Economics U$A: 21st Century Edition
A banking panic erupts when New York’s Knickerbocker Bank fails. Depositors rush to withdraw their bank savings, causing the collapse of 246 other U.S. banks. Financier J.P. Morgan, whose own bank is threatened, calls upon banking friends to prevent failure of the U.S. banking system by shoring up banks with their own money.
The Federal Reserve Act is created to avert further financial panics. The Fed, as it would now be called, is to act as a lender of last resort. | The 16th Amendment to the Constitution is passed, empowering Congress to levy a direct federal income tax on U.S. citizens.
The assembly line developed by Henry Ford becomes famous through the social ramifications of mass production, including the affordability of the Ford Model T and the introduction of high wages for Ford workers. | The Clayton Antitrust Act is passed, requiring and enforcing specific conduct for large corporations.
The October 24th Wall Street crash, known as Black Thursday, becomes the most devastating stock market crash in U.S. history. The crash signals the beginning of the twelve-year Great Depression that affects all Western industrialized countries.
The Great Depression deepens as nearly 10,000 U.S. banks fail and the nation’s workforce approaches 25 percent unemployment. | Franklin D. Roosevelt replaces Herbert Hoover as president of the United States.
President Franklin D. Roosevelt stops a run on the banks by declaring a four-day bank holiday and abandons the international gold standard. | Congress passes the Emergency Banking Act, establishes the Federal Deposit Insurance Corporation (FDIC) to protect depositors against bank failure, and passes the Glass-Steagall Act to restrict banks from entering risky businesses.
President Franklin D. Roosevelt signs the Social Security Bill, which is supported in large part by tax and wage contributions from U.S. citizens. | The president issues an executive order establishing work programs to provide employment. | Congress passes the Banking Act, giving the Federal Reserve the authority to use monetary policy to stabilize the economy.
Economist John Maynard Keynes publishes his The General Theory of Employment, Interest, and Money. Keynes argues that demand, not supply, is the key variable governing economic activity. The implementation consequences of Keynes’s theories are almost in direct contradiction to the neoclassical economic theories that governed policy up to that time.
Huge government spending for World War II causes an economic boom that finally ends the Great Depression. | American industry gears up for defense production and transitions from automobile production to aircraft production. | Expanded production brings the nation close to full employment. | Wage and price controls are imposed to fight wartime inflation.
Fearful of another Great Depression, world economic leaders meet in Bretton Woods, New Hampshire, to establish a new world economic order and discuss global monetary policy. They believe that establishing a global economic order would inspire peace among nations following World War II.
The Korean War creates prospects of additional government deficits and the issuance of new government debt. | The Treasury pressures the Fed to maintain a fixed low-interest rate on government bonds, but the Fed fears inflation. | The Fed-Treasury Accord restores independence to the Fed through an agreement between the U.S. Treasury and the Federal Reserve.
Congress passes the Unemployment Assistance Act, establishing a needs test and requiring the federal government to share 50 percent of the costs.
Congress passes President John F. Kennedy’s $12-billion tax cut and the economy takes off, a winning argument for fiscal policy. | The Job Corps is created under the Economic Opportunity Act, part of President Lyndon B. Johnson’s Great Society.
President Lyndon B. Johnson signs a landmark amendment to the Social Security Act, creating Medicare and Medicaid. These programs provide federal health insurance for citizens over 65 and for poor families.
In response to public furor over rising food prices, the Nixon Administration imposes wage and price controls to curb inflation. Although inflation is initially halted, it shoots up when controls are removed.
1972 - 1973
The Arab oil embargo during the Arab-Israeli war causes petroleum supply shocks that raise the price of fuel. | A decline in agriculture, combined with rising oil prices, causes unemployment and inflation that reaches 10 percent.
Congress passes the Airline Deregulation Act, removing government control over fares, routes, and market entry of new commercial airlines. New low-cost airlines appear and airline fares come down, benefiting consumers but forcing some airlines out of business.
Inflation shoots up as new Federal Reserve Board chairman Paul Volcker announces that the Fed will try to break the back of inflation by targeting the money supply itself.
Inflation reaches 13.5 percent. Congress passes the Depository Institutions Deregulation and Monetary Control Act, giving the Federal Reserve greater control over nonmember banks and forcing all banks to abide by the Federal Reserve’s rules.
Ronald Reagan advocates supply-side economics. | The Alaska Land Act designates over 100 million acres as park and wilderness land, preventing exploration and development of Alaska’s huge mineral and oil reserves.
The U.S. stock market plunges dangerously, and new Federal Reserve Board chairman Alan Greenspan calms the panic with a public statement that the Fed would “serve as a source of liquidity” to support the economic and financial system.
Massive failures of savings and loan associations cost $160 billion, $124 billion of which is paid for with a bailout by the U.S. government. | Congress passes the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) to create a safer base on which to build the savings and loan industry.
The North American Free Trade Agreement (NAFTA) is implemented to remove tariff barriers between the U.S., Canada, and Mexico for fifteen years. | Congress passes the Riegle-Neal Interstate Banking and Branching Efficiency Act, eliminating all barriers to establishing bank branches nationwide.
President Bill Clinton signs the Personal Responsibility and Work Opportunity Reconciliation Act, designed to change the nation’s welfare system into one that requires work in exchange for assistance.
Congress partially repeals the 1933 Glass-Steagall Act, allowing commercial banks, investment banks, securities firms, and insurance companies to consolidate and giving banks the opportunity to open interstate branches.
President George W. Bush signs a ten-year $350 billion tax-cut package, the third-largest tax cut in U.S. history.
The “housing bubble” bursts, setting in motion the subprime mortgage crisis and the Great Recession. | Congress begins to recognize the emergence of the “shadow banking system” and the failure of the regulatory system. Once again the banking system faces a crisis.
The Federal Reserve rescues some of the nation’s largest investment firms, including Bear Stearns and AIG, but allows Lehman Brothers to collapse. | President Barack Obama and the Congress pass the Troubled Asset Relief Program (TARP) to purchase assets and equity from ailing institutions. Beneficiaries include General Motors and Chrysler, which avert bankruptcy.
President Barack Obama and the Congress pass the American Recovery and Reinvestment Act (ARRA), providing tax cuts and federal funds to create new jobs, save existing jobs, and spur economic growth. | The country’s debt rises to a new height at $11 trillion while the deficit rises to $1.4 trillion.
Congress passes the Financial Regulations Bill, aimed at preventing the risky behavior and regulatory failures that brought the economy to the brink of collapse and cost millions of Americans their jobs and savings. | Congress passes the Health Care Reform Bill, aimed at providing affordable, quality health care for all Americans.
With less than twenty-four hours remaining before America defaults on its debt obligations, Congress votes for and the president signs a bill authorizing an increase in the U.S. debt. The debt ceiling is to be raised in a multistep process, as Republicans and Democrats continue to debate over tax cuts, raising revenue, and cuts to entitlement programs such as Medicare, Medicaid, and Social Security.