USA Content •A. Prior to WWI •B. Interwar period (revision) •C. After WWII •D. The 1950s and 1960s •E. The 1970s •F. Reaganomics •G. Summary of the after-war development •H. The 1990s Basic characteristics •small government+ liberal principles ð relatively: •low taxes+ little interference into the economy + minimal public ownership •entrepreneurial spirit •possibility from small-size companies ð big ones •Nike, Microsoft, Apple •venture capital •competitive environment •stock markets ð shareholders discontent (ò prices) ð dismissal of management •flexible labour markets + immigration •greater disproportions in income Companies financing EU in USA Immigration to the USA by decades (million) Prior to WWI • A. USA prior to WWI •political expansion •1898 war with ES ð control over Cuba + annex of Puerto Rico, Hawaii, Philippines •fast economic development • ñ GDP •crisis in the 1890s •BUT still relatively agricultural country •ñ production •stable price level ð deflation •Gold standard •ñ FT •ñ export > ñ import •protection of the domestic market • large amount of foreign INV in USA (GB and FR) •to private sector •railways •USA - the biggest world debtor Reasons of the US success •population growth •high birth rate+ immigration •raw materials and natural resources •size of the domestic market •development of transportation infrastructure- roadways, canals and mainly railways •ð development of iron and steel industry •use of modern technologies •fast implementation of machines • (LF expensive) ñ specialization and productivity Length of railroads [km] 1840 1870 1914 France 410 15544 37400 Germany 469 18876 61749 GB 2390 21558 32623 USA 4510 84675 410475 Relative shares in the world industrial production, 1750 – 1900 (in %) 1770 1800 1830 1860 1880 1900 Europe total 23.2 28.1 34.2 53.2 61.3 62 GB 1.9 4.3 9.5 19.9 22.9 18.5 Japan 3.8 3.5 2.8 2.6 2.4 2.4 Third world 73 67.7 60.5 36.6 20.9 11 USA 0.1 0.8 2.4 7.2 14.7 23.6 Source: Kennedy, Vzestup a pád velmocí, 1996 Inter-war period (revision) • B. Inter-war period in USA •1920s - very successful decade •modern structure of the economy •unwillingness to play the role of superpower •Great Depression •huge drop in production and high unemployment • crash on the stock exchange •collapse of banking system •protectionism •New Deal - mixed results After WWII • C. USA after WWII •considerable growth during WWII •president Truman (1945 - 53) •after the war –economic and political superpower •responsibility for the world order •Bretton-Woods + Truman Doctrine + GATT + Marshall Plan + foreign aid for DC •bipolarity •persisting (limited) state interventions •Employment Act of 1946 •program Fair Deal •social area– unfulfilled although ñ soc. exp. Direct fiscal war-related costs of the USA Common USD billion USD billion of 1990 % GDP USD (1990) per capita World War I (1917-18) 26 197 24 1 911 World War II(1941-45) 288 2 091 130 15 655 The Korean War (1950-53) 54 264 15 1 740 The Vietnam War (1964-72) 111 347 12 1 692 The Persian Gulf War (1990-91) 61 61 1 235 Source: Carvalho, Suni: War, Oil and Economic Growth, 2002 Economic results •1945 – 1947 stagnation and recession •transition into peace economy •conversion of armament production • ð ñ P + ñ U (mainly among demobilized) •subsequently positive impact of •ñ INV (manufacturing and housing) •modern infrastructure •share of state - power engineering, communications, railways, roadways •influence of postponed customer D •cars, TV, telephones •ñ EX (loans for purchases of US goods + help) •1949 = recession •Truman ò taxes + ñ exp. on social and public • purposes Public debt as % of GDP Public debt as % of GDP Growth of real GDP and unemployment in the USA (%) Source: Economic Report of the President 2007, 2007, Economic Report of the President 1953, 1953 The 1950s and 1960s • D. The 1950s •until 1973 - all in all, very successful period •president Eisenhower (1953-61) •in 1950s average growth of GDP = 3,2% •recession 1953 – 54 •ò military exp. b/c the end of Korean war •reaction of monetary policy to the worsening • BofP in 1953 •+ low inflation and U Reasons of growth •same factors as after the war •+ ñ militarization b/c Korean war •+ accumulation of strategic reserves of raw materials and products for possible WWIII •+ extension of consumer loans •+ inflow of qualified labour •+ economic policy •Keynesianism ð Neokeynesianism •“fine tuning” = STOP and GO •recession ð Eisenhower òT + ñ U benefits The 1960s •presidents Kennedy – Johnson – Nixon •USA faced to ñ domestic competition + ñ USSR •space technologies + exploration •ñ GDP •9 years of continuous growth •recession only in1970 •1969 monetary and fiscal restrictions •BUT at the end of 1960s • loss of dynamics • ò construction + automobile industry • ñ price level •+ budget deficits U.S. Fiscal policy in 1960-1969 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 Government spendigs 93 102,1 110,3 113,9 118,1 123,5 142,8 163,6 181,5 189,2 Revenues 96,5 98,3 106,4 114,5 115 124,7 142,5 151,2 175 197,3 Surplus 3,5 -3,8 -3,8 0,7 -3 1,2 -0,2 -12,4 -6,5 8,1 Inflation (%) -,04 1,1 - 1,2 1,3 1,7 2,9 2,8 4,2 5,4 Reasons of economic growth •mass use of inventions from 1950s •high investment (public and private) to R&D • military and space research + aeronautics industry + petrochemistry + information technologies •War in Vietnam after 1965 Military expenses in the USA and the USSR, 1948-1970 (USD billion) 1948 1949 1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 USA 10.9 13.5 14.5 33.3 47.8 49.6 42.7 40.5 41.7 44.5 45.5 46.6 USSR 13.1 13.4 15.5 20.1 21.9 25.5 28 29.5 26.7 27.6 30.2 34.4 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 USA 45.3 47.8 52.3 52.3 51.2 51.8 67.5 75.4 80.7 81.4 77.8 USSR 36.9 43.6 49.9 54.7 48.7 62.3 69.7 80.9 85.4 89.8 72 Source: Kennedy, Vzestup a pád velmocí, 1996 U.S. Defence expenditures as percent of GDP Source: Economic Report of the President 2007, 2007 ñ inflationary tendencies Economic policy •Kennedy - New Economics •instead of balancing the cycle– continuous econ. ñ •fiscal expansion •war in Vietnam + research •INV in education •big social programs for the poorests •“War to Poverty” •“Great Society“ • ð ñ redistribution •+ monetary policy also expansive •b/c recovery induced by fiscal policy had to be • accompanied by ñ MS • Economic growth (%), inflation (%) and the federal fiscal balance (% of GDP) in the USA, 1950–1969 The 1970s • E. USA in 1970s •presidents Nixon – Ford – Carter •1971 Nixon – New Economic Policy • ð econ ñ + X fiscal imbalances •also abandoning of convertibility of $ for AU + devaluation in 1971 and 1973 + wage and price control •recession 1973 –75 •+ ñ price level+ ò stock exchange •high econ. ñ in 1976-78 •BUT ongoing P + high U Causes of the crisis •increasing budget deficits in 1960s and 1970s •Vietnam + … •New Economics = expansive policy + underestimation of inflation •except the already mentioned factors •weakened built-in stabilizers= taxflation •mistake with the Phillips curve •inflation expectations of the inhabitants •collapse of the Bretton-Woods system + devaluation •Oil crises •foreign pressures =ñ competition ò GDP + ñ prices = stagflation Proportional changes in employment structure in the USA as a result of foreign trade, 1970-1980 Industry Proportional changes Shoe industry -15.9 Automobile industry -11.1 Electrical appliances and equipment -7.8 Leather products -6.3 Clothes -6.3 Radio and television -5.7 Various other products -5 Furniture -4.5 Services equipment 5.7 Electrical machinery 6.6 Electrical and industrial facilities 7.1 Various machinery 8 Aircraft and their parts 12.8 Office, computer and accounting appliances 16.1 Motors and turbines 17.8 Construction and mining machinery 19.9 Source: Salvatore, International Economics, 1987 Economic growth and inflation in the USA, 1960–1990 (%) Source: Economic Report of the President 2007, 2007 International comparison •less effected by the crisis as other countries •domestic resources of raw materials •80% of oil consumption covered from domestic yield •but continuous ò US share in the world production •X JP and DE faster growth + large trade surpluses Population, GNP per capita and GNP in 1980 Population (million) GNP p.c. (in USD) GNP (in USD billion) USA 228 11,360 2,590 USSR 265 4,550 1,205 Japan 117 9,890 1,157 EEC (12 countries) 317 - 2,907 of which Germany 61 13,590 838 France 54 11,730 633 GB 56 7,920 443 Italy 57 6,480 369 Source: Kennedy, Vzestup a pád velmocí, 1996 Reaganomics • F. USA during Reaganomics •Ronald Reagan (1981 -1984 and 1985 -1988) •after Carter – bad economic situation •P two-digit + difficult to change the expectations •but since 2nd 1/2 1970s deregulation + monetary oriented EP + first law about ò T •from Keynesianism to Neokeynesianism •Reaganomics •deregulation + liberalization + supply side + bigger role of market (ò role of state) + ò T (marginal rates) •power industry, transportation, banking, telecommunication + complete deregulation of prices of oil and natural gas Results •beginning of 1980s– short recession (6 months) • ñ prices b/c ñ oil prices •recession 1981 – 1982 = 16 months • ò P = strict monetary policy (ñ r) •1979 new chairman of FED – P. Volcker •since 1983 3. longest uninterrupted growth •after 1985 recovery •faster ñ GDP and lower P and U •1987 stock exchange crash •ALE FED learnt a lesson •ð money into circulation ð • impact on the real economy negligible Budget deficit •government expenditures •defense •social •debt service (ñ r) •tax system •lower taxes (+ INV incentives) budget deficit and higher debt Comparison of the USA and the USSR weaponry in 1982 USA USSR Troops (in thousand) 2,117 4,265 Ballistic missiles total 1,572 2,387 Long-range bombers 316 150 Tanks 12,130 50,000 Helicopters 1,000 2,300 Ships and submarines 467 563 Source: Pechman, Setting National Priorities the 1984 Budget, 1983 Basic economic indicators the US economy, 1980-1990 Year-on-year change of GDP (%) Year-on-year change of inflation (%) Unemployment (%) Fiscal balance (% of GDP) Federal net public debt (% of GDP) Current account balance (% GDP) Federal government expenditures (%of GDP) 1980 -0.2 13.5 7.2 -3 30.3 0.1 21.7 1981 2.5 10.4 7.6 -2.2 28.9 0.2 22.2 1982 -1.9 6.2 9.7 -4.8 33.2 -0.2 23.1 1983 4.5 3.2 9.6 -5.6 36.6 -1.1 23.5 1984 7.2 4.4 7.5 -4.8 37.8 -2.4 22.2 1985 4.1 3.5 7.2 -5 40.9 -2.8 22.9 1986 3.5 1.8 7 -5.2 44.4 -3.3 22.4 1987 3.4 3.7 6.2 -4.3 46.6 -3.4 21.6 1988 4.1 4.1 5.5 -3.6 48 -2.4 21.3 1989 3.5 4.8 5.3 -3.2 48.2 -1.8 21.2 1990 1.9 5.4 5.6 -4.2 49.4 -1.4 21.8 Source: IMF: World Economic Outlook Database, http://www.imf.org/external/pubs/ft/weo/2006/02/data/index.aspx (9. 3. 2007); Economic Report of the President 2007, 2007 Budget deficit •ñ r b/c •monetary policy •budget deficit •ñ r ð ñ inflow of capital to USA ð •appreciation of $ ð ñIM and òEX ð trade DEF •+ ð DC problems with debt service !!! •in addition ò savings x INV ð need to import capital ð trade DEF •ð ð inflow of foreign capital – majority portfolio INV but since the beginning of 1970s also FDI •to gain market share •access to scientific knowledges •x protectionism •political stability •since the end of 1970S – petrodollars All in all •long economic growth •ò U and P •ñ effectivity + flexibility of the economy •BUT ñ income inequality •+ DEF trade and budget •= so-called twin deficit Summary of the after-war development •Tendencies: a)Structural changes b)GDP growth G. a) Structural changes ·After WW2 shift to services ·Negative influence on productivity and economy ñ ð b/c There is smaller productivity in services than in industry. ·since 1/2 70s expansion in S b/c deregulation of telecommunications and transportation Year Agriculture Industry Services 1950 5,3 36 58,7 1960 4 38,8* 57,2 1970 2,8 34,5* 62,7 1980 2,6 33,6* 63,8 1990 1,7 28* 70,3 Structural change 1950 - 1990 -3,6 -8 +11,6 * - Industry contains civil engineering Structure of U.S. GDP in 1950–1990 Source: Cihelková, Holub, Jakš: USA – Japonsko – SRN, 1994 G. b) GDP growth during presidencies of republicans and democrats Year of presidency Democrats 1 2 3 4 Truman 0 8,5 10,3 3,9 Kennedy/Johson 2,6 5,3 4,1 5,3 Johson 5,8 5,8 2,9 4,1 Carter 4,7 5,3 2,5 -0,2 Average 3,3 6,2 5 3,3 Republicans Eisenhower I 4 -1,3 5,6 2,1 Eisenhower II 1,7 -0,8 5,8 2,2 Nixon 2,4 -0,3 2,8 5 Nixon/Ford 5,2 -0,5 -1,3 4,9 Reagan I 1,9 -2,5 3,6 6,8 Reagan II 3,4 2,8 3,4 3,9 Average 3,1 -0,4 3,3 4,1 Length of economic expansion The 1990s • H. The 1990s •1989 Bush X budget deficit and external imbalance • ð end of 1989 recession ð 9 months •rapid ò consumption of households + lower INV + weakening entrepreneurial confidence + ñ oil prices (Gulf War) •since1991 continuous econ. ñ •actual reasons •high AD and expectations •low P ð ò r ð ñ INV •changes in the economy •restructuring in the 1980s •from I to S ( services are less cyclical) •technological progress- use of PCs •better control of inventories - just in time system •end of after-war weakening of positions • ò U •Feb. 2000 record – period of econ. expansion • since ½ 19th century Economic growth (%), inflation (%), unemployment (%) federal net public debt (% of GDP) in the USA, 1980-2009 Source: IMF: World Economic Outlook Database, http://www.imf.org/external/pubs/ft/weo/2008/02/data/index.aspx (9. 3. 2009) Price level •FED NOT ñ r ð not inhibit econ.ñ •X P circumstances until 1999 •crisis in Asia ð ò prices of raw materials •inflow of assets to USA ð ñ $ •methodical – changes in the calculation of P, production •budget surplus •ñ labour productivity •character of the business cycle •cycle after WW2 – several yearsñ ð AD > AS ð FED ñ r ð ò AD ð firms ñstocks ð recessionð FED òr ð ñ AD •but ñ P under controlð FED NOT ñ r ð òAD not b/c ñ r BUT ò profits, ò price of shares •+ ò INV Dow-Jones and NASDAQ (1980-2009) – monthly values Source: EconStatsTM – www.econstats.com (9. 1. 2009), Finance Yahoo – http://finance.yahoo.com/q/hp?s=%5EIXIC&a=01&b=5&c=1971&d=02&e=9&f=2009&g=m (9. 3. 2009) After 2000 •= healthy EP •great opportunities: òò r - chairman Greenspan ! •+ ññ G and ò T •… fast recovery • •continuous problem - trade deficit! • •recession at the beginning of 2008 •problems with financial sector, … Importance of USD in 2010 Thanks for your attention