The Second Brief History of the United States

Things to remember from last time 2nd Industrial Revolution launches US to #1 GDP Prosperity in 1920’s leads to greater crash in 1929 The stock market crash reduced the economy by about 50% The crash was caused by overspeculation The Great Depression occurs

Herbert Hoover – lengthened the Depression Herbert Hoover enacted higher taxes to boost the government’s budget deficit He also signed the Smoot- Hawley Act Charged high tariffs on foreign goods Other countries retaliated Unemployment – 25%, 1/3 of the money supply was gone

FDR – Created the New Deal which made some jobs Franklin Delano Roosevelt created the New Deal which increased the size of the government and their involvement in the economy Helped boost the U.S. economy out of the depression Deficit spending was an idea espoused by John Maynard Keynes, the father of modern macro

Depression Data Table 2: Depression Data[33] 1929 1931 1933 1937 1938 1940 Real Gross National Product (GNP) 1 101.4 84.3 68.3 103.9 103.7 113.0 Consumer Price Index 2 122.5 108.7 92.4 102.7 99.4 100.2 Index of Industrial Production 2 109 75 69 112 89 126 Money Supply M2 ($ billions) 46.6 42.7 32.2 45.7 49.3 55.2 Exports ($ billions) 5.24 2.42 1.67 3.35 3.18 4.02 Unemployment (% of civilian work force) 3.1 16.1 25.2 13.8 16.5 13.9

WWII The main reason for the United States’ economy flourishing through the 1940’s was the war economy driven by WWII Six million women became new workers After WWII, the suburbs grew out of pent-up demand for new housing Eisenhower built the interstate highway system, strengthening our infrastructure

Postwar prosperity The GI Bill encouraged many veterans to invest in their education. Our productivity was increased greatly and our GDP grew Kennedy cut taxes and the US went through a kind of golden age of economic growth Gave people an opportunity to focus on other things Music, Politics, being a hippie, etc

Under Lyndon Johnson, the government took greater control of the economy The Great Society focused on Medicare, Medicaid, welfare initiatives, etc. Johnson also wanted to complete the war in Vietnam, continue Cold War This is a classic example of guns vs butter Great Society

Inflation in the 1970’s Under Presidents Nixon and Ford in the 1970’s the US suffered from increasing prices Inflation – the increase in currency causes increasing prices, while the value of currency remains constant or decreases Prices went up because of supply shocks

OPEC Organization of Petroleum Exporting Countries Founded in the late 60’s Saudi Arabia, Venezuela, Iraq The US oil production peaked in 1970, so we had to rely on the higher prices of OPEC. These higher prices were felt across the economy The government experimented with price controls to stop inflation Ford: “WIN” (Whip Inflation Now!)

Reaganomics In the early 1980’s there were back to back recessions Prices stabilized Reagan advocated for lowering taxes for the rich, lowering borrowing rates, and less intrusion of trade Basically, the rich got very rich and the poor stayed sort of poor This is the first use of “trickle down” economics Let the rich control the wealth, and they will put it to the best use, and the money will eventually trickle down the economy into the pockets of the poor

Gini index Gini index – remember it measures the inequality of the economy 0 means perfect equality 1 means 1 person has all of the money Does trickle down really work? Does income equality even matter? Remember why minimum wage is ineffective

Clinton carried over some of other Democratic President’s ideas about economy, but largely let the economy loose Like Reagan In addition to some sweet music and hairstyles, the 90’s provided a growth in the economy due to the Technological Revolution The advent of computers as a tool for businesses and consumers The internet also aided in this revolution The 90’s

2001 – The Dot Com Recession In late 2000 and early 2001, many new businesses were started because of the internet. Stock speculation was high, and people rode the market wave on new innovative companies Like Geocities, Hotmail, amazon, Ebay, pets.com The market crashed once it was realized that ordering pets and groceries online was a dumb idea Trust was lost in the internet: loss of trust -> crash

Dot Com Bubble Burst Bubble Caused by “irrational exuberance” – Greenspan Stock traders were overoptimistic about the impact of new start-up websites When the bubble becomes over inflated it pops causing a market crash

The survivors prospered Certain investors and CEOs survived and made goo-gobs of money in the second half of the 2000s The war economy under George W. Bush also led to prosperity

The 2008 Housing Market Crash We’ll get to this next week