The United States enjoys a vibrant capitalist economy and has benefited from several decades of global trade and investment flows. Monopolies and cartels are suspect. The Federal Reserve System is established in 1913. The next year, the Federal Trade Commission Act and Clayton Act strengthen the antitrust policy. The Ford Motor Company begins to reinvent industrial assembly.
World War I brings large-scale but temporary government intervention in the economy, enacted through federal legislation. The War Industries Board coordinates the production and prices of war materials and the purchase of supplies. In 1918 the railroads are brought under government management; they will return to private control by 1920. The war also spurs growth of the aluminum industry.
A business recession follows the war, but soon a construction boom takes hold, increasingly fueled by stock market speculation. Large corporations take shape, and industries that capture technological change expand rapidly. Automobiles and radios become widespread. But the renewed prosperity does not reach the farms: While the cities boom, agriculture slumps into depression.
The boom of the 1920s and apparent achievement of lasting prosperity puts industrialists on a pedestal, and seems to vindicate Coolidge and Hoover's laissez-faire policies. But the stock market bubble peaks and bursts on October 24, 1929, setting off a financial panic and destroying individual savings and the edifice of credit and debt. Similar crises follow overseas.
As businesses fail and unemployment soars, President Hoover establishes the Reconstruction Finance Corporation to channel loans to banks and railroads. Other measures make funds available for public works and seek to forestall foreclosures. Yet the depression worsens all through the election period.
Franklin Roosevelt's First New Deal measures stabilize the economy; they also establish oversight and finance agencies that are now seen as crucial to economic life, such as the Federal Deposit Insurance Corporation and the Securities and Exchange Commission. Direct relief measures cause government spending to balloon. Farmers receive a range of subsidies and protections.
Laws on public utilities and labor practices complete the flurry of regulatory innovation. John Maynard Keynes's influence grows and is relayed to Washington by Harvard economists and other influential intellectuals, eventually eroding Roosevelt's doubts about deficit spending. Despite antitrust policies, an official report finds that industrial concentration has greatly increased.
As the U.S. enters the war, "preparedness" programs give way to a war economy, with the War Production Board and other agencies managing the production and distribution of key fuels and materials. The Office of Price Administration controls pricing, and basic commodities are rationed. The government takes temporary control of the railroads. The Lend-Lease program funds arms exports to the Allies.
President Truman's postwar economic program is squarely Keynesian, with deficit spending and plans for full employment. The minimum wage increases. As servicemen return and the Baby Boom begins, the government sponsors health and housing initiatives. Economic stabilization is a main concern, and wages and prices remain monitored by a government board. Rationing ends in 1947.
Wage and price stabilization continues until 1953. Successive expansions of Social Security increase benefits and broaden the range of recipients. Labor conflicts in the steel industry force government intervention and court rulings. In 1953 the U.S. becomes a net importer of oil for the first time.
The U.S. enjoys a steady economic expansion with occasional brief recessions. But it is growing more slowly than either Western Europe or the Soviet Union. President Eisenhower reforms the tax system and alters farm policy, introducing "flexible supports." The 1956 Highway Act launches funding and construction of the interstate highway system, with profound impact on commerce and transportation.
The Kennedy, and later Johnson, administrations favor accelerating economic growth on Keynesian principles, relying on deficit spending to do so. A period of prosperity sets in, with near-full employment and low inflation. In 1964 personal and corporate tax rates are reduced.
Prosperity crests in the late 1960s, and Keynesian economic policy starts to show strain as inflation steadily grows, pushing up wages and prices and decreasing competitiveness. Waves of skilled immigrants from Asia take positions in the technology sector. As Nixon takes office, a period of prosperity is ending, challenging the dominant Keynesian economic philosophy.
President Nixon contends with growing inflation. He experiments with wage and price controls, angering his conservative supporters. The controls are ineffective and are removed after Nixon's reelection. The closure of the gold window and double devaluation of the dollar seek to restore American competitiveness. But the 1973 oil shock only reawakens inflation and redoubles the crisis.
Inflation and the energy crisis drive up industrial costs, and unemployment begins to grow in tandem, resulting in "stagflation." The Democratic Congress employs Keynesian measures -- public spending on infrastructure and local projects to stimulate the economy -- but to little effect. The crisis weakens corporations, but also communities. Emergency federal loans avert a New York City bankruptcy.
Stagflation worsens; consumer and investor confidence plummet. Tax cuts are ineffective to awaken the economy, as are Carter's programs, which rely on voluntary wage and price restraint. Inflation surges; the Federal Reserve drives interest rates above 20 percent to remove money from circulation. Deregulation begins amid crisis as price and entry restrictions are removed for airlines and trucking.
Tight monetary policy provokes a recession but brings down inflation and calms the economy. Reagan reduces personal taxes by 25 percent and slashes capital gains and other taxes. Defense spending rises sharply; many social programs are cut or returned to state administration. Despite a round of tax increases in 1982, the Reagan measures result in a massive increase of the deficit and public debt.
Growth has resumed, but the productive impact of tax cuts falls short of the claims of Reagan's supply-side economists. Instead, the debt and deficit nearly triple from 1981 to 1988. The stock market tumbles in 1987, but no panic ensues. That year, the $1.75 billion Conrail stock sale is America's largest privatization. Leveraged buyouts and mergers alter the corporate landscape.
A recession darkens the economic mood, accenting growing inequalities. The deficit hits a record 5 percent of GDP in 1992. Voters punish President Bush for breaking his "no new taxes" promise. Fiscal conservatives advocate sharp spending cuts. Clinton embraces this program despite a divide among Democrats. Using budget cuts and limited tax increases, he makes deficit reduction his central priority.
The Clinton deficit-reduction program is a success. Spending cuts and higher tax receipts from a booming economy combine to wipe out the deficit by 1998, outstripping the most optimistic projections. A debate begins on how to employ the new surplus. Clinton supports husbanding the surplus to shore up Social Security. Republicans argue for a new round of tax cuts.
The "New Economy" peaks in 1999. Fueled by technological development, the rise of the Internet, and unremitting optimism about productivity improvements and a coming "long boom," it has resulted in thousands of start-up firms and created instant millionaires through stock sales. But the boom runs out in 2000, as the NASDAQ exchange tumbles and dot-com firms fold by the dozens.
Once in office, President Bush swiftly passes tax cuts, including immediate rebate checks to all American workers. But a recession has begun, and within months the cuts have wiped out the projected budget surplus. In the wake of the World Trade Center attack consumer confidence dips. The airline industry is badly affected, leading to bankruptcies. A global economic slowdown takes hold.
As the economy worsens, the Treasury secretary and chief economic advisor are forced out. War with Iraq further slows the economy amid fluctuating oil prices and high unemployment. State and local governments, in deep fiscal crisis, see little or no federal assistance as the deficit soars. Bush pushes added tax cuts, however, proposing to cut most areas of government spending aside from defense.
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