Boom to Bust and Back Again Flashcards
Economic Cycle
Unrealistic confidence (Bandwagon)
Realisation that is unsustainable and in trouble
Uncertainty ‘where are we’
Panic
Realignment of expectations based on fact
Confidence based on fact and hope
Economic Impact of First World War
Increased demands on the production capacity for USA- not just supplying Britain and France but also home consumption after 1917
Farming and industry boomed during war- farms/factories began mechanisation due to rising demand
War industrial machinery meant fewer jobs= rise in unemployment. Farmers overproducing after war and lowered prices/reduced profits
USA post war depression
Republican government believed laissez faire policies would ease depression= fail. Argued depression would right itself and did- isolationism tariffs reduced exports and did encourage America to buy America goods,
Boom of 1920s Factors
Mass production- Technique of manufacturing into a series of steps and making one worker responsible for each step of process New Management techniques: Ideas from Fredrick W. Taylor about 'scientific management' encouraging payment of good wages and maintain good working conditions so workers produce more goods Federal policies: Republican government didn't like to interfere in business did keep help in place as in the war cut taxes for business to encourage customers to 'Buy American.' Hire purchase (HP) and loans- Before war borrowing money seen as last resort- 1920s people encouraged to 'Buy now, Pay later. 1929 the average consumer was borrowing 10% of the annual income Changing industry- New industries more efficient and used higher levels of mechanisation. Shift away from staple industries (textiles, ship building, coal, steel) towards consumer goods production POLICY OF NORMALCY- Life pre war
Shares and Bull Market in 1920s
Price of shares in new modernised industries rose rapidly
Share trading before domain of bankers/rich people everyone now
Shares went into boom cycle- known as bull market
Media rose awareness of money in stock market- believed it was a ‘sure thing’
‘Buying on the margin’- Borrow money in order to buy shares
Government didn’t regulate this and 29th October 1929 Stock Market Crash on Wall Street- Boom to Bust- known as Bear Market
Impact of Great Depression
Bankruptcy for many businesses even banks
Extreme unemployment
People lost their houses and could not pay mortgages
People stopped buying, prices fell, businesses failed
Homelessness and poverty for many
Hoover (Republican) did nothing so democrats took over FDR
Roosevelt run up huge government debts to fund New Deal policies
New Deal and WW2 successful in curbing Great Depression
Economic Impact of Second World War
WW2 massively expanded economy
After no post war depression
Economy continued to boom due to:
- Industry easily transformed from war production to nationalise the industry
- Increase in wages encouraged spending, increased demand
- Truman’s administration took hard like on Unions and strikes. Coal and rail industries strikes led government to nationalise industry
- Post war baby boom increased demand and promised to do so over long term as babies became teenagers etc.
- Farmers experienced Boom time demand for home produce increased as did demand overseas (war torn Europe)
- Truman’s Fair Deal policies increased government spending but also advanced welfare, and education and housing which increased employment
Other Impacts of WW2
War advanced aviation technology so post war new civilian airlines greatly advanced business opportunities and employment
On the international market the Dollar had become primary currency to be backed by a gold reserve (previously been the British Pound) USA’s gold had moved to Fort Knox in 1937 and stuff of legend
Housing
Levittown on outskirts of New York brought construction concepts to housing created the American suburb
Economic difficulties of Capitalism
Buoyancy of economy is inflation
High inflation- Prices rise faster than wages. Government keen to intervene in market economy
Raise taxes curb inflation
USA was the task of the Federal Reserve Board (FED)
1960s welfare high and Cold War costing billions, the constant increase in supply of money led to downturn in the economy, Dollar not satisfactory balanced on the Gold Standard
USA therefore entering Stagflation- businesses have stagnated but inflation continues to rise
From Boom to Stagflation
1950s America’s greatest decade optimism, wealth and USA’s sense of power
Many people spending more on consumer good, many not American
Japan and Germany had massively expanded to become rival economic powerhouses
New Communism enemies USSR and China also attempting to outproduce USA
1970s Stagflation
Federal government struggled to cope with economic problems in 1970s
1960s decade of steady ups and downs 1970s time of crisis
End of Vietnam War saved money, welfare spending at all time high
3 major crises- worst fuel shortages of 1973/79
1974 fuel prices four times than previous, people stopped buying ‘gas guzzling’ American cars and bought small European and Japanese cars
Gerald Ford
After the impeachment of Nixon Ford in 1974
9 months into presidency North Vietnam defeated South Vietnam and war ended in a humiliating way
Ford had worst economic situation since Great Depression= growing inflation
Pardoned Richard Nixon= controversial
Ford defeated Ronald Reagan for Republicans
Lost election 1976 to Carter
Jimmy Carter
1977 Carter addressed nation Roosevelt style ‘Fireside Chat’ to discuss energy crisis
Term in office a catalogue of failures to eradicate stagflation
Methods were resort to austerity (spending cuts and tax increases to balance budget) -= unpopular
Homelessness and unemployment high like Great Depression
Heavily defeated 1980 by Reagan
EXAM QUESTION
How far do you agree that confidence was the most significant factor in both the affluence of the 1950’s and the crisis of the 1970’s
