The US Economy

A brief analysis of the world’s largest economy

by John Birchall

Bishops Stortford College

A brief economic history

• For 100 years after Columbus traders journeyed to New World

• Pilgrims arrived in Massachusetts and more business minded people made their home in Virginia

• Charter companies began to exploit the resources of East US

• Settlers developed own interests and structures

• Industry began with farming, some plantations and exports of rice, tobacco and dyes

Brief history - 2

• Supportive industries then appeared e.g saw mills, ship building,iron forges.

• Plantations, using slave labour started

• Living standards began to be better than in UK

• By 1770 self-government wanted

• War of Independence won and New Nation emerged in 1787

• Adopts new constitution. New nation from Maine to Georgia - a common market

Brief history - 3

• Federal government provided the legal framework and States developed within this

• Intellectual property recognised

• tariffs imposed to protect infant industries

• First National Bank started in 1791

• With invention of cotton gin the trade boomed

• Moved economy south and westwards

• National roads and waterways created at start of nineteenth century

Brief history - 4

• Steam boats start to run over larger distances

• railroads arrive• foreign capital

attracted and industrialisation begins

• By 1860 16% of population living in cities

• one third of national wealth created by manufacturing

• Immigrants start to arrive in large numbers

Brief history - 5

• South remained more rural

• Northern victory in civil war determined future direction of economy

• end of slave labour• planter power

diminishes

• Industrialists begin to control economy

• discoveries, such as oil drive new nation on

• typewriter invented, telephone, phonograph, electric light bulb, refrigeration on railroads

Brief history - 6

• Industrial infrastructure develops e.g coal, iron mines, copper, silver lead and cement factories emerge

• mass production starts• scientific management

• Rich business men became national heroes

• fierce competition and some questionable tactics

• government begins to react to business

Brief history - 7

• Gospel of work and thrift

• philanthropic gifts to universities etc

• risk and excitement deliver increases in living standards

• corporations emerge

• New management elite start to appear

• the Gilded Age moves into twentieth century

• largest economy in world

• little foreign involvement

The role of government

• In early years Federal government only in transport

• laissez-faire economy• begins to change in

latter part of nineteenth century

• farmers start to ask for help

• Fear of corruption in government starts new political movements

• Railroad Act in 1887 and government begins to create Federal Agencies e.g Food and Drug Administration

The role of government - 2

• The New Deal of 1930’s deepens government involvement

• Federal authority extended into banking, agriculture and public welfare

• minimum wage established

• Securities and Exchange Commission started

• Social Security system introduced

• More central control introduced throughout 1930’s and during war

The post war economy - 1

• Consumer boom followed peace

• Not depression some feared when war spending ended

• GNP up from $200000m in 1940 to $300000m in 1950 to $500000m in 1960

• Military spending continued as Iron Curtain emerged

• Marshall Plan • Employment Act 1946

‘ promote maximum employment, production and purchasing power.’

Post war economy - 2

• Consolidation in business - communications, hotels, insurance, car rentals

• by 1956 majority of workers in white-collar jobs

• unions win good terms of employment

• Agriculture faces tougher times

• By 1998 just 3.4 m in agriculture had been 7.9m at end of war

• suburban migration grows

• air conditioning becomes popular

Post war economy - 3

• ‘Sun belts’ e.g Houston grow in popularity

• shopping malls begin to flourish

• industry begins to move ‘out of town’

• New, powerful states emerge in place such as Florida, Georgia, Arizona and Texas

Post war economy - 4

• 1960/70’s times of considerable change

• new nations, insurgent groups, challenges to US supremacy

• Kennedy era - New Frontier.

• Space, Peace Corps, help for elderly

• Post Kennedy Johnson wanted a Great Society

• Medicare, Food Stamps, increased military expenditure/Vietnam

• But government revenues do not rise

Post war economy - 5

• Rising inflation, OPEC problems, rises in unemployment, Federal deficits up, foreign competition increases, stock market sags

• Fear that nation is losing control. Nixon goes

• Imports up, trade deficit grows.

• Stagflation becomes the new problem

• expectations push up prices, higher wages follow, labour contracts have ‘cost of living’ clauses

Post war economy - 6

• Government spending rises to protect vulnerable

• economy sees prices rise and unemployment

• Carter tries to break spiral

• De-regulation starts e.g airlines

• Federal Reserve Board clamps down on inflationary trends

• control of money supply

• interest rates rise, recession follows

Post war economy - 7

• Recession deepened into 1982

• Cycle broken by early 1983-prices fall, growth returns

• Reagan bases polices on supply-side doctrine

• Lower taxes, more savings, more investment, more output, overall economic growth

• Federal government too big - Reagan

• Increase military spending

Post war economy - 8

• Federal budget swells to -$221000m in 1986.

• But not all winning - farmers lose, especially in drought areas, banking crisis, some fear it will all end in pain

• External push in policy - communism falls

• Asia - beginning to hurt US supremacy

• ‘Corporate raiders’ strike in US, as stock prices are low

Post war economy - 9

• !990’s see Clinton elected

• declares end of big government and fails with Medicare reforms

• opens -up markets e.g local telephone services

• Reduces welfare benefits

• Fall of USSR and satellite states open up new business

• Dow Jones end decade on 11000, had been 1000 in 1979

Post war economy - 10

• Framing continues to decline

• service sector expands• deficit peaks in 92 and

falls• New Economy? Low

inflation, high employment, high growth?

• US grows in its interdependence with global economy

• NAFTA formed. Look to EU as base for sourcing markets

• Decade ends with new feeling of confidence

Conclusion

• Economy grew from February 91 till end of decade - longest in peacetime

• unemployment just 4.1% of workforce - lowest for 30 years

• inflation low

• Growth high• global presence

expanding• Asian markets suffer

downturn• US in good shape and

confident• Major locomotive

economy in world