Bust Flashcards
1
Q
When did the US economy begin to decline?
A
- -By the late 60s (1965)
- -Minor recessions before that corrected by govt policy
- -Cost of Vietnam led to inflation
- -Oil Crisis 1973 (quadrupled price of oil)
- -Iranian Revolution of 1979
- -1981-1983: US experienced worst economic recession since Great Depression
2
Q
Budget Deficit:
A
- -Johnson spent on both Great Society and Vietnam
- -60s: increased govt spending not matched by taxes
- -Federal deficit in previous years
- -Keynesian economics: budget in small deficit every year from 1961-68
- -1970s and 1980s: doubled in each decade
- -Govt didn’t increase taxes so borrowed, which caused inflation
3
Q
Domestic Recession:
A
- -1965: prices rose
- -1963-65: risen 2%
- -1966: 3%
- -1970s: 6%
- -1980: 13%
- -Labour costs rose: wage rises and fall in productivity
- -Increased unemployment from 1969
- -1971: 7 million unemployed, average duration of joblessness went from 9 weeks to 12
- -70s: unemployment averaged 6% (60s: 4%)
- -1975-6 unemployment: 8.5%
- -Hit women, teenagers, black people and minorities the hardest
- -Unemployment and inflation: stagflation
- -Balance of payments worsened
- -End of 40s: US had large gold reserves
- -50s and 60s: $140 billion in economic and military aid abroad
- -Mostly balanced by exports, but gold reserves fell to 1/3 of what they were
- -End of 60s: imports greater than exports
4
Q
What was the government reaction?
A
Nixon:
–1971: wage freeze
–Abandoned fixed exchange rate system
–Devalued $: exports cheaper and imports more expensive
–Tariff on Japanese cars
–Temporary improvements
Ford:
–Cut government spending
Carter:
–Increased government spending: added to inflation and increased imports, including foreign cars
–1980: 13% inflation, 20% interest rates
–Iranian Revolution doubled oil prices
–Given powers to ration petrol
–States reacted against big-spending governments e.g California, Proposition 13, cutting state taxes
5
Q
What were Reaganomics?
A
- -Program for Economic Recovery
- -Wanted to create employment and growth through improvements in productivity and output
- -Intended to do this with major tax cuts to encourage working and reducing government spending
- -Cut taxes by 25%
- -Cut spending on 300 government programmes
- -Helped economic recovery: economy grew up 10% by 1984, unemployment fell to 7%, inflation dropped to 4%
- -Increased defence spending
- -Biggest peacetime build-up of armed forces
- -Huge federal deficit
- -1985: Congress passed Gramm-Rudman Act which reduced federal deficit gradually (didn’t work)
6
Q
International Competition:
A
- -Led to more imports coming into the US, decline of some manufacturing industry, rising unemployment and a worsening balance of payments
- -US economy still larger
- -W.G and Japan closed gap in chemicals, machinery, communications equipment, cars and trucks
- -US share in world trade declined from 235% in 1948 to 15% in 1964 and 10% in 1970
- -EEC was largest trading bloc
- -US went through deindustrialisation: decline of basic industries, shift towards service industry, transer of manufacturing facilities abroad, loss of some foreign markets, increased share of domestic market taken by foreign goods
- Decline only relative: US economy still far larger
7
Q
Competition from Japan:
A
- -1966 and 1987: economy grew by 6.5%
- -Invested more in business
- -Productivity grew faster than US
- -Manufacturing productivity grew at three times the US average between 1960 and 1973
- -11% manufacturing output
8
Q
Competition from West Germany:
A
- -Recovered rapidly in the 50s: Marshall Plan
- -1966-1987: economy grew by 13%
- -Invested more in business
- -Government policies of: free trade, government support for industries, large firms and cartels, banking sector and skilled workers
- -1965 and 1979: Germany productivity grew faster than the US
- -Depended more on exports (30%) (US: 7%)
- -Leading exporting country: spent less on consumer goods and paid its employees less
