After facing years of economic lethargy during the time of economic depression in the 1930s and the following Second World War the US emerged as the most powerful economy in the World during the mid-1940s. This boom continued into the 1960s until it reached an economic decline in the 1970s due to trade deficits.
The beginnings of the boom started during the Second World War when American industry was hard at work producing military equipment for the Allies. This increased production brought the rate of unemployment from 15% in 1940 to 2% in 1944. Over six million women joined the work-force during the war to preplace the men serving in the war and received high wages. The government began to tax these wages in 1943 as received plenty of federal revenue as a result. For example, almost half of the war was paid for with taxes.
However, with so many resources going to the war effort, many Americans had little to spend their money on and were forced to save it. This accumulated to $134 billion saved by Americans in banks or invested in government bonds which the government solve to finance the war. When the war ended in 1945 Americans spent their vast sums of money on consumer goods which led to an economic boom. The skilled workforce that produced war equipment switched to producing consumer goods; this led to the US becoming the leading exporter of goods and services. In this time of economic growth business such as McDonalds, could expand and modernise.
Merges also began to popularise in leading to the concentration of business and industry to large corporations. By the mid-60s 150 corporations controlled half of America’s manufacturing industries and in 1962 General Motors became the biggest company in the world. This growth of businesses led to US companies becoming Multi-national Corporation by establishing themselves in other countries. This integration of international markets became known as globalisation. From 1945 to the late 1960s the international markets were dominated by American companies such as Ford Exxon and General Electrics.
Another factor which contributed to the growing boom was the increase in public investment. The US government followed British economist John Maynard Keynes’s idea of pumping money back into the economy to increase public demand for goods and services. This was done to dodge an expected recession when millions of servicemen returned from the war and the wartime production, which employed millions of Americans, was made redundant.
Another tactic used to soften the blow of returning soldiers was the Servicemen’s Readjustment Act, also known as the GI Bill. Its gave soldiers low-interest government loans to finance their third-level education, business endeavours or to simply take out a mortgage; between 1945 and 1955 over $20 billion was made available to over 7.8 million veterans . The GI Bill contributed to an economic boom in building industry, education and consumer spending. In 1948 President Truman put forward his Fair Deal reforms which increased the minimum wage and extended social welfare which helped the unemployed. The federal bureaucracy also increased.
These reforms seemed to pay off as in the 1950s and 60s public spending continued. In 1956 Eisenhower announced the Interstate Highway Act which spent $33.5 billion building 65,970km of roads across the country. President Johnson continued social welfare reforms by spending $800,000 on them during his Great Society programme which dramatically reduced poverty in the US.
Foreign investment by the US also greatly increased the economic success in the US. In 1947 the Marshal Plan gave the US government $13.5 billion in the form of cash, equipment, food and technical assistance. Countries in the Plan agreed to buy US products and allow US companies to invest in their economies. The various races throughout the 1950s to 70s including the arms race and the space race developed industries such as weapons research and development created more jobs and thus helped the economy. These advancements in technology led to the development of new industries after 1945. The technology experienced a boom which sae the mass production of consumer goods such as telephones, TVs, radios and computers. However new machinery equipment being developed began to take over from hand tools and manual labour. The technology revolution led to a dramatic rise in production and economic growth.
All of this growth was facilitated by the availability of cheap energy found in the form of oil. The US could domestically provide for its oil demand. Oil consumption in the US grew from 6.5 million barrels a day in 1950 to nearly 14 million barrels per day in 1970. The average price of a barrel of oil was $2. This low cost kept production and transport cost low, helping businesses to grow. This great increase forced the US to import large quantities of oil, especially from the middle-east. In fact five US companies together with one Anglo-Dutch and one British company, known as the Seven Sisters, controlled 85% of global oil reserves before the 1973 oil crisis.
This time of economic success and seeming political peace ingrained a sense of stability into the American people which led to a baby boom. By 1958 over one-third of the US population was under 15 year old. This led to a growth in production and sales of various goods and services including food, clothes and toys. The growth in population led to a growth in leisure, housing and educational facilities. Developers build large suburban residential areas including schools, churches and shopping malls all across America. During the 1950s large areas of family housing known as ‘Levittowns’ were built by the building company Levitt & Sons. By the end of the 1950s over 25% of Americans moved to the suburbs. This mass migration out of the cities to the suburbs prompted a growth in the motor industry, in 1945 there were 26 million cars on the roads, this figure increased to 130 million by the mid-1950s.
A significant shift the US economy came in the 1960s with the growth of federal deficits. In 1960 President J. F. Kennedy announced his ‘New Frontier’ programme which combined domestic and foreign policy objectives; at home this meant tax and social welfare reforms and civil rights. He also increased federal spending on defence which was funded the US government knowing it would mean federal deficits. After Kennedy’s assassination in 1963, his successor J. B. Johnson announced his ‘war on poverty’ with his Great Society programme and cut income taxes. He also made $800 million available to improve health and education for the poor and tackle poverty. The federal deficit also increased during the Vietnam War which cost the US $100 billion a year. Instead of raising taxes, Johnson began to borrow money to pay for the war which sent the US economy into turmoil. Unemployment and inflation began to increase. Continued deficit spending and decline of production led to a negative trade balance as the country was importing more than it was exporting. The government then tried to change this by increasing interest rates. The US then began to print money to pay for the services it provided but this only increased inflation. There were high rates of unemployment in the 1970s and 80s as many millions of Americans lacked high-tech skills to work in a complex work-force. This mix of high inflation, low-growth and high unemployment became known as stagnation. The usual practice to combat inflation was would be to raise interest rates or cut government spending but this would increase the already high levels of unemployment and so the US government were presented with a uniquely difficult issue.
In 1980 the US was still I recession but President Ronal Reagan turned it around. At this time unemployment was at 10%, one third of all industries remained idle and interest rates were record-high at 20%. Reagan’s economic policies, known as Reaganomics, cut federal welfare spending and reduced personal and corporate taxes. These policies worked and the economy turned around. In 1975 Reagan began to increase taxation for the rich which allowed for tax cuts for the middle-class. The economy was once again on the rise with personal income rising 20% per person after 1980, annual inflation fell from 13% in 1981 to less than 4% and employment rose as 13 million new jobs were created. However this growth was facilitated by an increase in federal spending. During his time Reagan increased military spending with a new defence plan in 1982 costing $1.2 trillion. Now the government was in debt of $2.6 trillion in 1988.
In addition to domestic economic turmoil, US companies faced problems from foreign investors. During the recession of the 70s and 80s, countries such as Japan and West Germany immerged as major competitors and outperformed America in the international industries of steel, textiles, consumer and electrical goods. These US industries which had been strong exporters since 1945 began to see their products being replaced by foreign investors. For example the US car industry which had before always been dominated by Ford and Chrysler General Motors began to see their domestic market shrink due to completion from foreign companies such as Toyota and Mercedes-Benz. In 1955 foreign cars only accounted for 1% of cars in America but by 1987 this figure rose to 31%. The American industry was decreasing and many blamed the US educational system for not producing skilled workers; however others blamed the workforce for demanding high wages and corporations for demanding quick profit at expense to long-term investment. This rise in foreign investment led to a rise in unemployment in traditional industries.
To conclude, the economic boom in America which took place after the Second World War was due to the economic lethargy of the war erupting into a boom which was facilitated by cheap oil and encouraged by the baby boom which led to spending in areas such as technology and the growth of suburban America. However this time of economic prosperity was met with an equally prominent time of economic decline due mainly to the Vietnam War and the subsequent federal deficit which took America into a deep recession.
