Outline of-the-us-economy

O U T L I N E O F T H E

U. S. ECONOMY 2 0 0 9 E D I T I O N

U.S. DEPARTMENT OF STATE
BUREAU OF INTERNATIONAL INFORMATION PROGRAMS
http://www.america.gov/publications/books.html

O U T L I N E O F T H E

U. S. ECONOMY 2 0 0 9 E D I T I O N

C O N T E N T S
Outline of the U.S. Economy
2009 Edition
CHAPTER 1: The Challenges of this Century 1
Published in 2009 by: Bureau of International Information Programs The world’s largest and most diverse economy faces
United States Department of State the most severe economic challenges in a generation
http://www.america.gov/publications/books.html or more.

STAFF
CHAPTER 2: The Evolution of the U.S. Economy 8
Editor in Chief: Michael Jay Friedman The economy has expanded and changed, guided by
Managing Editor: Bruce Odessey some unchanging principles.
Design: David Hamill
Graphs: Vincent Hughes
Photo editor: Maggie Sliker CHAPTER 3: What the U.S. Economy Produces 43
The large U.S. multinational firms have altered their
FRONT COVER: top illustration © Dave Cutler / Stock Illustration Source production strategies and their roles in response to
bottom illustration © Jane Sterrett / Stock Illustration Source globaliztion as they adapt to increasing competition.
ABOUT THE AUTHOR
This edition of Outline of the U.S. Economy has been completely revised by Peter Behr, a for- CHAPTER 4: Competition and the American Culture 55
mer business editor and reporter for the Washington Post. It updates several previous editions Competition has remained a defining characteristic of
that were issued first by the U.S. Information Agency and then by the U.S. Department of the U.S. economy in the American Dream of owning a
State beginning in 1981. small business.

CHAPTER 5: Geography and Infrastructure 67
Education and transportation help hold together widely
separated and distinct regions.

CHAPTER 6: Government and the Economy 79
Much of America’s history has focused on the debate
over the government’s role in the economy.

CHAPTER 7: A U.S. Economy Linked to the World 101
Despite political divisions, the United States shows
no sign of retreat from global engagement in trade
and investment.

CHAPTER 8: A New Chapter in America’s Economic Story 115
The United States, in its democratic way, faces up to
immense economic challenges.


iv v

P R E F A C E

“The panic itself was felt in every part
of the globe,” The Wall Street Journal reported. “It
was as if a volcano had burst forth in New York, causing
a tidal wave that swept with disastrous power over
every nation on the globe.” One of the after-effects: “an
accumulation of idle money in the banking centres.” The
date of this item? January 17, 1908.
Given the sobering news that of late has arrived with distressing
frequency, preparing this edition of Outline of the U.S. Economy has
been a real challenge. We have tried to approach the task with a
sense of historical consciousness. In addition to the 1908 events
depicted above, the United States has endured a Great Depression
(began 1929), a Long Depression (began 1873), a Panic of 1837—
“an American financial crisis, built on a speculative real estate
market,” says Wikipedia—and assorted other recessions, panics,
bubbles, and contractions, and emerged from each with its eco-
nomic vigor restored and its republican institutions vibrant.
We hope that our readers will find this new entry in our Outline
series frank, informative, and above all useful. We offer it in the
spirit of optimism embedded deeply in American life.

—The Editors


vi vii

C H A P T E R

The
Challenges
of this
Century
The world’s largest
and most diverse
economy currently faces
the most severe economic
challenges in a generation
or more.

© photosbyjohn/Shutterstock

The United States “continues to surprise…
It continues to renew itself.”
S E C R E TA R Y C O N D O L E E Z Z A R I C E
U.S. Department of State
2008

The financial crash of 2008 brought a sudden,
traumatic halt to a quarter-century of U.S.-led global eco-
nomic growth. The final consequences of this shock for the U.S.
and world economies remain uncertain at this writing. But in the
midst of the crisis, Americans chose new national leadership in a
peaceful transfer of power that demonstrated again the strength of
the country’s democratic process and the people’s confidence in the
ultimate resilience of the American economy.
Since the election of Ronald Reagan as president in 1980, the United
States had championed globalization of trade and finance. It opened its
doors wider to foreign products and investment than any other major econ-
omy. America’s entrepreneurial culture was the world’s model. The synergy
of U.S. political freedoms and free markets appeared vindicated by the Sovi-
et Union’s collapse in 1991. At home, a bipartisan consensus emerged in
favor of further economic deregulation, which, in turn, spurred a freewheel-
ing expansion of new types of investments that helped fuel a vast increase in
international finance and commerce.
But America’s growth came to rely increasingly on debt. Consumers, busi-
nesses, home buyers, and the U.S. government itself borrowed heavily in the
© AP Images

belief that the value of their investments—including, fatefully for many, their
homes—would continue to grow. The ready availability of credit on easy
terms drove home prices, in particular, ever higher.
When the housing boom finally collapsed in 2007, it exposed a fragile layer
of high-risk home loans made over a decade to families that could not afford
them, particularly if the economy weakened. Some borrowers had purchased
homes they could not afford, trusting that in a rising market they could always
Above: From left, Vice President-elect Joe Biden and his wife, Jill, President-elect sell their properties at a profit. As housing prices fell, homeowners who no
Barack Obama and his wife, Michelle, stop in January 2009 on their way to inaugu-
longer could keep up with their mortgage payments were unable to pay their
ration and big challenges. Previous spread: Times Square in New York City, the
debt by selling their homes. These home loans thus were the unstable founda-
U.S. financial capital, is reeling from the global financial collapse but still pulsating
with economic energy.
tion for a massive but largely invisible speculation on mortgage securities and
financial contracts sold around the world.

2 3

Triggered by the housing collapse, Since the start of the global crisis underpin the United States’ represen- stitutions, and traditions that have
this edifice toppled in 2008. Foreclo- in 2008, U.S. government agencies tative democracy and its economy. shaped the American economy. The
sures grew, and panic followed. Giant and the central bank had pledged an Chapter 4 profiles the makeup of the framers of America’s 1776 Declara-
Wall Street financial firms fell, reorga- astonishing $12.8 trillion—equal to U.S. economy—what it produces, tion of Independence from Britain
nized, or were combined with larger nearly the entire U.S. annual eco- exports, and imports. Chapter 5 focus- and 1789 U.S. Constitution had
competitors. Stock markets plunged, nomic output—in loans, loan pur- es on the major regions of the country given the new United States “stars to
and the world’s economies headed chases, and credit guarantees seeking whose cultures are responsible for steer by,” in historian David McCul-
into the worst crisis since the Great to halt the financial freefall. The Fed- much of America’s diversity, and the lough’s words, meaning the basic
Depression of the 1930s. eral Reserve also promised to buy linkages of infrastructure and educa- political freedoms and restraints on
The catastrophe revealed weak- more than $1 trillion in bonds backed tion that have tied the country togeth- governmental power that Americans
nesses unheeded during the boom. by devalued home mortgages. A er. Chapter 6 describes the ongoing have prized—and debated—since
U.S. consumption had for too long leading economist observed that “no debate over the government’s role in the country’s founding.
outpaced savings. Financial regulators’ one else—not even China—had a big the economy. Chapter 7 examines the But even the strongest supporters
faith in the efficiency of economic enough balance sheet” to mount such impact of globalization and trade on of market capitalism acknowledge that
markets led them to underestimate a response. the U.S. economy, its companies, and it does not provide all the answers.
the mounting risks. Optimism and The crisis erupted in the midst of its workers. And Chapter 8 sums up “For various reasons, the invisible
ambition among many Americans the 2008 presidential election and the hurdles that confront the Ameri- hand sometimes does not work,” said
bred excess and recklessness. helped clinch victory for Senator can economy in a fast-changing and economist N. Gregory Mankiw, a for-
Lessons from past booms and crash- Barack Obama, the Democratic Party less-predictable world. mer member of President George W.
es were ignored as many focused candidate. Many interpreted the elec- Bush’s Council of Economic Advisers.
only on the present. toral triumph of the United States’ An Economy Driven by Competition A manufacturer won’t pay the envi-
But the crisis also revealed the first African-American president, a Many economists agree that an ronmental and health costs of the pol-
ability of the American government man who rose rapidly from humble understanding of the American lution emitting from its smokestacks
to respond quickly and decisively to origins, as an affirmation of the economy begins with Adam Smith’s unless government requires that it do
the challenge. Even at a peak of the nation’s signature traits of optimism concept of the “invisible hand.” so. A monopolist or group of domi-
crisis in the last two months of 2008, and faith in this country. As President Smith, considered the father of eco- nant companies can charge higher
foreigners viewed the United States George W. Bush’s secretary of state, nomics, wrote in his 1776 book The prices than a competitive market
as among the most economically safe Condoleezza Rice, put it, one can “go Wealth of Nations that an economy would allow. Another former White
and politically stable investment are- from modest circumstances to extra- performs best when buyers and sell- House adviser, Nobel Prize winner
nas. So eager were they to purchase ordinary achievement.” ers seek the best outcome for them- Joseph E. Stiglitz, says, “The reason
U.S. Treasury securities that the This edition of the Outline of the selves, as if guided by an unseen that the invisible hand often seems
return on these investments dropped U.S. Economy is a primer on how the hand. The sum of their many inde- invisible is that it is often not there.”
nearly to zero: Once again, the dol- U.S. economic system emerged, how it pendent transactions is the most effi- Every generation of Americans has
lar was a refuge in financial storms. works, and how it is shaped by Ameri- cient use of a nation’s resources, he produced critics of the nation’s eco-
Washington officials responded can social values and political institu- reasoned. In freely operating mar- nomic arrangements. Historian Henry
with unprecedented measures to tions. Always present, given the trying kets, prices are determined by the Steele Commager, writing in the
head off a global collapse of lending. times during which this edition neared interactions of buyers and sellers. 1950s, said that “whatever promised
The federal government and the completion, is a sense of how all these Competition results in better prod- to increase wealth was automatically
Federal Reserve central bank seized factors may guide the nation’s respons- ucts and wider prosperity on average regarded as good, and the American
control of the two largest U.S. home es to the extraordinary economic chal- than a government-run economy was tolerant, therefore, of specula-
mortgage firms and bailed out lead- lenges that lie ahead. could deliver—as the failure of com- tion, advertising, deforestation, and
ing banks and a major insurance This chapter offers a brief over- munism in Russia so clearly attests, the exploitation of natural resources,
company, actions that would have view of the U.S. economy today. Chap- market economists say. and more patient with the worst
been politically unthinkable before ter 2 follows the historical evolution An American version evolved from manifestations of industrialism.”
the crisis. An initial $700 billion of the economy from colonial times to Smith’s doctrine and other features of Others have pointed to numerous
bank rescue plan won bipartisan sup- the present. Chapter 3 concerns the Britain’s merchant economy. Its cen- contradictions both seeming and real
port in the U.S. Congress. beliefs, traditions, and values that terpiece remains a matrix of laws, in- in the American economic formula:

4 5

standard for the world. The average When Barack Obama took office
American worker produced more as president in January 2009, the
than $92,000 worth of products and immediate crisis dominated his
services in 2007. This is nearly 20 agenda, and beyond that lay grave,
percent more than that of the aver- longer-range challenges. Record
age of a dozen leading European federal budget deficits stemming
countries and 85 percent higher than from the government lending in the
that of China, according to the U.S. crisis could challenge the stability of
Conference Board. U.S. productivity the U.S. dollar. The federal govern-
expanded by an average 2 percent a ment’s rising retirement and health
year from 2000 through 2006, twice care commitments to an aging popula-
the gain in most of Europe. In one tion will test the government’s ability
study of 16 major industrial to pay for itself. American business-
economies, only South Korea, Swe- es, shareholders, and consumers
den, and Taiwan had higher produc- could face heavy costs in adapting
tivity growth than the United States processes and products to conserve
over the same years. These increases natural resources and meet the chal-
a consumer-led society long on The U.S. Economy Today in productivity have helped the Unit- lenges of climate change. Disparities
materialism but short on saving for Even in crisis, the America’s econ- ed States maintain relatively low in educational attainment could
the future; a nation of abundant nat- omy remains the world’s largest and unemployment and inflation. increase. Foreign competition and
ural resources that has at times most diverse. The total output of U.S. The World Economic Forum, technological change could displace
abused this bounty; a political system goods and services—the gross do- whose annual conferences are a gath- more U.S. jobs.
grounded in civic equality but reliant mestic product—stood at $14 trillion ering of top international government Harvard University economist
on income inequality to motivate cit- in 2007, nearly three times the size of and corporate leaders, has regularly Benjamin Friedman and others
izens to work hard and invest in Japan’s economy and five times ranked the United States as the warn that America’s continued polit-
learning; a nation with astonishing China’s, based on the purchasing world’s most competitive economy. ical support for a free flow of trade
wealth at the top and more relative power of each country’s currency. Major U.S. companies have stayed and finance and its openness to the
poverty than in many of the world’s With just 5 percent of the world’s atop international markets through a world hinge critically on a continued
rich countries. population, the United States is determined focus on innovation, cost prosperity for the large majority of
But the large majority of Ameri- responsible for 20 percent of total reduction, and the return of profits its citizens.
cans subscribes to the idea of a dynam- economic output. to shareholders. Of the 2007 Fortune President Obama acknowledged
ic economy that embraces competition, The U.S. gross domestic product magazine list of the 500 largest cor- the severity of the challenge in a
invites striving and invention, heaps per person was nearly $45,000 in porations worldwide, 162 were head- speech shortly before his inaugura-
rewards on winners, and gives second 2007, compared to a worldwide aver- quartered in the United States. tion. But he also reminded the
chances to those who fail. With all its age of $11,000. The economy poured Japan was second with 67, and nation of its heritage and of its
contradictions, the United States has out $40 billion a day in goods and ser- France third with 38. inherent strengths. “We should
achieved a highly flexible economic vices that year, drawing its fuel from American technology leadership never forget that our workers are still
system that arguably offers more the know-how of the 150 million continues to expand from current more productive than any on Earth.
choices and opportunities than any Americans who make up the work- foundations in computers, software, Our universities are still the envy of
other, and one that has displayed force. Capital provided more fuel: the multimedia, advanced materials, the world. We are still home to the
repeatedly its capacity to repair mis- $5.5 billion in nongovernmental funds health science, and biotechnology into most brilliant minds, the most cre-
takes and adapt to recessions, wars, that Americans invested daily in their the frontiers of nanotechnology and ative entrepreneurs, and the most
and financial panics, gaining strength businesses and homes. And there are genetics. Although the euro is gaining advanced technology and innovation
from its trials. The United States “con- the nation’s resources of minerals, support as a currency of choice, the that history has ever known. And we
tinues to surprise,” Secretary Rice said, energy, water, forests, and farmland. American dollar remains the center- are still the nation that has overcome
following Obama’s election. “It contin- The productivity of American piece of international commerce. great fears and improbable odds.”
ues to renew itself.” working men and women remains a

6 7

C H A P T E R

The
Evolution
of the U.S.
Economy
The economy has
expanded and changed,
guided by some
unchanging principles.

Courtesy of Library of Congress

“Those who labor in the earth are the chosen
people of God, if ever he had a chosen people.”
THOMAS JEFFERSON
1787

By the time that General George Washington took
office as the first U.S. president in 1789, the young nation’s
economy was already a composite of many diverse occupations
and defined regional differences.
Agriculture was dominant. Nine of 10 Americans worked on farms, most
of them growing the food their families relied on. Only one person in 20
lived in an “urban” location, which then meant merely 2,500 inhabitants or
more. The country’s largest city, New York, had a population of just 22,000
people, while London’s population exceeded one million. But the handful of
larger cities had a merchant class of tradesmen, shopkeepers, importers,
shippers, manufacturers, and bankers whose interests could conflict with
those of the farmers.
Thomas Jefferson, a Virginia planter and principal author of America’s
Declaration of Independence, spoke for an influential group of the country’s
Founding Fathers, including many from the South. They believed the coun-

try should be primarily an agrarian society, with farming at its core and with
government playing a minimal role. Jefferson mistrusted urban classes, see-
ing the great cities of Europe as breeders of political corruption. “Those who
labor in the earth are the chosen people of God, if ever he had a chosen peo-
ple,” Jefferson once declared.
Opposing Jefferson and other supporters of a farm-based republic was a
second powerful political movement, the Federalists, often favored by north-
ern commercial interests. Among its leaders was Alexander Hamilton, one of
Washington’s principal military aides in the American Revolutionary War
(1775-1783), in which the American colonies had won recognition of their
sovereignty from Britain. Hamilton, a New Yorker who was the nation’s first
secretary of the Treasury, believed that the young, vulnerable American
Above: Harper’s Weekly published scenes of U.S. farm life in the 1860s, years when
republic required strong central leadership and federal policies that would
America was poised to become a world manufacturing power. Previous spread: Salem, support the spread of manufacturing.
Massachusetts, in New England, was one of the most important seaports in the American In 1801, Jefferson became the third U.S. president and headed the Demo-
colonies at the time of the Revolutionary War. cratic-Republican political party, later to be called the Democratic Party. In
1828, war hero Andrew Jackson from Tennessee won election as the candi-

10 11

date of Jefferson’s wing, becoming strong rule of law enforced by an nate new Supreme Court justices. had been acquired at low prices by
the first U.S. president from a fron- independent judiciary.” The Senate possesses an effective speculators during the war. These
tier region. His combative advocacy The lawmaking power was divided veto over those choices, and the measures were popular among Amer-
for “ordinary” Americans became a between two legislative houses. The Constitution assigns to Congress the ican manufacturers and financiers in
main theme of the Democrats. He Senate, whose membership was fixed power to fix the size of the Supreme New York, Boston, and Philadelphia,
declared in 1832 that when Congress at two senators from each state (and Court and to restrict the court’s whose bonds paid for the country’s
acts to “make the rich richer and the until 1914, who were chosen by the appellate jurisdiction. industrial expansion.
potent more powerful, the humble state legislatures rather than by direct The Constitution outlined the But the protective tariff infuriated
members of society—the farmers, election), was assumed to reflect government’s role in the new repub- the predominantly agricultural South.
mechanics, and laborers” who lack business and landholder interests. lic’s economy. At Hamilton’s insis- It raised the price of manufactured
wealth and influence—have the right The Founders created the House of tence, the federal government was goods that southerners purchased
to protest such treatment. Representatives, with membership granted the sole power to issue from Europe, and it encouraged
Hamilton argued that America’s apportioned among the states by money; states could not do so. European nations to retaliate by
unbounded economic opportunities population and elected directly by the Hamilton saw this as the key to cre- reducing purchases of the South’s
could not be achieved without a sys- people, to adhere more closely to the ating and maintaining a strong agricultural exports. As historian
tem that created capital and rewarded views of the broader public. national currency and a creditworthy Roger L. Ransom observes, western
investment. Hamilton’s Federalists Another essential constitutional nation that could borrow to expand states came down in the middle,
evolved into the Whig Party and then feature was the separation of powers and grow. objecting to high tariffs that raised
the Republican Party. This major into three governmental branches: There would be no internal taxes the prices of manufactured goods but
branch of American politics general- legislative, executive, and judicial. on goods moving between the states. enjoying the federal tariff revenues
ly favored policies to spur the growth James Madison, a primary author of The federal government could regu- that funded the new roads, railroads,
of U.S. industry: internal infrastruc- the Constitution and, beginning in late interstate commerce and would canals, and other public works pro-
ture improvements, protective tariffs 1809, the nation’s fourth president, have sole power to impose import jects that their communities needed.
on the import of goods, centralized said that “the spirit of liberty… taxes on foreign goods entering the The high 1828 barriers, dubbed the
banking, and a strong currency. demands checks” on government’s country. The federal government “Tariff of Abominations” by southern
power. “If men were angels, no gov- was also empowered to grant patents opponents, escalated regional anger
A Balancing of Interests ernment would be necessary,” he and copyrights to protect the work of and contributed to sectional tensions
The U.S. Constitution, ratified in wrote, in defense of the separation inventors and writers. that would culminate in the U.S. Civil
1788, sought to ground the new principle. But Madison also believed The initial U.S. protective tariff War decades later.
nation’s experiment in democracy in that the separations could not be was enacted by the first Congress in By 1800, the huge tracts of land
hard-won compromises of conflict- absolute and that each branch ought 1789 to raise money for the federal granted by British kings to colonial
ing economic and regional interests. properly to possess some influence government and to provide protec- governors had been dispersed. While
“The framers of the Constitution over the others. tion for U.S. manufacturers of glass, many large landholdings remained,
wanted a republican government that The president thus appoints pottery, and other products by effec- particularly the plantations of the
would represent the people, but rep- senior government leaders, chief tively raising the price of competing South, by 1796 the federal govern-
resent them in a way that protected federal prosecutors, and the top gen- goods from overseas. Tariffs immedi- ment had begun direct land sales to
against mob rule and maximized erals and admirals who direct the ately became one of the young settlers at $2 per acre ($5 per hectare),
opportunities for careful deliberation armed forces. But the Senate may ac- nation’s most divisive regional issues. commencing a policy that would be
in the best interests of the country as a cept or reject these candidates. Con- Hamilton championed the tariff critical to America’s westward expan-
whole,” says professor Anne-Marie gress may pass bills, but a president’s as a necessary defensive barrier sion throughout the 19th century. The
Slaughter of Princeton University. veto can prevent their becoming law against stronger European manufac- rising tide of settlers pushed the con-
“They insisted on a pluralist party sys- unless two-thirds of each congres- turers. Hamilton also promoted a tinent’s depleted Native American
tem, a bill of rights limiting the power sional house votes to override the decisive federal hand in the nation’s inhabitants steadily westward as well.
of the government, guarantees for veto. The Supreme Court successful- finances, successfully advocating the President Jackson made the displace-
free speech and a free press, checks ly claimed the right to strike down controversial federal assumption and ment of Indian tribes government
and balances to promote transparent a law as unconstitutional, but the full payment of the states’ Revolu- policy with the Indian Removal Act of
and accountable government, and a president retains the ability to nomi- tionary War debts, much of which 1830, the forced relocation of the

12 13

Choctaw tribe to the future state of vast new frontier that called out to economy would have expanded a farmer walking behind his plow
Oklahoma over what came to be settlers and adventurers. greatly with or without the war. The and wielding his sickle as many as
called “the trail of tears.” victorious North, in any case, moved 300 hours to produce 100 bushels of
The first regional demarcations The South and Slavery to new heights, stumbled during a wheat. By the eve of the Civil War,
followed roughly the settlement pat- The South’s economy relied on series of financial panics, but recov- well-off farmers could purchase John
terns of various ethnic immigrant the labor of slaves, a fundamental ered and continued to advance. Deere’s steel plows and Cyrus
groups. Settlers from England fol- contradiction of the principle of equal- The South mostly adopted a sys- McCormick’s reapers, which cut, sep-
lowed the path of the first Puritans to ity on which America was founded. tem of tenant farming that effective- arated, and collected farmers’ grain
occupy New England in the north- Congress outlawed the importation of ly broke up the plantation system on mechanically. Advanced windmills
eastern part of the country. Pennsyl- slaves in 1808 but not slavery itself, which the region’s economy had pre- were available, improving irrigation.
vania and other Middle Colonies and the domestic slave population viously depended. While the Recon- In the next 40 years, steam trac-
attracted Dutch, German, and kept expanding. American politics in struction years immediately following tors, gang plows, hybrid corn,
Scotch-Irish immigrants. There were the half-century preceding the Civil the Civil War saw real efforts to refrigerated freight cars, and
French farmers in some of the War (1861-1865) were increasingly improve the lot of former slaves, the barbed wire fencing to enclose
South’s tidewater settlements while dominated by the South’s tenacious political will to see through these rangelands all appeared. In 1890,
Spain provided settlers for Califor- defense of its “peculiar institution” reforms ebbed, especially after 1877. the time required to produce 100
nia and the Southwest. But the and growing northern demands for The promised political and economic bushels of wheat had dropped to
sharpest line was drawn by the slavery’s abolition. In 1860, in the 11 freedoms thus were not delivered. just 50 hours. In 1930, a farmer
importation of African slaves, which southern states that would secede Instead the repressive system of “Jim with a tractor-pulled plow, com-
began in America in 1619. from the Union, create their own Crow” segregation took hold through- bine, and truck could do the job in
In the South, slave labor under- Confederacy, and launch the Civil out the South. By the end of the 19th 20 hours. The figure dropped to
pinned a class of wealthy planters War, four out of 10 people were slaves, century, poverty was widespread three hours in the 1980s.
whose crops—first tobacco, then cot- and they provided more than half of among blacks, as it was among many Eli Whitney’s cotton gin, intro-
ton, sugar, wool, and hemp—were the all agricultural labor. rural whites. duced in 1793, revolutionized cotton
nation’s principal exports. Small farm One crop stood out above all oth- The Civil War marked the great- production by mechanizing the sepa-
holders were the backbone of many ers in the region. “Cotton is king,” est threat to the Union’s survival, but ration of cotton fibers from sticky
new settlements and towns and were declared James Henry Hammond, a it was also an opportunity for the war- short-grain seeds. Cotton demand
elevated by Jefferson and many oth- South Carolina senator and defend- time Congress—in the absence of rep- soared, but the cotton gin also multi-
ers as symbols of an “American char- er of slavery, in 1858. Cotton was the resentatives from the rebellious plied the demand for slave labor.
acter” embodying independence, nation’s most important export, vital southern states—to expand the power Whitney, a Massachusetts craftsman
hard work, and frugality. to the economies of North and of the national government. The and entrepreneur, fought a long, frus-
Some of the Founding Fathers South. The low cost of slave-pro- first system of national taxation was trating battle to secure patent rights
feared the direction in which the duced cotton benefited U.S. and passed; a national paper currency and revenue from southern planters
unschooled majority of Americans, a British textile manufacturers and was issued; public land-grant univer- who had copied his invention, one of
“rabble in arms” in one author’s provided cheaper clothing for the sities were funded; and construction the earliest legal struggles over the
famous description, might take their urban centers. Southerners bought of the first transcontinental railroad protection of inventors’ discoveries.
new country. But the image that pre- the output of northern manufactur- was begun. Whitney did succeed on another
vailed was that of the farmer-patriot, ers and western farmers. front, demonstrating how manufactur-
once captured by the 19th-century The Civil War’s devastating eco- A Spirit of Invention ing could be dramatically accelerated
philosopher Ralph Waldo Emerson’s nomic impact widened the dispari- Across the country, a flow of through the use of interchangeable
depiction of the “embattled farmers” ties between the victorious North inventions sparked dramatic increas- parts. Seeking a federal contract to
who had defied British soldiers, fired and a defeated South. An earlier es in farm output. Jefferson himself manufacture muskets, Whitney, as
“the shot heard round the world,” and generation of historians argued that had experimented with new designs the story was told, amazed Washing-
sparked the American Revolution. the war stimulated the great manu- for plow blades that would cut the ton officials in 1801 by pulling parts
President Jefferson’s purchase of facturing and commercial expansion earth more efficiently, and the drive at random from a box to assemble
the Louisiana territory in 1803 dou- of the decades that followed. More to improve farming equipment never the weapon. He illustrated that the
bled the nation’s size and opened a recent research asserts that the U.S. slackened. In Jefferson’s time, it took work of highly trained craftsmen,

14 15

turning out an entire product one try’s Atlantic and Pacific coasts creat-
at a time, could be replaced with ing a national economy able to trade
standardized processes involving
simple steps and precision-made
with Europe and Asia and greatly
expanding U.S. economic and inter-
The Richest Man in the World
parts—tasks that journeymen could
handle. His insights were the foun-
dation for the emergence of a
machine tool industry and mass
production processes that made
national political horizons.

Convulsive Changes
Convulsive changes caused by
industrialization and urbanization
I
n the post-Civil War Gilded Age, a generation
of immensely wealthy industrialists rose to promi-
nence. Hailed as “captains of industry” by admirers
and as “robber barons” by critics, these titans dominated
entire sectors of the American economy. By the end of the
U.S. manufacturing flourish, even- shook the United States at the end of 19th century, oil had its John D. Rockefeller, finance its J.
tually producing “a sewing machine the 19th century. Labor movements Pierpont Morgan and Jay Gould, and tobacco its James B.
Duke and R. J. Reynolds. Alongside them were many others,
and a pocket watch in every home, began and vied for power, with some born into wealthy families, and some who personified
a harvester on every farm, a type- immigrants helping to adapt Euro-

© Getty Images
the self-made man.
writer in every office,” journalist pean protest ideologies into Ameri- None climbed further than Andrew Carnegie. He was the
Harold Evans notes. can forms. son of a jobless Scottish textile worker who brought his fam-
The 19th century delivered other By the 1880s, manufacturing and ily to the United States in the mid-1800s in hopes of better
opportunities. From this start, Carnegie became “the richest
startling inventions and advances in commerce surpassed farm output in Andrew Carnegie. ca. 1886
man in the world,” in the words of Morgan, who along with
manufacturing and technology, value. New industries and railroad his partners would in 1901 purchase what became U.S. Steel. Carnegie’s personal share of
including Samuel Morse’s telegraph, lines proliferated with vital backing the proceeds was an astonishing $226 million, the equivalent of $6 billion today, adjusted for
which linked all parts of the United from European financiers. Major U.S. inflation, but worth much more than that as a percentage of the entire U.S. economy then.
States and then crossed the Atlantic, cities shot up in size, attracting immi- Carnegie’s life exemplifies how an industrializing America created opportunities for
those smart and fortunate enough to seize them. As a teenager in Pennsylvania, Carnegie
and Alexander Graham Bell’s tele- grant families and migration from the taught himself the Morse code and became a skilled telegraph operator. That led to a job as
phone, which put people in direct farms. A devastating depression shook assistant to Thomas A. Scott, a rising executive in the Pennsylvania Railroad, one of the
contact across great distances. In the country in the first half of the nation’s most important lines. As Scott advanced, becoming one of the most powerful rail-
1882, Thomas A. Edison and his 1890s, forcing some 16,000 business- road leaders in the country, his valued protégé Carnegie advanced too, sharing lucrative
eclectic team of inventors introduced es to fail in 1893 alone. The following financial investments with Scott before going into business himself to build iron bridges for
the railroad. By the age of 30, Andrew Carnegie was a wealthy man.
the first standard for generating and year, as many as 750,000 workers were After quitting the railroad, Carnegie also prospered in oil development, formed an iron
distributing electric energy to homes on strike, and the unemployment rate and steel company, and shrewdly concentrated on steel rails and steel construction beams
and businesses, lighting offices along reached 20 percent. as railroad, office, and factory construction soared. His manufacturing operations set stan-
New York’s Wall Street financial dis- Farmers from the South and West, dards for quality, research, innovation, and efficiency. Carnegie also availed himself of
trict and inaugurating the electric age. battered by tight credit and falling secret alliances and advance knowledge of business decisions, practices forbidden by today’s
securities laws as “insider” transactions but legal in Carnegie’s era.
And a transportation revolution commodity prices, formed a third Andrew Carnegie was a study in contrasts. He fought unionization of his factories. As
was launched with the completion national political organization, the other industry leaders did, Carnegie imposed hard, dangerous conditions on his workers. Yet
of the first transcontinental rail- Populist Party, whose anger focused his concern for the less fortunate was real, and he invested his immense wealth for society’s
road, when converging rail lines on the nation’s bankers, financiers, benefit. He financed nearly 1,700 public libraries, purchased church organs for thousands
from the East and the West met in and railroad magnates. The Populist of congregations, endowed research institutions, and supported efforts to promote interna-
tional peace. When his fortune proved too great to be dispensed in his lifetime, Carnegie left
Utah in 1869. platform demanded easier credit and the task to the foundations he had created, helping to establish an American tradition of
“The American economy after the currency policies to help farmers. In philanthropy that continues today.
Civil War was driven by the expan- the 1894 congressional elections, Pop-
sion of the railroads,” writes historian ulists took 11 percent of all votes cast.
Louis Menand. During the war, Con- But American politics historically
gress made 158 million acres (63 mil- has coalesced around two large par-
lion hectares) available to companies ties—the Republican and Democratic
building railroads. Railroad construc- parties have filled this role since the Courtesy of Library of Congress

tion fed the growth of iron and steel mid-1800s. Smaller groupings served Above: (Detail) A 1910 panoramic photograph of a Carnegie steel plant in Youngstown, Ohio.
production. Following the first con- mostly to inject their issues into either
nection, other lines linked the coun- or both of the main contenders. This

16 17

would be the fate of the 1890s Pop- Joseph Pulitzer, editorialized that stock market crash of 1929 wiped out Roosevelt then launched a tide of
ulists. By 1896, the new party had “the United States was probably never millions of investors and crippled new laws and programs to halt the par-
fused with the Democrats. But signif- nearer to a social revolution than confidence among business execu- alyzing banking crisis and create jobs.
icant parts of the Populist agenda when Theodore Roosevelt became tives and consumers. New agencies such as the Civilian Con-
subsequently found their way into president.” Roosevelt responded with The United States and other eco- servation Corps, the Works Progress
law by way of the trans-party Pro- regulations and federal antitrust law- nomic powers waged a destructive Administration, and the Public Works
gressive movement of the 20th cen- suits to break up the greatest concen- battle over trade, raising tariff barriers Administration put millions of unem-
tury’s first two decades. Among the trations of industrial power. His against each other’s imports and ployed Americans to work on govern-
innovations were direct popular elec- administration’s antitrust suit against pushing their currency values down in ment projects. The Agricultural
tion of senators and a progressive the nation’s largest railroad monop- an unsuccessful effort to make their Adjustment Administration worked to
national income tax. oly, Northern Securities Company, exports more competitive. Prices col- support farm prices by reducing out-
American Progressivism reflected was a direct attack on the nation’s lapsed, impoverishing businesses and put, fining farmers in some cases for
a growing sense among many Amer- foremost financier, J.P Morgan. “If we
. families. Drought and poor planting excess production. Overall, the pro-
icans that, in the words of historian have done anything wrong,” Morgan practices led to dust storms in the U.S. grams marked “the return of hope,”
Carl Degler, “the community and its told Roosevelt, “send your man to my farming heartland and drove thou- said long-time Democratic congress-
inhabitants no longer controlled man and they can fix it up.” Roosevelt sands of farmers from their homes. man Emanuel Celler of New York.
their own fate.” Progressives relied on responded, “That can’t be done.” The The nation’s worst banking crisis FDR was far more an improviser
trained experts in the social sciences Supreme Court’s ultimate decision shut down 40 percent of the banks than an ideologue, historians agree.
and other fields to devise policies against Northern Securities was a doing business at the Depression’s His budget policies were inconsistent:
and regulations to reign in perceived beachhead in the government’s cam- beginning. The national unemploy- Spending cuts in the middle of his
excesses of powerful trusts and other paign to restrict the largest business- ment rate exceeded 20 percent. presidency probably extended the
business interests. Writing in 1909, es’ power over the economy. Some desperate and disillusioned Depression. Some New Deal mea-
Herbert Croly, author of the hugely Americans looked to communism and sures proved contradictory or hugely
influential The Promise of Ameri- A Modern Economy Emerges socialism as better alternatives, others controversial. The National Recovery
can Life and first editor of the New Electric power surged throughout eyed the fascist alternative pioneered Administration negotiated a series
Republic magazine, expressed the the U.S. economy in the first decades in Italy by Benito Mussolini, and many of industry-wide codes establishing
Progressive’s credo in this way: “The of the 20th century, steadily replacing feared the United States was ap- minimum prices, wages, and other
national government must step in steam and water power in industrial proaching a breaking point politically. particulars. Many small businesses
and discriminate, not on behalf of plants. It lighted offices and house- complained that the codes favored
liberty and the special individual, holds, illuminated department stores The New Deal larger competitors. Others saw in the
but on behalf of equality and the and movie theaters. It reshaped The inability of President Herbert close NRA-engendered ties between
average man.” cities, lifting elevators in new sky- Hoover (1929–1933) to meet demands government and big business a “cor-
The influence of Progressive scrapers and powering street cars and for economic relief set the stage for poratist” outlook fundamentally at
thought grew rapidly after the assas- subways that enabled people to work the 1932 election of Democrat Frank- odds with America’s traditionally
sination of President William McKin- farther from home. By 1939, electric- lin D. Roosevelt as president and the looser, more free-wheeling economic
ley in 1901 thrust Vice President ity provided 85 percent of the prima- enactment the following year of the arrangements. The Supreme Court
Theodore Roosevelt into the White ry power for U.S. manufacturing. The first of his “New Deal” economic pro- agreed, declaring the law establishing
House. Adventurer, naturalist, and ability to transfer power easily over grams. The president, known by his the NRA unconstitutional, an exercise
scion of wealth, “Teddy” Roosevelt thin electric wires spurred totally new initials, FDR, was a wealthy patrician of Congress delegating power to the
believed the most powerful corpo- manufacturing processes favoring from New York State with a gift for president beyond that granted by the
rate titans were strangling competi- automation, the use of specialized communicating his message to Amer- Constitution’s commerce clause.
tion. Businesses’ worst excesses must parts, and the rise of skilled labor. icans in those hard times. He used the But other New Deal measures
be restrained lest the public turn But the Great Depression of the new medium of radio to do so direct- proved long lasting. The federal gov-
against the American capitalist sys- 1930s brought economic expansion ly. In his inaugural speech upon ernment tightened regulation of bank-
tem, Roosevelt and his allies argued. to a devastating halt. Its causes were assuming the presidency, Roosevelt ing and securities, and it provided
The New York World newspaper, complex. After a decade of increas- assured the country, “The only thing unemployment insurance and retire-
owned by the influential publisher ingly reckless stock speculation, the we have to fear is fear itself.” ment, disability, and death benefits

18 19

for American workers under a social Tennessee Valley, saying it would
security program funded by payroll “break down the initiative and enter-
taxes on employees and employers. prise of the American people.… It is
The New Deal established a federal the negation of the ideals upon which
social safety net that has helped Amer- our civilization has been based.”
icans through hardships, but whose Americans differed as well over
costs today pose huge future finan- more practical questions: How could
cial challenges for the government. any private power company compete
Before Franklin Roosevelt’s ad- with the virtually unlimited resources
ministration, the federal government of the federal government? And once
had taken a predominantly hands-off a federal agency determined to act,
attitude toward business, except for its what would be the check on its
regulation of banking and the rail- authority? The same hand of govern-
roads, and the campaigns against the ment that built dams to produce
monopolistic trusts. FDR took the power and limit floods also uprooted
country far in the other direction, thousands of people from their farms.
injecting the federal government into Although the TVA complex of dams
economic activities previously deemed was built and the TVA remains the
the domain of the private sector. One largest U.S. public power producer,
notable example was his creation in Roosevelt’s efforts to adopt the TVA
1933 of the Tennessee Valley Authori- model in other parts of the country
ty, a federally chartered corporation were shelved by growing political
formed to control flooding and gener- opposition and by World War II.
ate electric power in an impoverished American industry and offices
region of the South. mobilized to fight Germany, Japan,
Roosevelt and his supporters saw and the other World War II Axis
the government-run TVA as a way powers. The last U.S.-made automo-
to set a benchmark for fair pricing of bile of the war years left its factory in
electricity that would show whether February 1942. In its place, industry
customers were being overcharged by produced 30,000 tanks in 1943 alone,
electric power companies. The TVA nearly three per hour around the
stood for the New Deal’s confidence clock, more than Germany could build
in government’s ability to define and in the entire war. A piano manufactur-
solve society’s problems. David Lilien- er produced compasses, a tableware
thal, whom Roosevelt appointed as a company turned out automatic rifles,
TVA director and later its chairman, and a typewriter company delivered
once said, “There is almost nothing, machine guns, author Rick Atkinson
however fantastic, that a team of engi- notes. The weight of U.S. industrial

neers, scientists, and administrators might was irresistible. American facto-
cannot do.” ries supplied armed forces in both the
To its opponents, the TVA was European and Pacific theaters, with
socialism, violating the basic principles more to spare for the British, the Sovi-
of free enterprise. Roosevelt’s Republi- ets, and other Allied armies.
can predecessor, Herbert Hoover, At the war’s end, much of Europe
had opposed earlier proposals for and Asia were in ruins, and America
Above: The Social Security retirement pension system was part of President Franklin Roosevelt’s
government power projects and eco- stood alone as the world’s economic
New Deal. nomic development programs in the superpower.

20 21

Organized Labor: Prosperity and Conflict Together, the Fair Labor Stan- employees such as teachers, police employment opportunities for
The end of wartime economic dards Act and the Taft-Hartley Act officers, and firefighters. In 2007, minorities expanded. While Ameri-
controls unlocked pent-up demands established the broad legal parame- just over one-third of public-services cans have debated the fairness of
by American workers for better ters within which organized labor workers belonged to unions, only 7.5 “affirmative action” preferences for
wages, leading to a series of major contended with business leadership percent of private-sector workers minorities in hiring and college
labor strikes that polarized American and union opponents for economic were in unions, and union member- admissions, the 1960s’ laws opened
attitudes toward unions, as in the and political influence. In 1950, ship among workers under 24 years increasing workplace opportunities
1890s. In 1935, the Democratic-con- when American automobile compa- of age was less than 5 percent. for minorities.
trolled Congress had enacted the nies enjoyed substantial global market One symbol of organized labor’s The 1960s civil rights movement
National Labor Relations Act of share, General Motors Corporation relative decline came in 1981, when also led to laws forbidding discrimi-
1935 establishing the right of most and the United Auto Workers union President Ronald Reagan fired strik- nation in employment against
private-sector workers to form negotiated a contract affording ing air traffic controllers. Public em- women, emerging from a far-reach-
unions, to bargain with management workers extensive health care and ployees such as the controllers typi- ing movement by women to gain
over wages and working conditions, retirement benefits. From the cally enjoyed great job security but, equal status with men in the econo-
and to strike to obtain their employer’s perspective, generous in turn, were prohibited from strik- my and society. Only one-third of
demands. A federal agency, the pay and benefits ensured freedom ing “against the public.” This is not adult women had jobs in 1950, but
National Labor Relations Board, was from strikes and motivated the to say that public employees never by the end of the century three of
established to oversee union elec- employees. The costs of these bene- struck: Sometimes they did, and usu- every five women were in the work-
tions and address unfair labor com- fits, the companies reasoned, could ally the illegality of the strike was for- force. Female chief executive officers
plaints. The Fair Labor Standards be passed on to consumers. With the given as part of the settlement. Not have led such major corporations as
Act of 1938 established a national rise of competition from Japanese, this time. Reagan ordered the con- technology giant Hewlett-Packard
minimum wage, forbade “oppres- European, and other foreign auto- trollers back to work, citing the fed- and the Ogilvy & Mather advertising
sive” child labor, and provided for makers, American industry became eral law against government employ- firm. Other women have built
overtime pay in designated occupa- less willing or able to pass through ee strikes. He then fired more than careers in virtually every arena, from
tions. It declared the goal of assuring such labor costs. 11,000 controllers who refused to academia, politics, and medicine to
“a minimum standard of living nec- These issues played out in the return, replaced them with new manufacturing, the construction
essary for the health, efficiency, and political realm as well. As a general- workers, and broke the union. trades, and the military. A wage gap
general well-being of workers.” But it ization, labor unions mostly support- Even as unions gained, then lost, between men and women is shrink-
also allowed employers to replace ed Democratic candidates with influence, other major currents ing, but still remains. In 2000 women
striking workers. money and manpower, while busi- helped shape the postwar American working full time earned 77 cents for
After World War II, a Republi- nesses backed Republicans. Each workforce. The civil rights move- every dollar paid to men throughout
can-controlled Congress passed the side hoped that electoral victories ment began in the mid-1950s with the workforce, while 20 years earlier
Taft-Hartley Act of 1947, which would secure more favorable treat- demands to end state and local laws women earned just two-thirds of
reduced union power in organizing ment. But global economic develop- in the South that segregated schools, what men received.
disputes, strengthened the rights of ments intervened. With the recovery public facilities, and public trans- Another major impact was the
employees who didn’t want to join a of industry in other nations, U.S. portation, separating blacks and arrival of the “baby-boom” genera-
union, and allowed the president to industrial unions generally declined whites, as well as restrictions on tion in the workforce. Between the
order striking workers back on the in membership. At the end of World African-Americans’ voting rights. end of World War II and 1964, 76
job for an 80-day “cooling-off ” War II, one-third of the workforce After a strife-filled decade, the non- million Americans were born, an
period if he determined a strike belonged to unions. In 1983, it was violent campaign for racial justice unprecedented surge that may
could endanger national health or 20 percent. By 2007, the figure had led by the late Dr. Martin Luther have reflected the nation’s postwar
safety. United Mine Workers presi- dropped to 12 percent, with union King Jr. led to passage of federal laws optimism. This population bulge,
dent John L. Lewis called it a “slave membership totaling 15.7 million. to combat racial discrimination and in the midst of a long upward eco-
labor” law. President Harry S. Tru- Union growth today is mostly in poverty. A wide-ranging series of nomic trend, triggered a sustained
man vetoed it, but was overridden arenas less susceptible to foreign laws that Democratic President Lyn- boom in housing construction and
by the required two-thirds congres- competition: the services sector, par- don Johnson called his Great Society the expansion of a consumer-
sional majorities. ticularly among public services program followed. Education and focused economy.

22 23

The Political Pendulum Swings new demands for higher pay by party in power, and 1980 was a case eral budget deficits persisted and
The 1960s Great Society legisla- workers. “Now, I am a Keynesian,” in point. Polls that year showed two- grew. Nevertheless, the “Reagan
tion, comprising 84 different new Nixon said in 1971, putting himself thirds of the public believed the revolution” was a political turning
laws, was the crest of a wave of politi- in the camp of British economist country was faring badly. Many Amer- point toward smaller government
cal action begun by Franklin Roo- John Maynard Keynes, who had icans sought a change in direction, and individualism, and Reagan left
sevelt to use government’s power to advocated deficit spending during and they found it in the candidacy of office as one of the most popular
set economic and social agendas. Vot- times of slow economic growth. California’s former Republican gov- U.S. presidents.
ing rights for minorities, employment Nixon’s wage-and-price control ernor, Ronald Reagan. At the cam-
program failed. To cite just one paign’s only televised presidential Deregulating Business
opportunity, public education, the
safety of consumers and motorists, example, the price of cotton was not debate, Reagan asked the viewers The 1980s tax cuts were only one
environmental protection, and health controlled because of the political simply, “Are you better off than you part of a broad movement to reduce
insurance for the elderly and poor all influence of cotton farmers. But the were four years ago?” Analysts called government’s economic role. Anoth-
were addressed by the new laws. price of plain cotton fabric was regu- it Reagan’s knock-out punch. er was deregulation.
The adoption of Lyndon John- lated, and when fabric manufactur- Reagan’s election to the presidency During the 1970s, a number of
son’s agenda was based on his land- ers’ profits were squeezed, they cut marked another directional change in thinkers attributed some of the
slide victory in the 1964 presidential back on production, causing short- government’s role in the economy. nation’s economic sluggishness to
election and the decisive majorities ages, according to former Federal Reagan declared in his 1981 inaugur- the web of laws and regulations that
his Democratic Party achieved in Reserve Chairman Alan Greenspan. al address that “in this present crisis, businesses were obliged to observe.
Congress that year. But Johnson’s The lesson from Nixon’s experi- government is not the solution to our These regulations had been put in
policies energized opposition from ment was a lasting one: The U.S. problem; government is the problem.” place for sound reasons: to prevent
conservatives who felt the govern- economy was far too complex, chaot- He added, “It is time to check and abuse of the free market and, more
ment had intruded too far in the ic, and fast moving to be managed in reverse the growth of government.” generally, to achieve greater social
lives of private citizens and had put any detail by government officials. A “Reaganomics” sought to cut U.S. equity and improve the nation’s
too great a burden on employers, new consensus formed that controls tax rates, even if one result was grow- overall quality of life. But, critics
threatening the vitality of the econo- could not overcome inflationary ing federal budgetary deficits. Critics argued, regulation came at a price,
my. The civil rights measures John- forces, but instead stifled innovation, protested that this was an indirect one measured by fewer competitors
son championed embittered many risk taking, and competition. way of forcing cuts in domestic social in a given industry, by higher prices,
southern whites, whose allegiance Two oil price shocks that followed spending and to programs of which and by lower economic growth.
shifted to the Republican Party. the Arab-Israeli War of 1973 and the the new administration disapproved. During the economically trying
The 1970s was a trying decade for Islamic Revolution in Iran in 1979 Reagan and his advisers argued 1970s and early 1980s, many Ameri-
the U.S. economy. In the middle of battered U.S. economic perfor- that lower marginal tax rates would cans grew less willing to pay that
his first term in office, President mance. Oil prices tripled. Long lines revive the economy. It was better, they price. President Gerald R. Ford, a
Richard M. Nixon was confronted formed at gasoline stations. At the believed, to leave more money in the Republican who succeeded Richard
with rapidly rising prices, triggered end of the decade, inflation was high- hands of business and consumers, M. Nixon in 1974, believed that
in part by the costs of the Vietnam er than at any time since World War whose savings, spending, and invest- deregulating trucking, airlines, and
War waged during his and Johnson’s I, and unemployment had jumped to ment choices collectively would gener- railroads would promote competi-
administrations. Nixon broke with more than 9 percent. The impact hit ate more economic growth than would tion and restrain inflation more
his Republican Party’s traditional hardest during the administration of government spending. This theory, effectively than government over-
support for balanced budgets to President Jimmy Carter, a Democrat called supply-side economics, held sight and regulation. Ford’s Democ-
accelerate federal spending to stimu- elected in 1976. The U.S. economy that the resulting economic growth ratic successor, Jimmy Carter, relied
late economic growth, even though was gripped in a “malaise,” as also would generate more revenue heavily on a key pro-deregulation
that swelled federal budget deficits. Carter’s advisers put it, and nothing than would be lost through the lower adviser, Alfred E. Kahn. Between
Nixon similarly embraced wage government did seemed an answer to tax rates, and that the federal budget 1978 and 1980, Carter signed into
and price controls in an effort to halt high unemployment, high prices, could be balanced in this manner. law important legislation achieving
an inflationary cycle in which rising and stagnant stock markets. The Reagan tax cuts did help lift substantial deregulation of the trans-
wages led corporations to increase During economic travails, Ameri- the U.S. economy, but contrary to portation industries. The trend
prices, and higher prices then led to can voters have often punished the the supply-siders’ predictions, fed- accelerated under President Reagan.

24 25

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