2013년 3월 24일 일요일

[발췌] 1950s Economics of the U.S.



※ 발췌(excerpts):

of which : Section 3, Economic Conditions / Concerns

Economically speaking, the 1950s was a relatively stale period of time, that is, compared to the 1930s and 1940s. The 1950s, being an uneventful period, explains why the economy did not experience any major problems or breakthroughs. However, this gradual growth led to the US being at peak economic strength in the early 1960s. There were also a significant number of occurrences and trends that were important both during this decade and as a contributor to future events.

Inflation was an important issue during the 1950s because of two major waves of inflationary conditions swept the country at this time. The first followed the end of WWII and the second at the onset of the Korean War in 1950. Post WWII America waited expectantly for the United Sates to suffer a postwar economic collapse. The recession came in the third quarter of 1948 and lasted until the second quarter of 1950 (Vatter, 121).

The causes of this inflation are not fully understood. Slow economic growth and slow increase in the money supply are considered the most probable culprits. At this time the money supply rose much more slowly than the GNP. When the GNP rose significantly from 1955-1960 it was accompanied by an increase in the velocity of money, however, the quantity of money did not keep in step with these changes. This led to a significant ration change between the GNP and the money supply. The increase in velocity of money due to this discrepancy is the most important component of the inflationary trends during this decade. GNP rose from $211 billion in 1944 to $329 billion in 1951, but measured in 1960 dollars of equal purchasing power, the rise was only from $373 billion in 1944 to $391 billion 1951. Furthermore, the GNP growth rate (in constant dollars) was slower than many other industrialized areas, such as Japan and Taiwan (Vatter, 124). This difference might have been a beginning for the current large productivity gap between the US and these countries. The foreign balance of trade took its first major dive during this decade and for twelve of the thirteen years between 1950 and 1963, the US had a negative balance of trade. This was a primarily new occurrence for the US economy as it was the main economic powerhouse in the world previous to this time and did not have to rely on imports to be self-sustaining. This balance of trade led to $8 billion dollars of gold leaving the hands of the US government during this period of thirteen years and may have paved the way for our current deficit situation (Vatter, 264).

Consumer prices increased significantly over this period due to a number of factors. The first of which was the slow growth of productivity in the US economy at the time especially in the service sector. The service sector experienced the biggest price increases due to lapses following the removal of price controls following WWII. The Federal Reserve's policy, which will be covered in greater detail in the next paragraph was another anchor. The Federal Reserve Bank set policies that were used to try to limit the economy to diving into only mild recessions instead of large economic declines. Large increases in consumer demand and credit were also factors in the increase of consumer prices due to corresponding poor productivity of the industrial sector. Huge increases in indirect business taxes and social security taxes also played a role as both nearly doubled during the decade.

The Federal Reserve Board also had an important role in the inflationary conditions of the 1950s. The policies of the Federal Reserve Board relied upon the general quantitative devices of credit controlㅡthe discount rate, open market operations, and changes in the reserve ratios. Following the end of the Korean War in 1953 the Board was obsessed with the fear of inflation and also of the fear of utilizing too much control. The Board used the quantitative devices at a vigorous pace in response to a number of recessions and economic dounturns in hopes of maintaining stable prices in the economy (Vatter, 129). The Board has been criticized for their policies and actions during this time, but it is reasonably accepted that the price rises would have been significantly larger had they not intervened.

Eisenhower's views on political economy in many ways coincided with Truman's, for both insisted that government attempt to promote economic growth, although Truman was more likely to use federal spending to stimulate a sluggish economy. Both disliked budget deficits because of their concerns about the dangers of inflation.

One of the basic principals of the Eisenhower administration was fiscal responsibility; that is, the government has a duty to stimulate economic growth and raise productivity without benefiting any one special interest. Moreover, he was relentless in emphasizing the belief that an unbalanced budget promoted inflation, which increased domestic problems and weakened national defense. Prosperity was unattainable at the sacrifice of wage and price stability.

A commitment to classical budget principles was adopted by the Federal government in an attempt to reduce the size of the Federal budget, improve operating efficiency of department, and to reduce waste. A reliance was put on private investment in the belief that economic growth would therefore take care of itself. Government expenditures on military and defense declined slightly following the end of the Korean War and those funds were redirected into highway and airport grants as well as into social welfare programs. The expanding role of government in the economy led to huge increases in taxes, especially income taxes, and a corresponding increase in the amounts of services that the Government was providing. Tax rates continued to climb during this period as the government needed ever increasing funding to finance new activities.

By the end of 1953, Eisenhower faced a lagging economy as a result of the Korean armistice's sharp military cutbacks. A mild recession reached its peak in January 1954 with unemployment rates topping out over 6%. Eisenhower's first order of business was to ask Congress to curb the growth of federal spending. His budget of 1954 reduced Truman's proposed expenditures of $79 billions by $5 billions and cut the projected deficit of nearly $10 billion in half. In April, he approved a revised request for new appropriations of nearly $63.2 billion, with the largest reduction coming, ironically, in national security programs. Putting a balanced budget above defense prevailed because Ike insisted that the real issue was the long-term security of the U.S., to survive. In fiscal year 1955, he cut the defense budget by another $5 billion.

There were also a number of other developments in the business sector in the capital markets and other financial intermediaries during the 1950s. Over the decade the housing supply increased 27% and the overall quality level of  aggregate US housing increased dramatically. A move from urban areas to suburbs was the predominant characteristic of the new construction and increasing health and living conditions quality characterized the urban growth (Barach, 57).

With the great surge in construction and industrial investment as well as with consumer credit reaching previously unattained levels the economy seemed to be booming. The bond market reacted accordingly and it surged over the decade in step with the economy. The average yield in 1950 was 2.86% compared to the 4.73% average yield in 1960. This increase in bond prices and corresponding decrease in the stock market (below the average of all classes of bonds in 1958) was the result of the Federal government's high-interest-rate policy.

( ... ... )

By mid-1955, the country had pulled out of the previous year's recession and gross national product was growing at a rate of 7.6%. The boom was so great that the budget for 1956 predicted a surplus of $4.1 billion. With the surges in production and the economy, the 1950s is often recognized as the decade that eliminated poverty for the great majority of Americans. Over the decade, GNP per capital almost doubled and the public welfare reacted accordingly as the the cost of living index rose by just 1% and unemployment dropped to 4.1% (Barach, 90). An average of three million people per year added during the postwar "Baby Boom". With their rising incomes and increasing public welfare, booms in consumer spending were prevalent and items that had been previously thought of as luxuries were now necessities. Examples of this include fashion clothing, televisions, washing machine, etc. The propensity of the mid-fifties is attributable to the middle-class family striving for the American dream through increasing their number of material possessions.

In the fiscal year 1958, Eisenhower's budget of $73.3 billion sparked debate because it marked an increase of $2.8 billion over the previous fiscal year, despite analysts' predictions of a slight surplus. A Battle of the Budget ensued over the highest expenditure proposal in peacetime, with fears of upcoming depression if spending continued at current levels. Eventually, Congress provided Eisenhower with $4 billion less than he had requested.

The economy turned sharply downward in the summer 1957 and reached its low point in spring 1958. Industrial production fell 14%, corporate profits plummeted 25%, and unemployment rose to 7.5% (Vatter, 115). The president did little to stimulate the economy because he worried about inflationㅡnot unemploymentㅡas the real danger. Subsequently, fiscal year 1959 realized a $12 billion deficit, a new record for a budget shortfall during peacetime.

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