Economic Role in Shaping Actions by the Government in 1930-1980 - Essay Example

The period from 1930 to 1980 has been very crucial for the US economy. The economy faced one acute depression that shook the Americans at the worst. Followed by this the World War 2 put heavy burden on the economy but the country used this event very strategically in its favor and turned the period as the real base for restructuring the economy to acquire leadership in the future. 1960s and 1970s were growth –oriented periods but with high inflation, and interest rate that again attracted US government to act strategically and find solution and save common men on the road. When the economy is undergoing substantial and fundamental changes the role of a strong government is a must that can provide a definite shape by enacting laws and framing favorable and right policies. The economic history of this period of 1930 to 1980 will be testimony to this fact. The Great Depression of 1930s The depression set in 1930s created challenging tasks for the government to undertake in order to find solution of the problem concerning economy and finance. Roosevelt was elected president in 1932 and he followed the principle propounded by Keynes, the British economist who believed that deficit spending during recessions and depressions could revive national economies. His theories became the basis of Roosevelt's New Deal approach. During first hundred days Congress and Roosevelt established many New Deal agencies, including CCC, FERA, CWA, AAA, TVA, and PWA to deal with the crisis.. In 1934 Congress created Securities and Exchange Commission (SEC) The president; immediately set to work creating New Deal policies to end Great Depression.In1933 immediately after taking the oath of office, He set out to provide relief, recovery, and reform in his programs known as the New Deal.  In 1933 Roosevelt declared a five-day national bank holiday to close banks temporarily with the hope that a short break would give the surviving banks time to reopen with strong new breathe.. Congress also passed the Emergency Banking Relief Act, which gave the president the power to regulate banking transactions and foreign exchange. Congress passed the Glass-Steagall Banking Reform Act to protect savings deposits. The act created the Federal Deposit Insurance Corporation (FDIC), which insured an individual's savings of up to $5,000. The act was aimed to regulate lending policies and did not allow banks for investing in the stock market. Congress created the Civilian Conservation Corps (CCC), with a view to hire unemployed young men to work on environmental conservation projects throughout the country. Young and unemployed young men worked for small wage of thirty dollars a month, on projects in flood control and reforestation projects, national parks, and built many public roads. Almost 3 million people worked in CCC camps. The program exited for 9 years during the crisis period to solve the problem of unemployment.   Congress also created the Federal Emergency Relief Administration (FERA), to dole out roughly $500 million to the states. Half of this money was meant to bail out bankrupt state and local governments. The other half was distributed to people directly. FERA also created the Civil Works Administration (CWA) that helped generate temporary labor for others in need. The Social Security Act in 1935 was passed to help promote growth in employment. This law provided payments as "unemployment compensation" to workers who lost their jobs. The Act gave public aid to the aged, the needy, the handicapped, and to certain minors. These programs were financed by a 2 percent tax, one half of which was subtracted directly from an employee's paycheck and one half collected from employers on the employee's behalf. The tax was levied on the first $3,000 of the employee's salary or wage. The government encouraged the creation of the Agricultural Adjustment Administration (AAA) to assist America's farmers. The AAA reset prices for farm commodities, such as corn, wheat, rice, milk, cotton, and livestock, and subsidized farmers to reduce production. Before the depression farmers who were debt-ridden had increased crop production in order to earn more money. This increased production and led to overproduction, resulting in market being over flooded. This pushed prices down, forcing farmers to plant even more the next year. The AAA began paying farmers extra to plant less or destroys their surplus crops in order to raise prices up. Congress passed the Farm Credit Act to provide loans to farmers who were bankrupt.   Congress created the Tennessee Valley Authority (TVA), with goal to modernize and reduce unemployment in the Tennessee River valley. This region was one of the poorest and hardest-hit regions in the country. They hired local workers to construct a number of dams and hydroelectric power plants, which brought cheap electricity to people. They created cheap and affordable employee housing, manufactured cheap fertilizer and farming land. Government produced electricity to distribute cheaper to people of the affected areas.     National Industrial Recovery Act was passed as the federal government's first attempt to revive the economy as a whole. National Recovery Administration (NRA) was formed to stimulate industrial production and improve competition by enforcing corporate codes of conduct. The NRA also sought to limit production of consumer goods to drive up prices. The act helped to set up Public Works Administration (PWA) to construct public roads, bridges, and buildings. The president took the country off the gold standard that allowed citizens and foreign countries to exchange paper money for gold. Hoarding the precious metal was not allowed. The president also ordered private gold stocks to hand over to government. The Congress also created the Securities and Exchange Commission (SEC) to regulate trading on Wall Street to curb speculation.  When the World War 2 started in 1939 USA had not recovered from the onslaught of the great depression of 1930s. It was only from 1936 that GDP of USA started recovering gradually. Hence the role of government was not minimized. As war spread throughout Europe and Asia between 1939 and 1941, the role of federal government's leadership was important in the realm of "preparedness" for war and fighting the war. Great importance was given for converting America's industrial base to produce armaments and other war materiel rather than civilian goods. "Conversion" was the key issue in American economic life in 1940-1942. The major automakers were made to convert to aircraft production. The ship-building industry that was languishing for years was made to revive to gear to the war needs. As a result of the conversion between 1941 and 1945, the U.S. exported about $32.5 billion worth of goods through Lend-Lease. War boom and a new wave of growth and prosperity began in US. This was the result of the rail and road expansion in Northern Europe and America and the accompanying expansion in the coal and iron industries. The boom ended approximately in 1857 when it turned into a recession. By 1946 Government had transferred payment to welfare programs to extent of $11 billion. By 1950 this has risen to $15 billion, by 1970 this has risen to $28 billion and by 1980 by $80 billions. Farmers made $20 billion in 1944 unlike the late 1930s, which had an average of only $8 billion. The war also caused a shortage of employees. This raised the annual earnings to $44 billion compared to $13 billion in 1939.At the wartime peak in July 1944, 19 million women were employed. Child labor increased over two folds. Because of these factors, the average family income rose over 25% from 1941-1945. In the beginning of the war, 1941, the national income was around $95 billion dollarsIn 1946 the Employment Act was passed that enabled the US government to use the tool to stabilize output and employment. Economic policy of the government since World War 2 was geared to counteract the odds to prevent or minimize ill effects of recession. Initially government used expansionary policy but later was compelled to adopt contradictory policy to moderate inflation. In Second World War, increasing defense spending and the need for monies led to the passage in 1940 of two tax laws that increased individual and corporate taxes, which were followed by another tax hike in 1941.Government had changed tax structure for mopping funds for financing the defense expenditure. Nature of the income tax had been altered. By reduction in exemption level Government mopped up federal receipts from $8.7 billion in 1941 to $45.2 billion in 1945. Tax collection was made easier. The tax base was broadened. The extra funds collected were transferred for the welfare schemes. Throughout 1950s tax policies were used and perceived as tool for raising revenue changing the incentives in the economy. This was also used as a tool for stabilizing macroeconomic activity. There was major reorganization in 1954 and by 1959 tax reform Act was passed to reduce income tax for individuals and foundations. From 1960 to 1970 the USA experienced persistent inflationary situation that culminated in 1979 to be 13.3%.1970s were marked with inflation, money growth were at high level. Therefore, regulation from the government were also were very high. Farm sector was very prosperous but stock market was depressed. During this period the country had become the largest creditor to the world but gradually this position was being eroded. To save economy and people from this hyper rise in prices the US government adopted many monetary and fiscal measures. The tax burden was very high from 19.4 percent of GDP to 20.8 percent of GDP. High marginal tax rates, rising inflation, and a heavy regulatory burden, caused the economy to under-perform badly. This laid the groundwork for the tax We can note the substantial role of Government during this major crisis. The New Deal policies did much to get Americans to stand on their feet. The government provided relief, recovery, and reform but also drastically changed the federal government's role in politics and restructuring the society and economy. The whole of 1950s to 1970s were marked with frequent booms and busts and government was very much engaged to set the economy right. Bibliography Alexander, Michael A. “Generations and Business Cycles” - Part I www.safeheaven.com visited on 14th Nov.2008 Dr. Batra, Ravi “ Surviving The Great Depression of 1990s (1989) Pp215 SparkNotes: The Great Depression (1920–1940): The First New Deal . www.sparknotes.com/history/american/depression/section5.rhtml visited on 14th Nov.08 en.wikipedia.org/wiki/Economy_of_the_United_States www.ustreas.gov/education/fact-sheets/taxes/ustax.shtml “the Economic Recovery Tax Act of 198’. NB. Sorry to tell you that I don’t have PDF converter and I don’t know how to use that. Kindly do it your self. Read More