What did Roosevelt do in his first term to stimulate the economy

As the United States entered the twentieth century, the period of "rapacious" capitalism appeared to be coming to an end. Examine the formation of large-scale, yet non-monopolistic, industrial sectors, which has continued to the present day.

From the Reconstruction era to the end of the nineteenth century, America underwent an economic transformation characterized by the maturation of the industrial economy, the rapid growth of large corporations, the development of large-scale agriculture, an increase in industrial conflict, and the eventual rise of national labor unions. The late-nineteenth-century boom in technological innovation drove economic growth even more. Much of the growth was spurred by capitalism, with the country’s economic successes being credited to private capital and investment, and not from government policy. Together with the readily available cheap labor, the lenient government restrictions provided a favorable environment for the capitalists to build big corporation in various industries including banking and finance, transport and communications, and heavy manufacturing plants. The transportation industry tripled and was instrumental in permitting free movement of people and goods. There was also the boom in the manufacture of steel and coal mining, fueled by the development of new technical and production methods. The mines, factories, and agricultural land primarily benefited from the newly produced machinery which became more affordable and readily available. Mechanization brought out agriculture into the realm of large business, turning America into the premier global producer of food to date (Americanhistory.si.edu).

In the earlier phases of industrialization, the American industries were largely characterized by miniature monopolies which were protected from competition by the high costs of transportation. At the time, each small company employed an average of seven employees. However, the end of the Civil War permeated competition amongst the American industries with many small and medium-sized firms populating the country. Competition majorly assumed the form of price cuts, where capitalists were afraid of the disastrous competition, overproduction and price deflations creating a trend towards stagnation. This situation would deflate the profit incentives. Manufacturing industries included oil refining, iron and steel processing, sugar refining, meatpacking and agricultural implements (Newhistory.org).

U.S. entry into WWI was initially opposed by the majority of Americans, and it was only in the last year of conflict that President Wilson left able to send a significant number of troops. Why did he do this and what effect on the U.S. economy during and after the immediate end of this war?

When World War I began in 1914, the United States declared a state of neutrality despite President Wilson’s aversion to Germany. Early in the war, America started to lean towards the British and its allies, a move that saw the president attempt to broker a peace deal to no avail. Each of the parties maintained confidence in their imminent victory. In 1915, the German U-boat U-20 sank a British liner, Lusitania, which was carrying 128 American citizens. This prompted Wilson to finally make the decision to enter the war alongside the Allied forces in March 1917. Before the sinking incidents, some secret communication sent out to Mexico from the Arthur Zimmerman, the then German Foreign Secretary. Dubbed the Zimmerman Note, the information contained therein requested Mexico to declare war on the United States, if they (U.S.) declared war on Germany. In return, Germany promised to give Mexico the areas of Arizona, Texas, and New Mexico at the end of the war if they agreed to invade the U.S. However, Wilson clarified that the country was fighting as an associate power and not as an Allied power. This meant that unlike the Allied forces who sought war spoils including money, land, and subjugation of the Germans, the United States was in it for moral reasons of protecting democracy from totalitarianism, while also promoting global peace.

WWI had a considerable impact on the United States, the most significant being economical effects that gave rise to the Great Depression, as was the case with the European nations. The decision to join the war required adequate funds for the government to support the effort, pushing their obligation to control the economy during the war, protect their new trade industry, and acquire the support and loyalty of the Allied nations. America solidified critical business connections with European powers by supplying them with war supplies because they were not in a position to create their own. This doubled the country’s steel production compared to its prewar level. The exports to Europe grew from $1.5 billion in 1913 to $4.1 billion in 1917, and with the increased output, the annual incomes saw an increase from $540 in 1914 to close to $1, 400 towards the end of that decade. Wilson endeavored to create enough employment opportunities for the U.S. citizens by encouraging the European nations to take goods from the country as opposed to loans. This ensured that the trade industry stayed in business and turned America into a great supplier. WWI was a critical time for the American economy, and by the time it came to an end, Europe was in debt to the tune of billions of dollars, a factor that saw the U.S. take the position of the strongest economic power. The immediate period after the end of the war saw the American economy skyrocket after Warren Harding assumed power in 1921. This period saw reduced unemployment, boosted technology such as the use of radios, movies, automobiles and air travel, and the introduction of packaged foods. However, this came to an end in October 1929 with the crash of the stock market. This was followed by the Great Depression characterized by slow and failing businesses, low prices of goods and services, low wages and high unemployment levels. Many of the financial institutions were forced to close since the funds lent out to local and European companies put them in intricate situations where they could not honor deposits (Bromhead Eichengreen and O’Rourke, 6).

Franklin Roosevelt assumed the presidency at the beginning of 1933, following Herbert Hoover, who had approved of the Fed’s actions. The unemployment rate was approaching 25%.

Why was this rate so astoundingly high?

What did Roosevelt do in his first term to stimulate the economy?

In 1933, the United States experienced the lowest point of the Great Depression characterized by extremely high unemployment rates of nearly 25 percent, with close to 15 million people seeking for job opportunities. The Great Depression had begun in 1929 with the crash of the stock market, sending Wall Street into a sate of panic and wiping millions of investors out. It lasted till 1939. The high rates of unemployment were caused by the steep declines in industrial output which came about as a result of a drop in consumer spending and investment. The failing companies reacted to these changes by laying off their workers. The Great depression has been preceded by the “Roaring Twenties,” a period characterized by a quick expansion of the U.S. economy. The stock market saw reckless speculation, with everyone pouring their savings into stocks. The rapid growth in the stock market reached its peak in 1929, though by this time, the country had begun experiencing declining production and slight unemployment, leaving the share prices to rise beyond their actual values. Coupled with low wages, proliferating consumer debt, a struggling agricultural sector from drought and falling prices, and excess big bank loans, the situation led to an all high growth in the number of unemployed people.

Roosevelt’s inauguration on March 4th, 1933 followed by his first 100 days in office began America’s journey to economic recovery. The administration passed laws aimed at stabilizing agricultural and industrial production, creating jobs and stimulating recovery of the economy. Besides, he endeavored to reform the financial sector through the creation of the FDIC (Federal Deposit Insurance Corporation) to protect the accounts of depositors. The Securities and Exchange Commission (SEC) was charged with regulating the stock market and preventing the kind of abuse that had given rise to the 1929 crash. Another program designed to aid the recovery was the Tennessee Valley Authority. By building dams and hydroelectric projects, the program controlled the flooding and provided electric power to the impoverished community in the Tennessee Valley region. There was also the Works Progress Administration (WPA), a program for permanent jobs that was able to offer employment to 8.5 million citizens between 1935 and 1943. Together, these projects created a favorable environment for the economy to flourish, thus providing a permanent solution to the unemployment menace.

Roosevelt’s economic advisers panicked in late 1936 that the federal budget was becoming too large, and called a halt to Roosevelt’s programs. What happened, and in consequence what was the form of public sector intervention after 1937, right up to, and including WWII?

Dubbed “the recession,” the 1937-1938 period is also known as the recession within the Depression. It happened before completion of the recovery from the Great Depression, and at a time when the rates of unemployment were still very high. The recession was preceded by a decline in deficit spending and a rise in the bank reserve requirements set by the Federal Reserve. The dip was the product of excessive state regulation and loose monetary policies, and not tight monetary and fiscal policies.

As indicated previously, Roosevelt’s rise to power saw him and his administration injecting funds into public projects, engaging in social insurance programs, and various types of state welfare programs. Despite massive accumulation of government debt, the recovery was at a respectable rate between 1933 and 1936, preventing the citizens from suffering and poverty earlier experienced. However, in 1937, the Roosevelt administration made the decision to balance to balance the budget, a decision that saw a drastic cut in deficit spending. At the same time, the Federal Reserve increased the reserve ratio requirements for banks, a move that led to a contraction of the monetary base, and a subsequent slump back into recession. With the economy being too weak to support itself, the tightening fiscal and monetary policies gave room for an unpredictable market to falter in the face of what would otherwise have been a stable recovery period (Kindleberger 262).

The Roosevelt administration’s reaction to the situation was the launch of a rhetorical operation against monopoly power. This had been pinpointed as the sole cause of the depression. Thurman Arnold was assigned to break up the large trusts, a task at which he failed. Ultimately, the campaign was terminated with the onset of the World War II since the corporate energies needed to be directed towards winning the war. By 1939, the effects of the 1937 recession had been wiped out (Piatt 90).

Apart from Cold War spending on defense, President Eisenhower initiated a huge fiscal stimulus in the late 1960s in the form of the national highway system. This was followed by Kennedy with a large tax cut aimed at lower-income households. Both were hugely successful in stemming gathering recessions. Unfortunately, Lyndon Johnson overdid the spending and led to a prolonged period of “stagflation” exacerbated by rising oil prices throughout the 1970s. Discuss this period and consider how it was finally ended.

In America, the 1950s are described as the complacency period, while the 1960-1970s were the times of great change. It was during this time that rival countries grew to economic powerhouses, realizing that military might wasn’t the only means through which they could acquire growth and expansion.

President J.F. Kennedy took over power in 1961, ushering in an activist approach to governance. He endeavored to speed up economic growth through government spending and cutting of taxes. He also pushed for medical help to assist the elderly, aid for the inner cities, and additional funds for education. While many of his proposals weren’t enacted, the president’s vision of having Americans help the developing countries came to life with the birth of the Peace Corps. However, Kennedy’s 1963 assassination saw the Congress enacting much of his agenda.

Lyndon Johnson (1963-1969), Kennedy’s successor, sought to make a “Great Society” through the distribution of the country’s thriving economy to more citizens. This saw a sharp increase in federal spending as the government initiated new programs including Medicare, food stamps, and education initiatives for helping individual students and offering grants to learning institutions. His tenure also experienced increased military spending due to the country’s continued presence in Vietnam. Having started as an insignificant military action during Kennedy’s tenure, it mushroomed into a key military initiative under Johnson’s leadership. Spending in fighting poverty and in the Vietnam War were major contributions to prosperity in the short term. However, the inability to raise taxes to fund these efforts only served to accelerate inflation, eventually eroding the wealth (Bulmer-Thomas 579).

The 1973-1974 oil restriction by OPEC members created shortages and pushed energy prices to an all-time high. Even with the end of the embargo, the prices remained high and added to the inflation which eventually led to high unemployment rates. Consequently, the federal budget deficit deepened, foreign competition increased, and the stock market slumped. With the Vietnam War dragging on till 1975, the then President Nixon resigned after charges of impeachment. The country displayed its inability to manage and control its events, economic affairs included. The trade deficit escalated as low priced and high-quality imports of steel to automobiles continued to flood the U.S. market (Ru.nl). Growing inflation fueled by increasing prices of raw materials from the Third World was followed by an extended period of slow output growth, high unemployment, and escalating political instability that paved the way for the neoliberal years of the 1980s.

Works Cited

American History. Years of change the 1960s and 1970s. http://www.let.rug.nl/usa/outlines/economy-1991/a-historical-perspective-on-the-american-economy/years-of-change-the-1960s-and-1970s.php. accessed 15th June 2017

Bromhead, A., Eichengreen, B. and O’Rourke, K.H. Right-Wing Political Extremism in the Great Depression. The National Bureau of Economic Research

Buler-Thomas.”The Economic History of Latin America since Independence.” Cambridge University Press. 2014. Print

Kindleberger Charles, P. The World in Depression, 1929-1939. University of California Press. 2012. Print

Piatt Marty. “If I was President…My Blueprint for America.” Author House. 2012. Print

“The development of Industrial United States,” http://americanhistory.si.edu/presidency/timeline/pres_era/3_657.html. Accessed 15th June 2017

Weinberrg, Meyer. “Capitalism Dominant, 1865-1920.” http://www.newhistory.org/CH07.htm . Accessed 15th June 2016

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