American Economic History After World War II

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Table of Contents

Introduction
Economic Buildup: 1945 – 1950
The Postwar Economy: 1950-1960
Changes in economic approach and the Vietnam War: The 1960s
Oil and Inflation: the 1970s
The Economy in the 1980s
America Globalize: The 1990s and Beyond
Conclusion
References

Introduction

The 20^th century right from the beginning has witnessed major change in economic pattern of the world. In the beginning, it’s been the United States displacing Great Britain as the world’s largest economy and in the end it’s the globalization that made the biggest noise. For the United States, one can say that this century brought the tag of both economic super power and at the same time the locomotive of the globalized world. In the first half of the century, the nation witnessed two major economic events; World War II and the Great Depression. It was the depression, which raised its head but was later made to an end through the activities of the War. It’s been the war that revitalized the ailing American industry. The war had been instrumental in bringing unprecedented advancements in technology and its uses for both defense and civilian purposes. The continuation of innovation processes and permanent research created major job opportunities for scientists, engineers, government officials and citizens. The substantial increase in personal income brought significant in lifestyle and material expenses (US Department of State, 2006).

The final result if viewed in terms of gain in current scenario is that of United States as the economic powerhouse that drives the world. The post war economic events in United States has been instrumental in overall economic condition and almost in each decade since 1945, United States has seen some fundamental changes in economic pattern of the nation and hence the world. Providing importance to five decades of US economy in the later half since Second World War, this paper has been developed to emphasize five significant economic events, each from the periods 1945 – 1950, 1950 – 1960, 1960 – 1970, 1970 – 1980 and lastly the rest of 20^th century respectively. The paper begins with rise in middle class in late 1940s and ends with globalized form of US economy of 1990s.

Economic Buildup: 1945 – 1950

With the end of World War II and drop in federal government’s military spending, US economy was now looking for some other option to maintain its growth. And this time, it was not the government or any major entity that pumped up the economy but the common people termed as consumer fueled strong economic growth in this postwar period. The increased buying capacity ensured successful conversion of automobile industry back into the production of cars and also newer industries and sectors of aviation and electronics started growing. But the most significant been the housing boom supported by post war baby boom, which actually resulted increase in number of consumers and middle class. The housing boom was also the fallout of United States participation of Second World War. The military personnel returning for war zones or their returning members were awarded with easily affordable mortgages and hence fueled the housing sector. The rising demand of the consumers caused significant increase in nation’s gross domestic product and by 1950; it rose to $300,000 million (US Department of State, 2006).

The Postwar Economy: 1950-1960

This decade saw another rise of military expenditure with United States getting into a cold war with Soviet Union. The government was now investing a lot as defense expenditure so as to maintain substantial fighting capacity with newer and newer bombs being developed and researched. Another form of war related expenditure was the introduction of Marshall Plan for the redevelopment of European countries thereby making new markets for numerous U.S. exports. The government was now paying the most important role in defining the aim of nation’s economy and was emphasizing on the concept of promoting maximum employment, production and people’s purchasing power. The Employment Act of 1946 brought further consolidation of above-mentioned concept and the service sector was on rise (Socioecon, 2005). Major Service sector companies like International Telephone and Telegraph were diversifying their services and corporations were becoming large service providers thereby causing significant change in American work force. The number of workers holding white-collar jobs by 1956 was more than blue-collar jobs of production and manufacturing sectors. The rise in jobs and people’s purchasing power was bringing prosperity from cities to suburbs causing another round of housing boom with rise in the ownership of single-family homes and car ownership. Technology innovation in air conditioning, communication technology couples with better highway infrastructure spurred the development of cities of southern and southwestern states. The nation as whole was now rising (Socioecon, 2005; US Department of State, 2006).

Changes in economic approach and the Vietnam War: The 1960s

This decade brought two things into fore; politics and economics. New nations establishing themselves as another economic powerhouse of regional or world scale emerged around the world rivaling the might of United States and forcing older economies to bolster economic relationships to replace military might as the most effective means of growth and expansion. Understanding the importance of the new economic order based on mind and intelligence, federal government was now investing in education to develop better work force thereby providing a boost to non-military research and innovations. Increased federal spending and tax reduction accelerated the economic activity. The government also launched various welfare programs like the Medicare providing better health care for the elderly and Food Stamps for the poor. Various education initiatives included promotion of research at university and institute level was implemented and students and educational institutes including schools and colleges were given assistance in form of high grants (Tripod, 1990; US State Department, 2006).

American’s presence in Vietnam went on to become another factor that provided a sudden rise in military spending. Though the presence of US military was initially supposed to be for smaller period in the beginning but later it became turned out to be a major involvement and also the biggest embarrassment for United States on political front. Economic activities were on a rise due to increased military spending but were later turned out to be an economic disaster as the government was unable to raise taxes to finance its rising military expenditure at foreign shores and welfare policies at home (Sitikoff, 1999). This resulted into higher inflation and in the end eroded all gains in form of economic prosperity that were made in the first half of the decade of 1960s (Tripod, 1990; US State Department, 2006).

Oil and Inflation: the 1970s

The higher inflation era of late 1960s got extended in 1970s due to the oil embargo imposed by members of the Organization of Petroleum Exporting Countries (OPEC) in early seventies. Higher energy prices and corresponding shortage brought inflation into higher zone and eventually disturbing US economy on every front (Hakes, 2000). The unemployment was on rise and the Federal budget deficits also on rise. The local companies were losing market due to intensified foreign competition resulting losses in revenue and lower stock values (Frum, 2000). The nation as a whole was unable to control events. Beginning with the Vietnam War, the war was not just an embarrassment on political front but also disturbed the American might over world and internal economy. The trade deficit swelled to an all time high as low-priced and high-quality imports of almost all sectors from the automobiles to steel and semiconductors making a massive entry into the United States market. People’s continuous demand for the goods so as to hoard brought further thrust to the price of goods (Sitikoff, 1999).

In desperation, government increased its spending to create more jobs while trying to cover up its failure in controlling inflation. As these measures failed to bring any impressive success but at the same time brought some dramatic changes in the deregulation of a number of industries, which included airlines, trucking, and railroads. Later the government relaxed its control over bank sector in form of reducing its pseudo role in maintaining the interest rates (US State Department, 2006).

The Economy in the 1980s

United States in this decade endured deep recession and then improvement over the prevailed condition. Agriculture sector was one of the most affected exports declining, price of the produce felling to new level, and interest rates on rise. But by 1983, inflation started getting eased and the economy witnessed a rebound and again the nation as a whole began to expect a sustained period of economic prosperity. But this recovery was not without its problems. The Farmers operating through small family farms was still under the influence of depression of previous decade and their challenge continued when the mid section of the nation witnessed serious droughts in 1986 and 1988. Banking sector was also under pressure as some of the prominent banks faltered due to unwise lending practices. The federal government was this time concentrating in the reduction of overall government’s expenditure. Japan was becoming a major competitor as the Asia was on rise with extremely cheaper exports. To avoid further slid in their market cap, Companies were spending enormous amount from their coffer in buying up their own stock. Some of the poorly managed companies were brought up by raiders, which later changed the company’s structure while bringing new management practices and production technology. The corporate sector was initially dismayed with the raiders buying companies after companies but the same proved to be the best solution in providing growth to corporate sector and better trade rules (US Department of State, 2006).

America Globalize: The 1990s and Beyond

Thomas Friedman in his book “The Lexus and the Olive Tree” has talked about the increase in world’s prosperity coming into focus through the path technically called as globalization. Technologically this entity has got its derivation from United States supported free-market capitalism, which in the long run has been the ultimate tool of world integration and creation of a cohesive environment. The changes have been irrevocable with living standards getting raised. Moving on to the concept of comparative advantage given by David Ricardo; the concept is not at all intuitive at first go and will require explicit numerical examples for better explanation. The globalization as a whole might have a single definition but in reality it has multiple faces. In the beginning it was as simple as a trade agreement and associations. Later it got itself transformed into collaborations between firms of different nations not only for trade but for technological development also. The United States’ economy saw some of the most unprecedented growth during this period as it fed the very consumerism of its people through much cheaper imports from various developing nations from Latin America and Asia thereby bringing prosperity to those exporting nations. The era of a new United States as a benevolent economic powerhouse began (Panelver, 2002).

The year 1994 saw the beginning of a new era in trade relations among three major countries of North America. With the launch of North America Free Trade Agreement i.e., NAFTA, comprising of world’s two most powerful economies USA and Canada and Mexico, the whole economic situation of the region has become a matter of close observation. The much-analyzed theory of Waltz on International Relations valid in almost every case can be successfully used in understanding the case of NAFTA and United States and Mexico (1979). The agreement was instrumental in bringing another major North American nation in the fold of United States economic fold and can be termed as another overseas economic success (Moreno-Brid, Validiva, & Santamaria, 2005). Now the economic policy of US was no longer considered as imperialistic and Mexico had become a part of NAFTA for increasing its exports especially to US, hence the US could now have Mexican establishment under the influence of its economic policies and decisions and in the end bringing greater economic benefits to Mexico with the trade with such a large neighbor (Bromley, Mackintosh, Brown, & Wuyts, 2004, p 264).

Conclusion

American economy in the next half of 20^th century has seen some of the most extraordinary phases while coming out as a winner after every setback. The isolated nation of 19^th century is now the most global economy. The nation has become the major propagator of barrier free trade. Though this globalization has provided its own share problem to its internal economy inform of extremely competitive trading partners like China and Japan causing major losses in manufacturing sector but at the same time the use of technology and Internet based innovation, it managed to offset the competition through outsourcing its service sector to cheaper destination. The country now stands sound basics and could easily withhold the effect of Asian recession of late 1990s when almost all its major trading partners from East Asia were weighing down. American economy ended the 1990s with extremely positive note. The country witnessed longest peacetime economic expansion in history since March 1991 to the end of 1999 but many challenges are still to follow with greater responsibly of controlling both national as well as world economy for better growth and extended prosperity.

References

Bromley, S., Mackintosh, M., Brown, W. & Wuyts, M. (2004). Making the International: Economic Interdependence and political Order. Pluto Press.

Frum, D (2000). How We Got Here: The 70’s. New York, NY: Basic Books.

Hakes, J E. (2000). “The 25^th Anniversary of the 1973 Oil Embargo.” The Energy Information Administration.

Moreno-Brid, J. Validiva, J. C. R. & Santamaria, J. (2005). Mexico: Economic growth exports and industrial performance after NAFTA, Economic Development Unit. Web.

Penalver, M. (2002). Globalization, FDI and Growth: A Regional and Country Perspective, United Nations Department of Economic and Social Affairs.

Sitikoff, H (1999) The Postwar Impact of Vietnam. The Oxford Companion to American Military History. Ed. John Whiteclay Chambers II. New York: Oxford UP.

Socioecon, K. The financialization of the American economy Rev.2005; 3: 173-208.

US Department of State (2005) The U.S. Economy: A Brief History. Web.

Tripod (1990) US History 1950 -1975. Web.

Waltz, K. N. (1979).Realist Thought and Neorealist Thesis 1979. Journal of International Affairs. Web.

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