Chapter 1 - A brief economic history of the United States. After studying this chapter you will be able to understand: How we did we grow from a primarily agriculture nation of 4 million people to an industrial power of 275 million? How the Civil War, World War I, and World War II affected our economy; How our nation was shaped by suburbanization after World War II; what major factors affected our economic growth decade by decade from the 1920s into the new millennium?
Chapter 1 A Brief Economic History of the United States Copyright 2002 by The McGrawHill Companies, Inc. All rights reserved 11 Chapter Objectives • How we did we grow from a primarily agriculture nation of 4 million people to an industrial power of 275 million? • How the Civil War, World War I, and World War II affected our economy • How our nation was shaped by suburbanization after World War II • What major factors affected our economic growth decade by decade from the 1920s into the new millennium • What the “new economy” is and how it differs from the “old economy” Copyright 2002 by The McGrawHill Companies, Inc. All rights reserved 12 Introduction: A Study in Contrast (The United States) • In the midst of plenty • Expanding technologies • Losing the trade war • 20 million new jobs since 199091 • Baby boomers better off than previous generations • Poverty • Dying industries • Won the cold war • Half paid less than $15,000 per year • Today’s generation is generally worse off than its parents Copyright 2002 by The McGrawHill Companies, Inc. All rights reserved 13 The American Economy in the th 19 Century • Agricultural Development • The National Railroad Network • The Age of the Industrial Capitalist Copyright 2002 by The McGrawHill Companies, Inc. All rights reserved 14 Agriculture Development • At the start of the American revolution, America had an almost limitless supply of land – Nine of ten Americans lived on a farm – One hundred years later, fewer than one in two did – Today, fewer than two in one hundred • These two feed America and create a huge surplus that helps to feed the rest of the world • The abundance of land was the most influential factor in our economic development in the 19th century – Brought millions of immigrants – Encouraged large families – Encouraged rapid technological development Copyright 2002 by The McGrawHill Companies, Inc. All rights reserved 15 Agriculture Development (Continued) • America’s population – – – – – – – 1789 1812 1835 1858 1915 1968 2000 4 million 8 million 16 million 32 million 100 million 200 million 275 million Copyright 2002 by The McGrawHill Companies, Inc. All rights reserved 16 Agriculture Development (Continued) • America’s large and growing population was extremely important as a market for our farmers and manufacturers – Foreign countries also targeted the American market – Japan targeted the American market after WW II Copyright 2002 by The McGrawHill Companies, Inc. All rights reserved 17 Economic Conflicts Leading to the Civil War • South • North – Had an economy based on manufacturing – Had to pay higher prices than they would have paid for British goods Had an economy based on slave labor (agriculture) – Opposed extension of slavery westward Knew this would be politically untenable – Benefited from high protective tariffs Copyright 2002 by The McGrawHill Companies, Inc. All rights reserved 18 After the Civil War • New England, the middleAtlantic states, and the midwest were poised for major industrial expansion and experienced significant economic growth • The South remained primarily an agriculture region and experienced economic doldrums until the early 1960s Copyright 2002 by The McGrawHill Companies, Inc. All rights reserved 19 The National Railroad Network • The completion of the transcontinental railroads – 1850 The United States had 10,000 miles of track – 1890 The United States had 164,000 miles of track – This made possible mass production, mass marketing, and mass consumption, which brought the country together into a huge social and economic unit – This made it possible to go almost anywhere in the U.S. by train except in the south (i.e., transcontinental lines bypassed the south) – This severely retarded its economic development well into the 20th century Copyright 2002 by The McGrawHill Companies, Inc. All rights reserved 110 The1980s: The Age of Reagan (Continued) • The country was in a severe recession 1981 • • • • It was the worst since WW II Unemployment reached nearly 11% in 1982 Inflation had been brought under control Unemployment rates began falling – They seemed to stick around 6% – Deficits were a problem: $79 billion in 1981 and $290 billion in 1992 – Business taxes were cut – Personal income taxes were cut Copyright 2002 by The McGrawHill Companies, Inc. All rights reserved 138 George Bush • “Read my lips: no new taxes” – Bush won the election of 1988 – Two years later, he agreed to a major tax increase • Supposedly to reduce the deficit • But, the deficit continued to rise – A recession began in early 1992 and ended late in 1992 – Bush failed in his bid for reelection Copyright 2002 by The McGrawHill Companies, Inc. All rights reserved 139 To the Millennium and Beyond • The Military – Since the demise of the Soviet Union should the United States have continued to spend $300 billion or more a year on defense? • Couldn’t some of these resources be used to lessen some of our many social and economic problems? Copyright 2002 by The McGrawHill Companies, Inc. All rights reserved 140 To the Millennium and Beyond (Continued) • Real Wages – Despite all our economic growth, real wages for most workers today are slightly less than they were in 1973. Why? • Plant closings and downsizing have done away with millions of wellpaid jobs • There has been a weakening of labor unions • There are alternative cheaper workers, which exerts downward pressure on wages • There is an increasing tendency for business to replace fulltime workers with temporary and parttime employees • Onethird of the new jobs created since 1991 have been parttime or temporary Copyright 2002 by The McGrawHill Companies, Inc. All rights reserved 141 The State of American Agriculture • The story is one of vastly expanding productivity In 1820, one – 1850 to 1900 output doubled – 1900 to 1947 output doubled – 1947 to 1960 output doubled In 1800, it took 370 hours to produce 100 bushels of wheat farmer fed 4.5 people. Today, one farmer feeds 100 people In 1960, it took just 15 hours to produce 100 bushels of wheat Copyright 2002 by The McGrawHill Companies, Inc. All rights reserved 142 The State of American Agriculture (Continued) • Agriculture is one of the most productive sectors of our economy – Yet, only 4.5 million people live on farms today and less than half farm full time – The U.S. exports more than onethird of its crops – 35 million Americans make use of food pantries and other food distribution programs • In the Great Depression, Americans resorted to soup kitchens 143 Copyright 2002 by The McGrawHill Companies, Inc. All rights reserved The State of American Agriculture (Continued) • Despite hundreds of billions of dollars in government aid since WW II – Family farms are disappearing • 7 out of 10 are now gone • The average farm has gone from 139 acres to 435 acres – Family farms are being squeezed out by huge agriculture combines • Today’s farmers have to become big to survive! – The Farm Act of 1996 was supposed to reduce aid payments and eventually phase them out • Nevertheless, as crop prices sank to 10 and 20year lows in 1999, payments to farmers were a record $23 billion Copyright 2002 by The McGrawHill Companies, Inc. All rights reserved 144 Other Social and Economic Problems • Good economic times–monumental problems – – – – – – Crime Drugs Disposal of nuclear waste A permanent underclass Decaying central cities Interstate highway network problems • After years of neglect it is now a work in progress – A nation of consumption junkies • Public and private debt exceeds $20 trillion Copyright 2002 by The McGrawHill Companies, Inc. All rights reserved 145 Other Social and Economic Problems (Continued) • Questions you need to be thinking about – Will I be able to find a decent job when I graduate? – Will I be able to live as well as my parents? • Or will I have to live with my parents? – Will I be able to collect Social Security benefits? Copyright 2002 by The McGrawHill Companies, Inc. All rights reserved 146 Other Social and Economic Problems (Continued) • Who is the largest employer in the United States? – Manpower, Inc • A temporary employment agency – our future – A goal of Bank of America is to have 80% of its staff be parttime employees – No medical insurance – Note that 45 million Americans have no medical insurance Copyright 2002 by The McGrawHill Companies, Inc. All rights reserved 147 Other Social and Economic Problems (Continued) • America is the world’s largest debtor nation – 20 years ago we were the largest creditor nation • America is hemorrhaging millions of wellpaid blue collar jobs • America’s educational system turns out one million functional illiterates every year Copyright 2002 by The McGrawHill Companies, Inc. All rights reserved 148 Other Social and Economic Problems (Continued) • America has more than 1 in 10 officially classified as poor • America has a growing permanent underclass of 4th and 5th generation welfare families – This numbers in the hundreds of thousands • America has two million people in prison – Yet, many of our streets are not safe Copyright 2002 by The McGrawHill Companies, Inc. All rights reserved 149 The “New Economy” of the Nineties • This was a decade of computerization – It was a decade of major technological change • At the close of the century the unemployment rate was 4.1 percent • In the late 90s, the economy was growing at a rate of 5.0 percent • Americans spent money as if there was no tomorrow • There is a growing trade deficit ($300 billion) – This cannot go on indefinitely Copyright 2002 by The McGrawHill Companies, Inc. All rights reserved 150 The “New Economy” of the Nineties (Continued) • The 1990s are often compared with the 1920s – In both decades the stock market soared • Great fortunes were made – In the 1920s, 1 in 10 Americans owned stock – In the 1990s, 1 in 2 Americans owned stock Copyright 2002 by The McGrawHill Companies, Inc. All rights reserved 151 “We’ve never been better off, but can America keep the party going?” Jonathan Alter, Newsweek, February 7, 2000 Copyright 2002 by The McGrawHill Companies, Inc. All rights reserved 152 ... 2002 by The McGrawHill Companies, Inc. All rights reserved 1 5 Agriculture Development (Continued) • America’s population – – – – – – – 17 89 18 12 18 35 18 58 19 15 19 68 2000 4 million 8 million 16 million 32 million 10 0 million... 2002 by The McGrawHill Companies, Inc. All rights reserved 1 19 The Recession of 19 3738 • An expansion began in March 19 33 and lasted until May 19 37 – Output however did not reach 19 29 levels – Seven million people were still unemployed in 19 37... What Went Right in 19 38 41? • In April, 19 38 the Federal Reserve and the Roosevelt Administration reversed course • War broke out in Europe in 19 39 • America mobilized in 19 40 – 41 and then entered the war on December 7, 19 41