Economy

The U. S. economy enjoyed spectacular growth in the first 20 years after World War II, with the gross national product doubling from 1945 to 1965. Inflation, or increase in prices, was low; unemployment was under control. However, from the late 1960s through the early 1980s, the economic picture changed to one of steep inflation, high unemployment, and regular recessions, or decreases in economic activity. The economy rebounded in the 1980s, fell into a slight recession in 1991-92, then boomed throughout the rest of the decade. In 2001 the economic picture changed again, this time for the worse. Behind the twists and turns of the U. S. economy since 1968 lay numerous factors, including wars, shifting oil prices, a high national debt, and the trend toward worldwide economic integration known as globalization.

In the late 1960s the federal government’s finances began to stagger under the costs of the Vietnam War and of new social programs associated with President Lyndon B. Johnson’s Great Society, and Johnson’s reluctance to raise taxes to offset rising inflation. The national debt, the amount of money owed by the federal government, climbed 70 percent in 10 years, from $313.8 billion in 1965 to $533.2 billion in 1975. (By comparison, the debt had risen only 15 percent from 1955 to 1965.) Furthermore, ballooning energy costs and rising labor costs created inflation. The rate of inflation climbed from 1.6 percent in 1965 to 9.1 percent in 1975. In 1971 the United States also faced, for the first time in decades, a deficit in its balance of payments, with the amount of money paid out to foreign countries exceeding the amount received.

American economic problems in the 1970s were linked to an international slowdown in growth and acceleration of inflation. Yet some countries, notably Japan and West Germany, fared better than others, raising talk of American decline relative to other nations. American manufacturers, particularly in the automobile, steel, and textile industries, lost ground to foreign competitors, resulting in massive layoffs. Unemployment was made worse in the post-1968 era by increasing automation, which reduced the need for employees, and the rise of a global labor marketplace, in which American businesses moved factories overseas to take advantage of cheap labor abroad. Workers could find jobs in the growing service sector—for example, in retail stores, restaurants, and health care—but these jobs were typically lower-paying than manufacturing jobs. The position of workers in the late 20th century was further weakened by the declining power of labor unions and the growing might of corporations that became ever bigger through mergers with smaller companies.

In August 1971, to combat the nation’s economic troubles, President Richard M. Nixon announced the New Economic Policy, which began with a 90-day freeze on wages and prices; a temporary 10 percent surcharge on imports; and an end to redemption of dollars in gold. Other steps followed, including federal budget reductions; establishment of the Cost of Living Council, to plan and monitor increases in wages and prices; and tax measures to stimulate growth. Despite these policies, inflation again accelerated, and Nixon reimposed the wage and price freeze in 1973.