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Economic history of the United States

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The economic history of the United States spans a period of less than two and a half centuries. Over the course of those years, the United States grew from an alliance of thirteen British colonies with distinct economies and institutions to represent over a fifth of the world economy.

Contents

Wilson Administration

When Woodrow Wilson was elected President due to a split Republican vote, he implemented progressive policies that, for better or worse, forever altered the course of the U.S. economy. In 1913, the Sixteenth Amendment was ratified, and the income tax was instituted in the United States. While public spending as a percent of GDP had declined during the Taft Administration, it began to rise under Wilson's leadership in a trend that would continue for many decades. Wilson also signed the Federal Reserve Act, or Owen-Glass Act, establishing the Federal Reserve as the first central bank of the United States since 1836. While Wilson is generally considered to have had pacifist, pro-government policies, there are some who feel he conspired to get America into World War I to serve corporate interests. The departure of working men to serve in the armed forces was a significant blow to the workforce, and many women gained employment during the war.

The Roaring Twenties

With the end of World War I, Republican Senator Warren G. Harding ran for President advocating "a Return to Normalcy", and won with over 60% of the vote. Harding implemented laissez faire economic policies, and shifted responsibility for departmental spending plans to himself, enabling him to balance the budget (the federal debt was reduced by about a third from 1920 to 1930). Harding fought for tariff reform and repeal of excess profits law and high income taxes. Upon Harding's death in 1923, these policies were continued by his successor, Calvin Coolidge. The nation saw good economic growth for the decade. This period of prosperity, along with the culture of the time, was known as the Roaring Twenties. However, in 1929, the stock market crashed and banks began to fail. Some historians blame the crash on a lack of foresight in President Coolidge, pointing out that his Secretary of the Treasury was the third-richest man in the country and would not be the least bit impacted by any economic decline. Whatever the reason for the crash, federal mismanagement would turn the recession in to something far worse.

The Great Depression, reform, and recovery

The Federal Reserve Board chose to stand by, leaving interest rates high and not shoring up banks, while Congress expanded government in an effort to alleviate the recession. There was a sharp drop in the money supply, which would amount to a one-third reduction by 1933. President Herbert Hoover passed a massive tax increase to boost sagging federal revenues, and caved in to special interests for the protectionist Smoot-Hawley Tariff. The U.S. economy plunged into depression. By 1932, the unemployment rate was 23.6%, and worker militancy was rising, including the Bonus march on Washington, DC, where the U.S. Army was called out to violently suppress a demonstration by World War I veterans for an earlier distribution of veteran benefits ("bonuses").

Franklin Delano Roosevelt was elected President of the United States later that year, as well as a slate of Democratic "New Dealers". Roosevelt began a wave of social programs intended to lift America out of poverty, and tried to prevent further bank failures with a national bank holiday and by establishing the Federal Deposit Insurance Corporation. If one defines economic health entirely by the gross domestic product, the U.S. had gotten back on track by 1934, and made a full recovery by 1936, but much of the nation remained steeped in poverty. By the early 1940s, the United States had managed to pull itself strongly out of the Depression, largely due to World War II, but there is an ongoing, politically charged debate on whether Franklin Roosevelt's social-democratic policies had anything to do with this, and some argue that Roosevelt's policies hampered recovery, or even made the problem worse than it would have been. Recovery was also, in part, at least, due to the natural resilience of the economy; the Great Depression was the sixth depression in U.S. history. Wall Street enjoyed the longest bull run in history in this post-war period, as the stock market climbed almost uninterrupted from 1949 to 1957. The U.S. government involvement in social welfare and what Dwight Eisenhower called the "military-industrial complex" continues to this day.

"A chicken in every pot"

The end of World War II to the late 1960s was a golden era of American capitalism. President Kennedy passed the largest tax cut in history upon entering office in 1961. $200,000,000,000 in war bonds matured, and the G.I. Bill caused a well-educated work force. The middle class swelled, as did GDP and productivity. The U.S. underwent a kind of golden age of economic growth. This growth was distributed fairly evenly across the economic classes, which some attribute to the strength of labor unions in this period - labor union membership peaked historically in the U.S. during the 1950s, in the midst of this massive economic growth. In 1963, Lyndon B. Johnson became President upon Kennedy's assassination and was elected in his own right in 1964. Johnson considered the government as capable of creating a "Great Society", and began many new social programs to that end, such as Medicaid and Medicare. However, controversy over the Vietnam War forced Johnson to step aside and brought an electoral victory for Republican Richard Nixon in 1968. The U.S. government financed much of private industry's research and development throughout these decades, such as the space program, and the military began funding R&D of ARPANET (which would become the Internet) in the late 1960s. In 1968 and 1969, productivity growth climbed near the levels it had reached earlier in the decade, but this would not last.

Stagflation

In the late 1960s it was apparent to some that this juggernaut of economic growth was slowing down, and it began to become visibly apparent in the early 1970s. Stagflation gripped the nation, and the government experimented with wage and price controls under President Nixon. Due to insovlency, in 1971, President Nixon closed the gold window at the Federal Reserve, taking the United States entirely off the gold standard and bringing the Bretton Woods system to an end. President Gerald Ford introduced the slogan, "Whip Inflation Now" (WIN). In 1974, productivity shrunk by 1.5%, though this soon recovered. In 1976, Jimmy Carter won the Presidency. Carter would later take much of the blame for the even more turbulent economic times to come, though some say circumstances were outside his control. Inflation continued to climb skyward. The United States developed a trade deficit. Productivity growth was pitiful, when not negative. Interest rates remained high, with the prime reaching 20% in January 1981; Art Buchwald quipped that 1980 would go down in history as the year when it was cheaper to borrow money from the Mafia than the local bank. According to a Gallup Organization poll, Carter ended his term with a low 28% approval rating. A C-SPAN survey of historians ranked Carter at 33rd of 41 presidents in the category of economic management; a C-SPAN survey of viewers ranked Carter at dead last.

One positive aspect of the period is that unemployment dropped mostly steadily from 1975 to 1979, although it then began to rise sharply.

This period also saw the increased rise of the environmental and consumer movements, and the government established new regulations and regulatory agencies such as the Occupational Safety and Health Administration, the Food and Drug Administration, the Consumer Product Safety Commission, the Nuclear Regulatory Commission, and others.

Reaganomics

In 1980, Ronald Reagan was elected President by a landslide, and immediately began a series of cuts in taxes and spending. The so-called "Reagan Revolution" marked reduced taxes and deregulation. Inflation dropped dramatically from 13.5% annually in 1980 to just 3% annually in 1983, and real GDP growth began to grow. The unemployment rate continued to rise to a peak of 10.8% in late 1982, but then dropped as sharply as it had risen to a level of 5.4% at the end of Reagan's presidency in January 1989. Critics of the Reagan Administration often point to the fact that the federal debt tripled (from $930 billion on December 31, 1981 to $2.6 trillion on September 30, 1988; note that fiscal year 1986 began on October 1), reaching record levels. Of course, the debt regularly reaches record levels as the debt has not been reduced over the course of a Presidency since Calvin Coolidge was in office. In addition to the fiscal deficits, the U.S. started to have large trade deficits. The U.S. went from being the world's largest creditor nation to becoming the world's largest debtor nation during his second term. It was during his second term that the Internal Revenue Code of 1986 was passed. Reagan's Vice President of 8 years, George H. W. Bush, easily won election in 1988. The early Bush Presidency's economic policies were essentially a continuation of Reagan's policies, but in the early 1990s, Bush let down many Reagan supporters by agreeing to a tax increase in a compromise with Congressional Democrats. Bush ended his Presidency on a moderate note, signing regulatory bills like the Americans With Disabilities Act and a law mandating that toilets use low amounts of water, as NAFTA (more formally, "the NAFTA") came into effect. In 1992, Bush and Ross Perot lost to Democrat Bill Clinton.

The Tech Bubble

During the 1990s, the national debt doubled.[1] (http://www.publicdebt.treas.gov/opd/opdhisto4.htm)

Over his term, Clinton would raise taxes to their highest level in history while passing welfare reform in an effort to reduce the number of people dependent on government. With Republicans in control of Congress starting in 1994, most major spending programs were opposed by one side or the other, and spending increases stayed relatively low. However, the overall effect of government policy is disputed, as the 1990s would see a significant boost in the software and "dotcom" industries.

One should take note that during this period, government statistical formulas were changed to produce happier results, and government statistics should be considered carefully before being accepted. A 2% reduction in the national debt was apparently achieved in the year 2000 due to the "borrowing" of approximately a trillion dollars from the Social Security Trust Fund, and there was much buzz about how quickly the national debt would be paid off given the sudden "surplus" and expected surpluses over the next years. There was even some concern raised about possible adverse affects of paying off the debt too quickly. Thirty year treasury bonds were removed from the market. Both Democrats and Republicans were eager to spend the surplus (either on tax cuts or spending increases) despite the fact that public opinion polls showed the majority of Americans preferred using the surplus to pay down the national debt.

After several decades of U.S. taxpayer financing of research and development of the Internet, the Internet project was opened up for commercial traffic on its backbone in 1994. The years 1994 - 2000 witnessed solid increases in real output, low inflation rates, and a drop in unemployment to below 5%. The stock market soared. Some people who had seen projected profits to earnings ratios of 200 to 300 had at first thought it to be absolute nonsense — and they were right. The year 2000 witnessed the end of the boom psychology and performance, with a growth rate of only 1.4% in the last three months. One of the most striking illustrations of this is the sharp drop in the personal fortune of computer entrepeneur Bill Gates. The situation worsened in 2001 with output increasing only 0.3% and unemployment and business failures rising substantially. The response to the terrorist attacks of September 11 showed the remarkable resilience of the economy. Since those attacks, the economy continued to grow, albeit at an uneven pace. More recently, economic growth has sped up, with growth in the third quarter of 2004 reaching 4% according to the Bureau of Economic Analysis.

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