There's little doubt what major economic events are shaping this first decade of the 21st century: a meltdown of the sub-prime home loan market, a crunch in credit, the collapse of some major financial institutions and corporations, rising joblessness--all playing out on an increasingly interconnected global stage. It's easy to imagine that today's turmoil surpasses the challenges of previous decades. But is it true? Beginning with the 1930s, we take a look at some of the major economic trends--the bad times and the good times--that have shaped the last seven decades.
The 1929 stock market collapse is commonly credited with causing the Great Depression, but as devastating as that was for investors, it was just one signal that the Roaring Twenties were crashing to a halt. Twenties prosperity was built on a growing concentration of wealth at the top and an increasing reliance on credit to buy cars, radios and other new-fangled goods. Meanwhile, stagnation was setting in: Railway construction was falling, and declining auto sales caused downturns in iron and steel production.
When Franklin Roosevelt became president in 1933, more than a quarter of the labor force was jobless, and many others worked only part time. Farm prices were depressed, stock prices had dropped to about a fifth of their pre-crash level, consumer confidence and demand had plummeted, and manufacturing output dropped by about half. By March 1933, more than 5,000 banks failed, erasing the savings of millions of Americans.
FDR's New Deal was a far cry from Herbert Hoover's insistence on self-reliance and individualism. FDR launched public works projects that pumped money into the economy, put people to work building roads, schools and dams, and provided electricity to rural areas. And he created new regulations for banking, the stock market and other industries, with an eye on government benefits for working people. Among them: insurance for bank depositors and Social Security for the elderly and the disabled.
At the end of the '30s, joblessness remained high and wages were still low, despite spending that doubled the federal deficit to $40 billion. But FDR was reluctant to further expand the public debt--until, that is, World War II demanded it.
It can be said that the Great Depression ended when demand for military supplies spurred massive new production and job creation. During the '40s, the U.S became the largest manufacturer of arms in the history of the world, building nearly 300,000 airplanes, nearly 400,000 pieces of artillery, 47 million tons of artillery ammunition, 44 billion rounds of small-arms ammo, 87,000 warships and 86,000 tanks. Workers' wages doubled, and the nation experienced a full employment economy (including a majority of women and many African Americans who previously had been denied access).
The GI Bill, passed in 1944, provided a path for millions of returning veterans to go to college, start businesses and buy homes. With money in their pockets and fresh confidence, they helped spark a consumer revolution. And while the 1947 Marshall Plan helped European nations regain their footing, it also created the conditions for expanded production and trade for U.S. goods. So did the creation of the World Bank, the International Monetary Fund and the General Agreement on Tariffs and Trade.
As the Cold War with the Soviet Union deepened, American prosperity expanded. "Made in the USA" was the tag that consumers around the world wanted, whether it was cars or electronics, furniture or metals. American exports steadily increased, creating a huge trade surplus. Domestic consumption also rose, as did government revenues and government spending.
In fact, during President Dwight D. Eisenhower's two terms (1953-1961), government's share of GNP more than doubled to nearly 30 percent. While Eisenhower generally resisted large government programs and warned about the threat of a growing military-industrial complex, he backed the $26 billion Interstate Highway System, which helped states build a nationwide system of roads and sealed the bond between Americans and their automobiles.
President John F. Kennedy came into office promising a commitment to long-term growth. With the urging of economic advisors like John Kenneth Gailbraith, JFK pushed for massive federal spending, including expenditures for social welfare programs. It was a promise that President Lyndon Johnson pursued with his Great Society programs to end poverty when he succeeded JFK in 1963.
LBJ presided over an impressive economic boom that lasted through the '60s, spurred by a combination of tax cuts and increased federal spending to fund the widening war in Vietnam. It was the nation's longest period of uninterrupted economic expansion: GNP rose about 5 percent a year, median family income increased about a quarter, and unemployment never rose above 4 percent during the decade.
Not only did Johnson support civil rights for black Americans, he also supported Congress' passage of Medicare and Medicaid to provide health care for the poor and elderly. But by the decade's end, the nation was experiencing runaway inflation.
President Richard Nixon struggled with high inflation, business slowdowns, rising unemployment and declining government revenues. The unexpected combination of slow economic growth and high inflation spawned a new term: stagflation. As the nation fell into a recession, Nixon froze wages and prices, cut some excise taxes, and took the U.S. off the gold standard in an effort to devalue the dollar and encourage exports.
The moves helped, but the positive impact was soon replaced by the shock of 1973's oil embargo, led by Saudi Arabia in retaliation for U.S. support of Israel in the Arab-Israeli war. Prices shot up and shortages led to long lines at gas stations and even rationing in some states. Americans struggled with this energy crisis, even after the embargo was lifted in 1974: Gas, home heating oil and many goods affected by high-priced oil all grew more costly.
The nation faced a second oil crisis in 1979, after the Iranian revolution led to supply cuts. In response, President Jimmy Carter proposed plans for cutting oil imports, reducing energy use and improving energy efficiency, but his ideas seemed to only further shake American confidence and a deepening sense of malaise.
The first two years of this decade were defined by a painful recession. More than 12 million Americans (nearly 11 percent) were jobless, business bankruptcies rose by 50 percent, and business failures in 1982 reached the highest level since the Great Depression. Steel and other heavy industries, particularly in the Midwestern Rust Belt, struggled with competition from Japan and Germany, a decline in production, and the closing of factories. The nation experienced a seismic shift known as deindustrialization.
President Ronald Reagan challenged the belief that government should drive the solutions to the nation's economic problems. He stressed the benefits of a free market and a strong private sector, and supported a new climate of business deregulation, tax cutting, and decreased social spending. Still, overall government spending increased (particularly the defense budget) and the national debt ballooned.
Welcome to the World Wide Web. Not only did the internet become a brave new frontier for new business, it also spurred a dramatic shift in how existing companies gathered and used information. It allowed greater efficiency and profitability in marketing and finance, forced businesses to rethink the nature of their hierarchies, management styles and bureaucracies, and helped integrate the international economy.
And it spawned a booming New Economy with a strong growth rate, low unemployment and minimal inflation, one in which brash entrepreneurs launched companies that soon were competing successfully with some of the world's most venerable and profitable brands. That said, American wealth was increasingly concentrated in fewer hands, buoyed by substantial tax cuts in the '80s and the '90s that enabled the wealthiest Americans to hold on to a larger share of their income.