mar,et across the United .tates
fueled a false sense of security regarding the strength of the U&.& economy&
Chapter VI: 7reat 3ecession
In 2%%F a perfect storm of economic disasters hit the country and indeed the
entire world& (he most serious !egan with the collapse ofhousing !u!!les in
California and Alorida, and the collapse of housing prices and the
construction industries& ;illions of mortgages=averaging a!out 62%%,%%%
each? had !een !undled into securities called collaterali2ed de!t
o!ligations that were resold worldwide& ;any !an,s and hedge funds had
!orrowed hundreds of !illions of dollars to !uy these securities, which were
now /to-ic/ !ecause their value was un,nown and no one wanted to !uy
them&
' series of the largest !an,s in the U&.& and <urope collapsed1 some went
!an,rupt, such as Gehman )rothers with 6#4% !illion in assets1 others such
as the leading insurance company 'I7, the leading !an, Citigroup, and the
two largest mortgage companies were !ailed out !y the government&
Congress voted 65%% !illion in !ailout money, and the (reasury and Aederal
3eserve committed trillions of dollars to shoring up the financial system, !ut
the measures did not reverse the declines& )an,s drastically tightened their
lending policies, despite infusions of federal money& (he government for the
first time too, maor ownership positions in the largest !an,s& (he stoc,
mar,et plunged E%%, wiping out tens of trillions of dollars in wealth1
housing prices fell 2%% nationwide wiping out trillions more& )y late 2%%F
distress was spreading !eyond the financial and housing sectors, especially
as the /)ig (hree/ of the automo!ile industry =7eneral
;otors, Aord and Chrysler? were on the verge of !an,ruptcy, and the retail
sector showed maor wea,nesses& Critics of the 65%% !illion (rou!led 'ssets
3elief Program =('3P? e-pressed anger that much of the ('3P money that
has !een distri!uted to !an,s is seemingly unaccounted for, with !an,s
!eing secretive on the issue&
President )arac, 0!ama signed the 'merican 3ecovery and 3einvestment
'ct of 2%%4 in Ae!ruary 2%%41 the !ill provides 65F5 !illion in stimulus
through a com!ination of spending and ta- cuts& (he plan is largely !ased on
the @eynesian theory that government spending should offset the fall in
private spending during an economic downturn1 otherwise the fall in private
spending may perpetuate itself and productive resources, such as the la!or
hours of the unemployed, will !e wasted& Critics claim that government
spending cannot offset a fall in private spending !ecause government must
!orrow money from the private sector in order to add money to it& Cowever,
most economists do not thin, such /crowding out/ is an issue when interest
rates are near 2ero and the economy is stagnant& 0pponents of the stimulus
also point to pro!lems of possi!le future inflation and government
de!t caused !y such a large e-penditure&
In the U&.&, o!s paying !etween 6"E and 62" per hour made up a!out #%%
those lost during the recession, !ut such mid+wage o!s have comprised only
a!out 25% of o!s gained during the recovery through mid+2%"2& In contrast,
lower+paying o!s constituted a!out :F% of the o!s regained&
Conclusions
(o sum up, the o!vious conclusion to !e drawn is that the growth of the
U.'Js economy is a remar,a!le one, a true e-ample& (he economy of the United
.tates is the world*s largest single national economy& (he U. has
a!undant natural resources, a well+developed infrastructure, and high
productivity& (he U&.& is the world*s third+largest producer of oil and second+
largest producer of natural gas& It is the second+largest trading nation in the world
!ehind China& It has !een the world*s largest national economy =not including
colonial empires? since at least the "F4%s&
's of 2%"%, the country remains the world*s largest manufacturer,
representing a fifth of the glo!al manufacturing output& 0f the world*s :%% largest
companies, "$2 are headHuartered in the U., twice that of any other country& (he
country has one of the world*s largest and most influential financial mar,ets& (he
Bew Kor, .toc, <-change is !y far the world*s largest stoc, e-change !y mar,et
capitali2ation& Aoreign investments made in the U. total almost
62&E trillion, while 'merican investments in foreign countries total over
6$&$ trillion& Consumer spending comprises 5"% of the U. economy in 2%"$&(he
la!or mar,et has attracted immigrants from all over the world and its net
migration rate is among the highest in the world&
(he U&.& is one of the top+performing economies and as I said earlier, a true
e-ample of a successful economy&