The US and cyclical economic theory – Part 2

The US and cyclical economic theory – Part 2

The New Deal changed the rules of economics, but it was the World War 2 that catapulted the US to superpower category. Consider that before WW2, the US was a developing country. Government spending reached it’s climax with all the money invested in the Army. This lead to industrial as well as technological development. As George W. Bush once said “America has always grown based on warfare”. After WW2 several wars or interventions followed: Korea War, Vietnam War, the Gulf War, Invasion of Afghanistan. War is a lucrative business that the US Government understands very well.

But let’s continue with economics. After WW2, the world was divided in two: The western bloc, including western Europe, the US and Latinamerica, and the Eastern Bloc: the Soviet Union. The two models represented very different values and views of the world. Whereas capitalism stressed the achievement of the individual and freedom, communism focused on group efforts and the sacrifice of individual interest in pursuit of a common goal. We will continue discussing that later. The 1950s was a great period for American history, at least for the white American. It also saw the greatest invention in history: Television. The Civil Rights movements looked forward to make America more inclusive. Between 1945 and the 1960s Americans experienced a period of economic expansion that saw standards of living rise and gross national products more than doubled. This prosperity was shared by ordinary people who saw wages rise. By 1960, 60% of Americans enjoyed middle-class standard of living. Most Americans where happy because they had televisions, dishwashers, indoor plumbing and electricity! Urbanization lead to the growth of the construction sector, and people living outside the city led to the growth of the car industry. Most people agreed on American values: individualism, respect for private property and belief in equal opportunities. However, African Americans where terribly discriminated. Segregation was horrible, in the 1960s, black people had to stand up and give their seats on the bus to white people. In the 1990s, nearly 90% of suburban whites lived in communities with non-white populations less than 1% of the population. In the 1950s, half of black families lived in poverty. In California, discrimination was against Latinos. Segregation of white and coloured children at public schools had a detrimental effect upon coloured children. The impact is greater . The policy of separating the races is usually interpreted as denoting the inferiority of the negro group. A sense of inferiority affects the motivation of a child to learn, tending to slow the educational and mental development of negro children and to deprive them of some of the benefits they would receive in a racially integrated school system. There was widespread systemic inequality spread in the decade that showed how far away Americans were of living the ideal of equal opportunities. In the 1960s, gay people, woman and latinos added their voices to the claim.

The Civil Rights Acts brought actual legislated change, against discrimination. Kennedy realized that the US could not declare itself the champion of freedom throughout the world while maintaining a system of racial inequality at home. “The Great Society” was a set of legislations that extended many of the promises of the New Deal, especially in the creation of health insurance like medicare for the elderly and Medicaid for the poor. Despite efforts, the median wealth of white households remained ten times greater than that of African Americans, and nearly a ¼ of all black children lived in poverty. Persistant poverty and continual discrimination in the work place, housing education and the criminal justice system explains the shift away from integration and towards “Black Power”, a celebration of afro-american culture and criticism of white suppression. Latinos organized to claim for their rights, but more specifically linked to labour justice.

A man against war John F. Kennedy switched the country’s focus on warfare towards the Space Race. The US space program committed the nation to the ambitious goal of landing a man on the moon. Besides fighting for world supremacy against the Soviet Union, the Space Race brought a new wave of technological development. Satellite TV, laptops, the dust buster, smoke carbon detectors, telemedicine, the joystick, 3D graphics and virtual reality, non-reflective display, ear thermometers and satellite navigation (GPS), are examples of inventions that came about thanks to government investments in an attempt to reach space. It makes sense, in order to land send a rocket into space, or to equip a space station, technology must be more develop. These developments are later transformed into goods that the final consumer can buy. We can use as an example the iPhone, which uses GPS technology for Google Maps. It is not the private company but the government that must invest in the long term for these developments to take place. The private company will want immediate results, and not a large part of their budget is allocated to R&D. The government, however, can invest in the long term, take the necessary risks and create an environment good for experimentation. The findings of the government programs are later taken into use by private corporations in order to make them a business. On a personal level, my admiration both for the US and the ex-Soviet Union or presently Russia is their understanding that both government and private sector must work together in order for a country to achieve the highest levels of development. Investment in Science & Technology is the most important for long term development. The countries that understand this manage to sustain development in time. The ones that don’t are doomed to periods of booms and bust, many times linked to commodity cycles.     

Last chapter on American history and economy NeXT.

Your friendly economist,

Cristian “Nash” Bøhnsdalen.