III.The Economics of WarThe 1848 discovery of gold in California not only drew hundreds of thousands of people out West; it also shifted the balance of economic attention of the United States. By the beginning of the Civil War in 1861, gold not only backed American currency. Before long, however, both the North and the South resorted to paper currency.
IV.Reconstruction through the Roaring Twenties (1865 – 1929) By the Civil War, already a third of the national economy was powered by manufacturing, most of which was in the North. Following the war, the American economy was driven by innovation and invention that spurred tremendous growth of the industrial infrastructure. In short, rapid development—and much of itwas a result of advances in mass production. Individual business enterprise became the backbone of the United States economy. It was a “Gilded Age” in America, built by entrepreneurs in manufacturing and commerce, which outpaced the economic contribution of agriculture by the beginning of the 20th century. In the economic history of the United States, the early twentieth century remains critical for major advancements in technology. The steam- and water-powered economy received a jolt by the spread of modern electricity, and the advent of the automobile. Entering late into World War I, the United States was primed to shift its industry and vast amounts of raw materials to wartime. At the time, America was sticking to a gold standard to back its currency, so avoiding simply printing additional money was meant to help preserve the standard, while preventing inflation. The war altered the American economy in many ways. The Federal Reserve assumed a more dominant role as New York became the financial center of the world. The federal government, in short, showed it could be a dominant force in the American economy.
V.Great Depression through World War II (1929 – 1945) The two most influential economic events of the twentieth century in America are the Great Depression and World War II. While the precise causes of the Great Depression are both numerous and challenging to pinpoint, the economic effects were disastrous. At its peak, unemployment was nearly 25 percent of the workforce as hundreds of banks failed (about 40 percent) and hundreds of millions of deposits were lost. In summary, after “increasingly stock speculation, the stock market crash of 1929 wiped out millions of investors and crippled confidence among business executives and consumers”. Under the watch of President Franklin Delano Roosevelt, America launched a vast economic stimulus program called the “New Deal.” The program was designed to rebuild the confidence lost during the Depression and put people back to work through government-sponsored works projects. The New Deal vastly expanded the role of the federal government in the American economy. A close relationship between the private sector of the economy and the American government was developed as a result of the Great Depression. That relationship would continue into World War II, when the nation’s industrial sector was mobilized and coordinated by the government to contribute products directly to the war effort. The gross national product (GNP) of the United States increased over 50 percent between 1941 and 1945 and unemployment hit its lowest point ever at 1.2 percent. America, meanwhile, was becoming increasingly urban as populations shifted to cities and agriculture became more mechanized and absorbed by big business as a result of wartime technology.
VI.Into the Modern Era (1950s – Present) The United States continued to grow after the war, both in population and economically. The postwar “baby boom” consumer spending and numbers of consumers increased substantially. The American “middle class” became dominant. By now the United States was the richest nation in the world. As a result, America was developing an extensive infrastructure to match its wealth. The completion of the Interstate Highway System “remains the largest public works project in the history of the world”. Finally, the strong interrelationship between the government and the ever-expanding industrial sector (the “military-industrial complex”) helped establish the United States as the economic superpower of the world. The middle of the twentieth century saw a brief expansion of labor unions and then labor policy. The Civil Rights movement of the 1960s urged President to further expand and guarantee access to opportunity by minorities in America while Congress helped support new federal spending in the form of programs such as Medicare and Food Stamps. But economic trouble largely resulting from the Vietnam War and high domestic spending plagued the economy in the 1970s. The economy faced inflation and shockwaves from global crises that drove oil prices and consumer discontent high. As a result of increased expenditures (particular in the military and defense) but decreased taxes there were significant increases in both the budget deficit and the national debt as the U.S. government was forced to borrow heavily from other countries. A recession of the early 1990s lingering from the stock market crash of 1987 was drawn out by high oil prices, but consumer confidence and spending helped keep the economy afloat. The economy of the 1990s was driven by the rise of technology and the Internet, whose companies made startling gains on the stock market. Personal and business technology alike broadened and streamlined access to the global marketplace. Economic optimism was based upon high-tech “dot.com” industries who built their success from low interest rates and enthusiastic investors during an era of low unemployment and low inflation. The Federal Reserve closely monitored America’s economic pace and played an active role in the American economy. But it is also because of the Reserve selling billions in bonds to the Chinese that China has gradually assumed role of banker to America. That, in addition to America’s virtual dependence upon cheaply manufactured Chinese goods to sustain America’s consumer-driven economy, had managed to keep inflation, interest rates, and corporate wage costs in America artificially low. Low, even as the economy was taxed by terrorism, military fronts and natural disasters.
VII.Understanding the Recession: Stock Markets, Subprime Lending, and Bursting Bubbles In all, there have been over thirty cycles of expansions and recessions of the U.S. economy just since 1854. When markets are surging, “bubbles” form out of wild speculation and overvaluation that are based largely upon euphoria and greed. Electronic “herds” of investors are populated with optimistic, or “bull” buyers. In 2000, the dot.com economic boom came to an end as interest rates rose and investments in technology slowed. When an economic bubble bursts, the herd became fearful. A pessimistic “bear” market is a seller’s stock market in decline. Some of these economic forces were the same key factors that caused the “subprime” mortgage bubble that burst in late 2007. However, it was dubious and unregulated lending practices (with encouragement from the U.S. government) that caused this shutter in the economy—with aftershocks felt around the world. Americans have tried to be cautiously optimistic, embracing the message of “Hope” in the presidential campaign of Barack Obama. Like many presidents who took over in the midst of recession, President Obama faced the task of virtually “remaking America”. Direct effects of smaller government and deregulation under previous administrations, but most recently with the energy and environmental policies of President Bush, were seen in the Gulf of Mexico when as much as 180 million gallons of oil gushed from a self-regulated rig’s blown out wellhead. The question, then, seems virtually the same as that which faced a younger America: how big should the government be? The answer is overwhelmed by the sheer number of complexities that complicate the task facing President and Americans today—the task of remaking another new American economy.
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