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The Economy: From Boom to Recession

By: , dated January 25th, 2013

As we all know, the economy fluctuates. Sometimes irrationally, and sometimes unpredictably, the economy goes through all sorts of highs and lows, bringing the assurance of financial stability one month and looming like the specter of monetary ruin the next. The toughest thing about understanding the United States economy, then, is the excessive complexity within which the system itself works. Because it is a mixed economy – meaning that both private enterprise and governmental institutions have their hands in the game – the debates over the future of the United States economy, and the recent historical reasons for its proficiency and/or lacking thereof, are subject to an extremely wide array of variables. The complexity of the system naturally leads to a great variety of interpretations as to how the economy really functions, as well as a diversity of opinion as to how it should best be run by the government. Of course, this pronouncement of the economy as an exceedingly complex system with no objective authority that can categorically prove just how to stimulate it sounds a lot scarier than it actually is. And so, since the best way to quell any lingering fears about the world is to ground oneself with a historical perspective, here is a brief history of the US economy.

Probably the best place to start learning about the United States economy and the reasons why it has led the country into unprecedented realms of wealth and global power is right after the First World War. Coming off the Allied victory, the United States entered the 1920s with economic prosperity previously unheard of on its own soil. It seemed, for a time, that the United States could do no wrong, and the money rolled in along with a wave of social change and lifestyle modifications. It was, as it was later dubbed, truly the “Roaring Twenties” – a period when there was not only elation that the Great War had ended, but an optimism about economic prosperity that could only come to pass in a country that had not yet experienced a grand failure. Add to this outlook a massive cultural shift in the method of work since before the turn of the century – highly industrialized, production-line factories – and just as the economy in the US was increasing to gargantuan heights, “making money” was becoming the premier focus of America. Making money and spending it became preeminent in US society, as the era of “keeping up with the Jones’” was truly ushered in by way of ordinary working and middle-class folk being able to acquire a good deal of personal wealth.

The expansion of the country into major urban city centers and the availability of new, exciting technologies like widespread radio meant that as the country grew in economic terms, it seemed to get smaller in terms of how people viewed their relation to others. Suddenly the news from California and the news from New York didn’t seem like reports from separate planets. The invention and proliferation of the automobile is without a doubt integral to 1920s America, as it not only changed the way people were able to move about, but it changed the way people saw the world. With all this buying and selling, with all the advancements in advertising and consumerism, with all the changes in the production of materials and the structuring of the modern working day, the country seemed to be heading for either astonishing success or heartbreaking failure. By the end of the twenties, it was heartbreak that won out.

The bubble had simply grown too big for its own good by the time 1929 rolled around, and the Great Depression saw the US economy collapse like a child popping a balloon. In response to this, President Franklin D. Roosevelt instituted an array of social changes, deemed the “New Deal” which established public works and began the system of social security as we know it today. This was a huge step in the development of America as a two-pronged economy; one that is dependent both on individual and corporate investments as well as in the involvement of governmental institutions. It meant, in essence, that a degree of “safety net” was seen to be a necessity in order to mediate the highs and lows of an economy that was too dependent on business and resources. Of course, what America has in staggering amount compared to almost any other country, is natural resources, and so it seemed that the economy itself could always rebound. All the economy needed was a shot in the arm by some go-getters following “The American Dream.”

Well, America was never short of ingenuity, and the years following the Great Depression saw with it a variety of fluctuations and internal changes to the “New Deal,” but prosperity would continue throughout the 1950s, boosted by the strong economy ushered in by military spending during World War II. The virtually immediate post-war addition of television – and ubiquitous television advertising – perhaps solidified America as the ultimate consumer society; a society constantly enticed into spending money. There were many changes through the Cold War years, not the least of which was the enormous increase in military spending which the government used in the arms race with the Soviet Union. By the time Ronald Reagan came into office and introduced what was later branded as “Reaganomics” the country had moved from a consumer society with a fairly strong governmental influence in the workings of the country, to a laissez-faire system of capitalism which limited the role of government in the economy and left the people of the country more subject to the fluctuations of the free market.

We see the effects of less governmental involvement in so-called public services today largely in the tenuous state of America’s health care system (and cost of prescription drugs) as well as in the myriad of consequences borne from the deregulation of corporate enterprises. When the mediating role of government is reduced in the economy, the ability of ordinary citizens to predict their future economic well-being is increasingly contingent on their own personal decisions and situation. Governmental involvement is perhaps the most defining characteristic of the US economy. It governs the talking points of most elections, and it results in wide range of opinions alongthe entire spectrum.

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