Essay 1

Changes in the US Economy from 1945-1989

1. Boom (1945-1968)

• Intro  
  • 100% Economic Growth during this period.
  • 7% population-50% manufacture.
  • “American Dream”-High Standard of Living
• WWII
  • War industry-2% unemployment-$134 billion in government bonds-huge spending period after war.
  • There were also much higher wages and increase in overtime.
  • 6 million women join workforce.
  • Government began to receive a huge amount of tax-enough to pay for half of WWII costs. Income tax first charged in 1943.

• Trends
  • Franchises (McDonalds)-Huge benefits such as encouraging entrepreneurs/Mergers/Transnational/Globalisation (global economy in 1955 dominated by companies such as Exxon).
  • There were those for and those against globalisation.
  • It occurred due to the dollar being the main currency throughout the world, it was cheap to set up factories abroad and foreign countries promised lower taxes.
  • There was also an Americanisation with things such as Coca Cola.
  • 50% of manufacturers controlled by 150 companies.
  • US became largest overseas investor in the world.
• Investment
  • Domestic-Keynesian Economy “Priming the pump” (pump money to avoid recession).
  • 1944 G.I Bill (cheap veteran loans-gave out $20 billion to 7.8 m).
  • Social Welfare-1948 Truman Fair Deal reforms (raised minimum wage)/Federal-Aid Highway Act (68,000 km). Johnson Great Society-$800 million
  • Foreign-Martial Plan to Italy, France, Portugal ($13.5 billion)/Lent money abroad in return for trade/tried to end communism. “Trade for aid”-Imperial Economics.

• Defence
  • Korea/Vietnam/Arms Race/Cold War/Space Race-NASA (9,000 companies).
  • Conscript army-defence industries profit-weapons related companies.
  • Military bases were set up in 30 countries.
  • This caused industrial expansion of the Sun Belt which includes California.
  • As a result the GNP rose to $500,000 million by 1960.
• Other
  • Energy-oil and cars (controlled 65% of world oil reserves with British and Dutch). First Nuclear power station set up in 1957. By 1970-atomic energy accounted for 8% of total electivity.
  • New technology-electronics expanded-US a world leader.
  • Baby Boom-1946-4 million babies born. Demands for goods and services such as cars. 1950’s-Over 130 million cars.

2. Bust (1968-1989)

• Tension
  • Tension between economy and defence spending.
  • 1980-1983 saw he worst recession since the 1930’s
  • John Kennedy-New Frontier-1960. (increased defence spending and social welfare).

• Deficit Spending
  • Johnson took office in 1963.
  • Great Society-cut income taxes-$800 m.
  • Vietnam overspending and increased government borrowing with higher prices and higher unemployment. Cost US $100 billion a year.
• Oil crisis/Domestic Recession
  • 1973.
  • US offered Israel a $2.2 billion arms deal to try to raise money after its war with Egypt.
  • Organisation of Petroleum Exporting Countries increases price of oil which caused higher inflation.
  • The effect was so big as America was currently importing 30% of its oil
  • Stagflation-combination of high inflation with low growth and trade deficits. There was also a drop in income and government spending.
  • 1960’s-unemployment rises to 8.5% and America sees decline in exports.
  • Manufacturing was in decline, but there were not enough white collar workers which affect economy and employment also.
• Economy worsens
  • Nixon was forced to resign after revaluing the dollar and freezing price rises for 3 months). Ford takes over and began to cut spending and increase taxes.
  • America had 8 years of trade deficits during the 1970’s.
  • Called for Americans to “Whip Inflation Now” as it was at 7%.
  • This failed to have any affect.
  • In 1975 there was a change of tactic with income tax rebates and a lowering of Corporation Tax. However, this did not help much and unemployment was at around 8%.
  • Carter then took office and another oil crisis hit and he set up a Department of Energy to try and raise awareness about conserving supplies. He also increased government spending and interest rates.
  • No notice was taken and by 1979 inflation was 13%. The economy was on the brink of collapse.
• Reagan (1981)
  • “Reaganomics”-cutting welfare, encouraging work and reducing taxes which helped economy to improve.