The Effects of Different Political Parties on the U.S. Economy - Term Paper Example

The Effects of Different Political Parties on the U.S. Economy Beginning with the rise of corporate monopolies and as direct result of the economic effects surrounding World War 1, government expansion began and has grown during ‘liberal thinking’ presidential administrations since that time. During the Great Depression of the 1930’s, multiple additional federal agencies were created to manage many facets of American life. Except for a brief conservative swing in the late 1940’s, liberalism worked relentlessly to swell the size and scope of the federal government until conservative policies under President Reagan began to stem the liberalism tide once more. Despite this, Reagan added his own brand of Big Government with the swelling of the National Debt under his watch which crippled the economy. Liberal and conservative economic ideologies cannot necessarily be connected with Democratic and Republican Parties respectively as this paper will illuminate. The Great Depression was the worst economic slump ever in U.S. history, and one which spread to virtually the entire industrialized world. Many factors played a role in bringing about the depression; however, the main cause for the Great Depression was the combination of the greatly unequal distribution of wealth throughout the 1920’s, and the extensive stock market speculation that took place during the latter part of that same decade. The misdistribution of wealth in the 1920's existed on many levels. Money was distributed disparately between the rich and the middle-class, between industry and agriculture within the United States, and between the U.S. and Europe. This imbalance of wealth created an unstable economy. The excessive speculation in the late 1920's kept the stock market artificially high, but eventually lead to large market crashes. These market crashes, combined with the misdistribution of wealth, caused the American economy to capsize. The ‘roaring twenties’ was an era when our country prospered tremendously. The nation’s total realized income rose from $74.3 billion in 1923 to $89 billion in 1929 (Hicks, 1960 p. 110). However, the rewards of the (Republican) ‘Coolidge Prosperity’ of the 1920’s were not shared evenly among all Americans. According to a study done by the Brookings Institute, in 1929 the top 0.1 percent of Americans had a combined income equal to the bottom 42 percent (McElvaine, 1984 p. 38). That same top 0.1 percent of Americans in 1929 controlled 34 percent of all savings, while 80 percent of Americans had no savings at all (McElvaine, 1984 p. 38). Automotive industry mogul Henry Ford (Republican) provides a striking example of the unequal distribution of wealth between the rich and the middle-class. Ford reported a personal income of $14 million (Baughman, 1996) in the same year that the average personal income was $750. The federal government also contributed to the growing gap between the rich and middle-class. Calvin Coolidge’s administration (and the conservative-controlled government) favored business, and as a result the wealthy who invested in these businesses. An example of legislation to this purpose is the Revenue Act of 1926, signed by President Coolidge on February 26, 1926, which reduced federal income and inheritance taxes dramatically (Baughman p. 80). Andrew Mellon, Coolidge’s Secretary of the Treasury, was the main force behind these and other tax cuts throughout the 1920’s. In effect, he was able to lower federal taxes such that a man with a million-dollar annual income had his federal taxes reduced from $600,000 to $200,000 (Hicks, 1960 p. 106). This speculation and the resulting stock market crashes acted as a trigger to the already unstable U.S. economy. Due to the misdistribution of wealth, the economy of the 1920’s was one very much dependent upon confidence. The market crashes undermined this confidence. The rich stopped spending on luxury items, and slowed investments. The middle-class and poor stopped buying things with installment credit for fear of loosing their jobs, and not being able to pay the interest. As a result industrial production fell by more than 9 percent between the market crashes in October and December 1929 (McElvaine, p. 48). As a result jobs were lost, and soon people starting defaulting on their interest payment. To protect the nation’s businesses the U.S. imposed higher trade barriers (Hawley-Smoot Tariff of 1930). Foreigners stopped buying American products. More jobs were lost, more stores were closed, more banks went under, and more factories closed. Unemployment grew to five million in 1930, and up to thirteen million in 1932 (Hicks, 229). The country spiraled quickly into catastrophe. The Great Depression had begun. The response of the federal government was, at least in the early years, too little and too late. Hoover and his aides were convinced that prosperity was ‘just around the corner.’ After his election to the Presidency in 1929, “Hoover continued the promotion of liberal corporatism encouraging the states to pass pro-ration laws restricting the production of oil, and establishing, in 1932, a tariff on oil imports whence there arose a virtual cartel in the oil industry” (Rothbard, 1970, p. 174). Throughout his career Hoover, a Republican, “sought to transform the American economy into one of collaborating, self-regulating monopoly groups, all under the benevolent auspices of the federal government,” a program fundamentally reminiscent of “the corporate economy of fascism” (Rothbard, 1970, pp. 174-75). During the Great Depression years when Big Business leaders advocated a continued move towards corporatism, Hoover “refused to go all the way to a highly centralized state capitalism” (Rothbard, 1970, p. 179). As a result, Big Business liberals shifted their support to Democrat Franklin Roosevelt in the 1932 election whose administration proceeded to enact government supported corporatist measures such as the National Industrial Recovery Act and the Agricultural Adjustment Act. These legislative actions served only to expand the long arms of the government. “Instead of providing recovery, the New Deal promoted the rationalization of the existing syndicalism political economy based on the large corporation” (Appleman, 1966, p. 358). State governments were in no position to do much to aid depression victims, so hard-pressed were they for revenues. Roosevelt, as he repeatedly claimed, restored optimism to the American people after they had descended into misery as a result of the depression and that his New Deal policies ‘saved capitalism.’ The Government formed programs to help alleviate a country suffering from severe economic depression following the stock market crash of 1929 and was not principally concerned from which ideological faction the ideas originated. President Roosevelt along with advocates of the New Deal within the government seeking to restore the country’s economic vitality had seemingly two options. They could either develop programs from the bottom-up by federally generated job creation and welfare benefits thus forming social partnership with racial minorities and the working class including labor unions or they could give businesses freedom to correct the economy itself by expansion thus creating more jobs which would pump money back into the economy (Yantek, n.d.). The New Deal, while serving to save capitalism primarily by alterations within the government structure, internal alterations, was complemented by programs of domestic reform. Roosevelt did not arrive at the New Deal policies on independent or personal reasoning but as the result of the continuous divergence of forces surrounding him. The economic conditions of the time demanded that the solutions foster relations between the capitalist class and the working class, each of whom had opposing interests. (Baker, 2003). According to many, the New Deal was successful only in creating a new economic predicament instead of bringing its touted prosperity. Despite extraordinary fundamental changes and reforms brought about by the New Deal, the economy had not accomplished levels of production that were present prior to the stock market crash. The working class was very dissatisfied as their standard of living had steadily declined. The national income per person in 1938 was also much less than it was in 1929. Unemployment was escalating and farmers faced a crisis of their own. Governmental assets deteriorated by the year and neither civil nor world peace were foreseeable in the near future. The economic calamity of 1937 presented the Roosevelt administration with new challenges. The failure of the New Deal to strengthen the economy caused Roosevelt, the spokesperson of industry and capitalist wellbeing, to develop a new policy. After the failures of the New Deal, a predisposition for militarist conquests by industrialists sought to solve the economic troubles facing the American capitalist way of life by external measures thereby extending the capacity of its economic rule over other countries of the world. The militarist wing represented the outlook and interests of the big business, which proved to be the actual leaders of the United States under the guise of social reforms of the New Deal (Novack, 1940). The government’s corporate liberal strategy of the Hoover era was reincarnated in 1950’s, the Eisenhower years. Though this approach was discredited by the failure of liberal policies during the Great Depression era, the government’s role during this time period was to promote corporate self-government of the economy. “Rather than requiring that public spending be sufficient to maintain adequate investment and growth, the national government used fiscal and monetary tools to stabilize the business cycle while leaving decisions regarding investment, pricing, and production in private hands” (Furner, 1996). American governmental hierarchy achieved a reasonably constant balance of liberal and republican; corporatist and statist thought between the 1950’s and 1970’s. Government, corporations and labor unions integrated to distribute American commodities and investment around the world. Government enacted substantial measures to create a socially righteous country and was committed to expanding the rights of formerly disenfranchised and disadvantaged factions of society. “In the early 1970’s conditions supporting this blend of corporate liberalism for the economy and moderate statism for society collapsed, undermined by growing fiscal constraints, loss of economic primacy, deindustrialization, and social divisions” (Furner, 1996). The resurgent liberal expansionism during the 1950’s enabled the federal government to become a progressively powerful influence in the lives of people by the 1960’s. The majority of Americans had accepted the government’s expanded role as normal operating procedure but at the same time, were of the opinion that further expansion should not resume. Many Republicans largely accepted a degree of government responsibility but aspired to limit spending and restore individual initiative. Democrats wanted to expand federal benefits for education, health, and welfare and generally expected the government to guarantee growth and stability (“Decades of Change,” 2005). The 1960 presidential election, one of the closest in history, revealed that the nation was evenly divided between these philosophies of governing. By early 1964, President Johnson , a Democrat, began to invoke the phrase the ‘Great Society’ when describing his social economic agenda. In 1964, Johnson won in a landslide over conservative Republican Barry Goldwater. The Democrats also controlled both houses of congress for the first time since 1938. This one-sided power in Washington enabled liberals to pass expansive legislation over the collective opposition of both Republicans and conservative Southern Democrats (“Decades of Change,” 2005). Established in 1964, the Office of Economic Opportunity made available training for the underprivileged by forming an assortment of community-action agencies, directed by an ethic of ‘participatory democracy’ that intended to give the underprivileged themselves a say in education, housing and health programs. In 1968, when Republican Richard Nixon took office, liberalism and the ideas of expanded government all but died with the exception of environmental issues. The (Democrat) Carter administration believed that the government and business could only be operated as they had for the previous 30 years and that Roosevelt was the architect for the modern governmental procedures. In his view, government must periodically be expanded to aid people in need and that government action is necessary to produce prosperity. But in the 1970’s, Big Government failed to accomplish this. The emergence of a newly energized economic and cultural conservatism in America followed almost 30 years of liberalism. This liberal emphasis resulted in high interest rates, inflation and recession which paved the way for another cycle of public popularity for the decentralization of government in the 1980’s. Started in 1791, the national debt was, by those days’ standards, an incredible $75 million. Due to President Andrew Jackson’s prudent approach to government spending, the national debt was lowered to, again adjusted to today’s standards, to an incredible $37 thousand (Suter, 2004). To the contrary, the (Republican) Reagan/Bush administrations of the 1980’s ran the debt up by historic proportions. When (Democrat) President Clinton took office in 1993, the debt stood at $2.4 trillion. The massive increase of debt was not used for infrastructure, education, public programs or even to finance a war. As a result of Reagan’s ‘trickle down’ economic theory, the money wound up in the pockets of the rich. In the early 1990’s, Congress adopted a ‘pay-as-you-go’ policy and federal spending cuts which resulted in budget surpluses for four consecutive years. Clinton announced that the nation could pay off the debt by the year 2013 if it stayed on the present course (Schoen, 2006). That optimistic predication has long since been forgotten. Since 2000, the debt has tripled. The ‘pay-as-you-go’ policy expired in 2002 allowing Congress to cut taxes, a politically advantageous move while also increasing spending (Schoen, 2006). The current President Bush administration cut the taxes of the rich while increasing military expenditures on The War on Terror, invasions of Iraq and Afghanistan and the rebuilding of those countries. The debt has now exceeded even the Reagan administration’s record levels. It has severely hampered America’s ability to continue to effectively defend itself or become involved in other potential conflicts worldwide. “There is a growing concern about what the increasing U.S. national debt will do to the nation’s ability to influence world affairs” (Suter, 2004). Many critics charge that the current Bush administration has instituted a faith-based economic policy; that Armageddon will happen soon so it doesn’t matter how the country’s economy is managed. As this paper has shown, liberal and conservative philosophies cannot be tied to one party but are constant and measurable guidelines by which the federal government is operated. The tenets of Liberalism proclaim a strong conviction in democracy and belief that the constitutional authority of the people will limit a powerful, expansive government. Liberal legislative leadership, partly through necessity, has instigated steady governmental growth well beyond where the architects of the constitution and most citizens would favor. Works Cited Appleman, William. The Contours of American History. Chicago, IL: New Viewpoints, 1966. Baker, Dorie. “Yale Professor Writes Book on American ‘Security’ System.” Yale News Release. Yale University, July 25 2003. Baughman, Judith S. American Decades 1920-1929, Detroit: Gale Research, Inc., 1996. “Decades of Change: 1960-1980.” Outline of U.S. History. Washington D.C.: U.S. Department of State, November 2005. Furner, Mary O. “Antistatism and Government Downsizing.” Urban Institute. December 1, 1996. Hicks, John D. Republican Ascendancy, 1929-1933. New York: Harper & Row, 1960. McElvaine, Robert S. The Great Depression. New York Times Books, 1984. Novack, George. “Autopsy of the New Deal.” Fourth International. Vol. 1, N. 1, May 1940, pp. 10-13. Rothbard, Murray N. “The Hoover Myth.” For a New America: Essays in History and Politics from ‘Studies on the Left’ 1959-1967. James Weinstein & David Eakins (Eds.). New York: Random House, 1970. Schoen, John W. “Why is the National Debt Out of Control?” MSNBC. (2006). December 5, 2007 Suter, Keith. “The Next International ‘Debt Crisis’ is in North America.” Online Opinion. (June 30, 2004). December 5, 2007 Yantek, Tom. “The New Deal: Capitalism Loses its Hat.” Kent State University. n.d. Read More