An Outline of the
American Economy

Part 1
Introduction

PART 3

The historical development of the American economy is rooted in the quest of European settlers for economic gain in the 16th, 17th and 18th centuries. Until this time, all of North America's inhabitants were Native Americans, indigenous peoples who are believed to have traveled to America about 20,000 years earlier across a land bridge from Asia, where the Bering Strait is today.

The first "discovery" of America by Europeans was made by the Vikings at about the year 1000. But the event went largely unnoticed; at that time most of European society was still firmly based on agriculture and land ownership. Commerce had not yet assumed the importance that would provide an impetus to the further exploration and settlement of North America.

In 1492, Christopher Columbus, an Italian sailing under the Spanish flag, set out to find a southwest passage to Asia and discovered a "New World." For the next 100 years, English, Spanish, Portuguese, Dutch and French explorers sailed forth, looking for the New World, for gold and riches, for honor and glory.

But the North American wilderness offered early explorers little glory and less gold, so most did not stay. The individuals who did settle North America arrived later, and in many cases were in search of economic opportunity, or were fleeing religious intolerance and political despotism. In 1607, a daring band of Englishmen built the first permanent settlement in what was to become the United States. It was called Jamestown and was located in the present-day state of Virginia.

COLONIZATION

For a variety of reasons, those who came to settle the early colonies sought a new homeland. Puritans, for example, established several settlements in Massachusetts. These English colonists were a pious, self-disciplined people who wanted to escape religious persecution. They built a community based narrowly on their own religious ideals.

But settlers did not come to the New World solely motivated by piety. In the 17th century many colonies were founded principally as business ventures. Moreover, piety and profits were not necessarily incompatible. The Puritan settlement at Plymouth Plantation, although not organized with profits in mind, did not and indeed could not ignore economic considerations.

England was the most successful of the European nations at colonizing what would become the United States, and its success was due in large part to its use -- starting with the Jamestown colony -- of charter companies. Charter companies were formed of stockholders, usually merchants and wealthy landowners who hoped for personal economic gain and who perhaps wanted to advance national goals. While the private sector handled the financing, the crown provided each project with a charter or grant conferring economic rights as well as political and judicial authority.

Early attempts at making substantial profits in the colonies were mostly failures, however, at least for the original English investors. There was little gold and mining was not economical on the East Coast. Land for farming had to be cleared and, even when the harvests were good, prices were modest because little money was available. Labor was in short supply, and real wages were much higher than in England. Conditions were harsh, and profits tended to be small.

The original English investors quickly turned over both the Jamestown and the Plymouth colonies to the settlers. The political implications -- although not realized at the time -- were enormous: the colonists were being left to build their own lives, their own communities and their own economy -- in effect, to start constructing the rudiments of a new nation, if they could.

COLONIAL ECONOMY

Whatever early colonial prosperity there was resulted from trapping and trading in furs. In addition, the fishing industry was a primary source of wealth in Massachusetts. But throughout the colonies, people relied primarily on small farms and self-sufficiency. Households produced their own candles and soaps, preserved food, brewed beer and, in most cases, processed their own yarn to make cloth. In the few small cities and among the larger plantations of North and South Carolina and Virginia, some necessities and virtually all luxuries were imported -- in return for tobacco, rice and indigo exports, which produced large profits in England's London, Bristol and Liverpool markets. In these areas, trade and credit were essential to economic life.

Supportive industries developed as the colonies grew. A variety of specialized operations, such as sawmills and gristmills, began to appear. Shipyards were opened to build fishing fleets and, in time, to build the basic merchant marine; oak, which had become relatively rare in England, was easily available in New England. Iron manufacturing also gradually began to develop in the colonial era.

By the 18th century, regional patterns of development had become clear and reasonably stable: The New England colonies produced large-scale ship builders and ship operators; plantations in Maryland, Virginia and the Carolinas grew staple crops of tobacco, rice and indigo; and the middle colonies of New York, Pennsylvania, New Jersey and Delaware were shippers of general crops and furs. In all three regions standards of living were very high -- higher for workers than in England itself. But because the colonies were slow to show profits, many English capital investors withdrew, leaving the field open to entrepreneurs among the colonists.

As a result, by 1770 the North American colonies were economically and politically ready to become part of the emerging self-government movement, which had dominated English politics since the time of James I (1603-25). Disputes developed over taxation of colonies and other matters. Yet few Americans thought that the mounting quarrel with the English government would lead to independence for the colonies. Rather, they hoped for a modification of English taxes and regulations that would satisfy their demand for a greater measure of self-government. Like the English political turmoil of the 17th and 18th centuries, the American Revolution was political and economic in motivation, led by the emerging middle class with its rallying cry of "unalienable rights to life, liberty and property" -- a phrase openly borrowed from English philosopher John Locke's Second Treatise on Civil Government (1690). But in April 1775 an event occurred that would lead to a total political separation. British soldiers, intending to capture a colonial arms depot at Concord, Massachusetts, and forestall a colonial rebellion, clashed with colonial militiamen and someone-no one knows who-fired a shot, beginning the American War of Independence. The war lasted until the signing of a peace treaty in 1783 that declared the independence of the new nation, the United States.

NEW NATION'S ECONOMY

The U.S. Constitution, adopted in 1787 and still in effect to this day, was in many ways a work of creative genius. As an economic charter, it established that the entire nation -- stretching from Maine to Georgia, from the Atlantic Ocean to the Mississippi Valley -- was a unified or "common" market. There were to be no tariffs or taxes on interstate commerce. The Constitution provided that the federal government could regulate commerce with foreign nations and among the states; establish uniform bankruptcy laws; coin money and regulate its value; fix standards of weights and measures; establish post offices and post roads; and fix the rules governing patents and copyrights. The last-mentioned clause was an early recognition of the importance of "intellectual property," a matter that assumed great importance in trade negotiations in the late 20th century.

Alexander Hamilton, one of the nation's "Founding Fathers" and George Washington's secretary of the treasury, advocated a means of economic development in which the federal government would nurture infant industries through overt subsidies and protective tariffs. He also urged the federal government to create a national bank and to assume the public debts that the colonies incurred during the Revolutionary War. The new government dallied over some of Hamilton's proposals, but ultimately did make tariffs an essential part of American foreign policy -- a position that lasted almost until the middle of the 20th century.

Although early American farmers feared that a national bank would serve the rich at the expense of the poor, the first National Bank of the United States was chartered in 1791; it lasted until 1811. Hamilton believed the United States should pursue economic growth through diversified shipping, manufacturing and banking. Hamilton's political rival, Thomas Jefferson, based his philosophy on protecting the common man from political and economic tyranny. He particularly praised small farmers as "the most valuable citizens."

In 1801 Jefferson became president and turned to promoting a more decentralized, agrarian democracy.

MOVEMENT SOUTH AND WESTWARD

Following Eli Whitney's invention in 1793 of the cotton gin -- a machine that separated raw cotton from seeds and other waste -- the cotton market boomed. Planters in the South bought land from small farmers who frequently moved farther west. Soon great plantations, supported by slave labor, made some families very wealthy.

To many Americans, the westward march illustrates a legacy of individualism, a tradition that was characterized by steadily rising living standards and an optimistic outlook about the future.

The migration consisted of three waves of settlers. First came the earliest individualistic pioneers who depended on hunting and fishing for their livelihoods. Their agricultural skills were limited, and all the farm animals they owned amounted to no more than a horse, a cow, some swine and perhaps some chickens. As a consequence, their living standards were low.

The next group of migrants purchased land, cleared fields from forests, added roads and settled permanently. Their farms were largely, but not entirely, self-sufficient.

The final wave consisted of people with equal or greater enterprise than those who preceded them and abundant stocks of capital. They created and took advantage of rising property values and thought in terms of profitable business. Their farms were intended to be almost entirely market-oriented, and they built semi-rural communities, which brought people standards of living never before imagined.

AN UNCERTAIN ECONOMY: 1820-1860

In the 1820s, America's population was still moving ever westward in search of opportunities and advancement. These people are sometimes depicted as being fiercely independent and strongly opposed to any kind of government control or interference. But in fact they received a lot of government help, directly and indirectly. Government-created national roads, such as the Cumberland Pike (1818) and the Erie Canal (1825), helped move farm produce to market. The federal government set up numerous land-grant colleges to train young people in agriculture, as well as agricultural experiment stations and an array of service agencies, all designed to further the education and welfare of the independent farmer.

Americans of this era shared a common desire to better themselves through economic participation. People who held differing opinions about how to achieve the same ends fought many of the political and economic struggles of the 19th century. The results of those struggles underscore the importance of both individualism and a degree of government involvement.

When Andrew Jackson became president in 1829, many who were poor or newly rich idealized him as an individualist in their own likeness because he had started life in a log cabin in frontier territory. President Jackson opposed the new Federal Bank of the United States, chartered in 1816; he believed it favored the entrenched interests of the East against the West. When he was reelected for a second term, Jackson opposed renewing the Bank's charter, which was due to expire in 1836. Congress supported him in 1833, effectively killing the second National Bank. Jackson preferred putting the U.S. government's deposits in the state banks controlled by his political allies.

Jackson's actions helped precipitate the sharp business panics that occurred in 1834 and 1837. The East, particularly the industrial sector, suffered from an eventually crippling tight money supply; meanwhile, in the West, federal deposits in state banks made money more plentiful in rural areas and contributed to land speculation and price inflation. The same plot of land was often sold several times, each time at a profit; U.S. Treasury income from the sale of land rose from $5 million a year in 1834 to $20 million a year in 1836. But inherent in this boom were the seeds of economic disaster.

The first signs came in 1835 when crop failures made it necessary to import wheat from Europe. Some importers were frightened by the economic depression and refused to extend credit to customers. In 1836, when the amount of money in circulation was already low, the Treasury issued an order that henceforth land purchased from the government had to be paid for in gold or silver. But these precious metals were in short supply, having been sent abroad to pay for imports. Confidence in the nation's financial system was shaken, even shattered, and Western banks began to close.

During this time, English traders could not collect on their sales in America, and many of them went bankrupt. Cotton mills closed in England, and American planters saw their markets disappear. By the summer of 1837, business was paralyzed, and it was not until the early 1840s that a semblance of confidence in business was restored.

But periodic economic dislocations, such as "The Panic of 1837," did not curtail rapid U.S. economic growth during the 19th century. Presidents elected after Jackson also came from the West, or were allied to those who reflected rural sentiments, and they shared Jackson's mistrust of central power.

ECONOMIC EXPANSION, ENLARGED MARKETS

The United States was greatly affected by the Industrial Revolution taking place in Europe during the 18th and 19th centuries. New inventions and capital investment led to the creation of new industries and the spread of economic growth. Much trade, for example, was made possible by developments in the field of transportation.

Beginning in 1825 with the completion of the Erie Canal, which connected New York City with the Great Lakes region, various state governments began to play an active role in stimulating the construction of an internal system of transportation. State government subsidies and loans to businesses for building canals and turnpikes became commonplace between 1830 and 1860. These early efforts were often marked by corruption and economic disaster, yet more were successes than failures.

River traffic also improved when the steam engine was fitted to boats. The steamboat could travel up-river, against the flow, markedly reducing the amount of time involved in shipping goods to market.

Like canals and turnpikes, railroads received large amounts of government assistance in the early years. However, unlike other forms of transportation, railroads also attracted a good deal of domestic and European private investment.

Railroad building requires an enormous sum of capital, and there is a long period of time before any profits are realized. Yet conservative people in rural areas were tremendously enthusiastic about buying shares of railroad stock, often mortgaging their farms or businesses to do so. Attracted by visions of profits and playing a role helping to build a better nation, they also voted for state and local taxes to support the railroads. Later, as part of the Civil War legacy, the federal government gave extensive tracts of land to those who promised to build the missing links in the national railroad system. An astonishing total of 53 million hectares of land were eventually granted to railroad builders. Northern Pacific received 17 million hectares: Southern Pacific, 10 million hectares; and Union Pacific, 8 million hectares. In this way, America got its "sea to shining sea" connection.

Europe also caught the excitement of investing in American railroads. At one time foreign investors owned the majority of stock in six major railroads. With the discovery of gold in 1849, the United States became more able to finance additional imports of railroad machinery and materials.

The excitement of railroad building also brought abuses. Often, unsuspecting buyers paid exorbitant prices for their railroad stock, or were cheated with stock that was artificially inflated. Get-rich-quick schemes abounded, and many people lost their savings. Fortunes were made overnight by financial manipulators.

Nevertheless, through a combination of vision and foreign investment, the discovery of gold, and a major commitment of America's public and private wealth, the nation was able to develop a large-scale railroad system, providing the base for the industrialization that followed.

INDUSTRIAL GROWTH

By 1860, when Abraham Lincoln was elected president, 16 percent of the population lived in urban areas and a third of the nation's income came from manufacturing. Funds were flowing into large-scale industrial development and into railroads. Urbanized industry was limited primarily to the Northeast. Cotton cloth production was the leading industry, and the manufacture of shoes, woolen clothing and machinery was also expanding.

Equally important to urbanization, the nation's population was increasing. Between 1845 and 1855, European immigrants arrived at a rate of 300,000 annually. Most were poor and remained in Eastern cities, often at ports of arrival.

In contrast, the old South remained rural and dependent on the North for capital and manufactured goods. Southern economic interests, including slavery, could be protected by political power only as long as the South controlled the federal government.

The newly organized Republican Party expressed the interests of the industrialization that was sweeping the North. In 1860 Republicans and their presidential candidate, Lincoln, were speaking hesitantly on slavery, but clearly on economic policy. In 1861 a protective tariff was adopted. In 1862 the first Pacific railroad was chartered. In 1863 and 1864 a national bank code was drafted. Northern victory in the Civil War (1861-1865) and Republican victories in national elections assured that future economic policy would be determined by Northern industrialists rather than by Southern planters.

INVENTIONS AND RESOURCE DEVELOPMENT

The second half of the 19th century brought an explosion of new discoveries and inventions that, in the opinion of the Beard family, prominent American historians, amounted to the heralding of a "second industrial revolution." They cite as especially important the following:

• 1859 -- Discovery of petroleum in western Pennsylvania.
• 1868 -- G.L. Scholes's typewriter is ready for production.
• 1875 -- G.F. Swift's refrigerated railway freight car is in use.
• 1876 -- Alexander G. Bell sends first telephone message.
• 1877 -- Thomas A. Edison has a phonograph playing.
• 1879 -- George Selden's patent for a "gasoline carriage" granted.
• 1882 -- Edison's electric power plant starts operation in New York.
• 1903 -- The Wright brothers complete an airplane flight.

Mining became significant after the 1850s, when iron mines opened in the Lake Superior region of the upper Midwest. These helped spur rapid development of iron and steel mills located on the shores of the Great Lakes. After the first discovery of petroleum, John D. Rockefeller realized the potential wealth and power to be gained by concentrating the production of oil and outlets for its distribution.

Soon large copper and silver mines were opened, followed by lead mines and the development of cement factories. In 1893 at the World Exposition, a dynamo was displayed. Such mechanisms were soon built into dams to harness vast amounts of electricity. With the advent of the telegraph and telephone, communications tied the nation together and facilitated large-scale diversified businesses. The use of railroads and improved machinery helped the growth and proliferation of such basic industries as steel, coal, oil and electric power.

Despite continuing immigration, artisans were scarce, and it made sense for industry to develop mass production methods. Frederick W. Taylor pioneered in the field of scientific management, carefully plotting the functions of various workers and then devising new, more efficient ways for them to do their jobs. True mass production was the inspiration of Henry Ford, who in 1913 adopted the moving assembly line, with each worker doing one simple task in the production of automobiles. In what turned out to be an extremely farsighted action, Ford offered a very generous wage -- $5 a day -- to his workers, which enabled many of them to be buyers of the automobiles they made.

BUSINESS TYCOONS

America once idealized the businessman who amassed a vast financial empire, the business "tycoon," the entrepreneur who not only made it big but made it very big. His epoch -- and that of thousands of lesser entrepreneurs -- was the second half of the 19th century. It began with the spread of the railroad networks in the 1850s, and it included the growth of Northern industry in the 1860s and the rise of investment banking in the 1870s. Throughout this period, business interests had significant influence over government.

The great tycoons were fierce competitors, singleminded in their pursuit of financial success and power. Among the giants were Jay Gould, J.P. Morgan, Andrew Carnegie, John D. Rockefeller and Henry Ford. Some of these men were honest, according to business standards of their day; others used force, bribery and guile to achieve their wealth and power.

Business spirit was not indigenous to the United States; rather, it grew from the soil of European capitalism. But huge industrial enterprises such as railroads, with their extensive managerial hierarchies, became more prevalent and more powerful in the United States than elsewhere. Unlike most other countries, in the United States industrial bureaucracies, particularly railroads, grew faster and became larger than the government's own bureaucracy; in 1890, a dozen railroads employed over 100,000 workers, while the U.S. Civil Service in Washington numbered just over 20,000.

J. Pierpont (J.P.) Morgan, perhaps the most flamboyant of the entrepreneurs, operated on a scale of magnificence. He displayed ostentation and grandeur in his private and business life. He and his companions gambled, sailed yachts, gave lavish parties, built palatial homes and bought the art treasures of Europe.

In contrast, such men as John D. Rockefeller and Henry Ford demonstrated puritanical qualities. They retained their small-town values and lifestyles. As church-goers, they felt a sense of responsibility to others. They demonstrated that personal virtues could bring success; theirs was the gospel of work and thrift. Later their heirs would establish the largest philanthropic foundations in America.

While upper-class European intellectuals generally looked on commerce with disdain, most Americans -- living in a society with a more fluid class structure -- embraced the idea of moneymaking with enthusiasm. They enjoyed the risk and excitement of business enterprise, as well as the higher living standards and potential rewards of power and acclaim that business success brought.

By the time of the Great Depression of the 1930s, however, the image of the entrepreneur as an American ideal had lost much of its luster. The crucial change came with the rise of the corporation, the railroads first, then others. Few business barons remained. They were replaced by "technocrats," who became the heads of corporations. These executives, expert in every phase of corporate activity, became the indispensable cogs in the industrial machine. The high-salaried manager replaced the business tycoon. The rise of the corporation triggered, in turn, the rise of an organized labor movement that served as a countervailing force to the power and influence of business.

Big business leaders today are often involved in many areas of public life. They not only direct the fate of corporations, they serve on boards in their communities and as university trustees. These new corporate leaders fly to Washington to confer with government officials on national policy. They are concerned about the state of the national economy and America's relationship with other nations. They influence, but do not control the U.S. government -- neither openly nor behind the scenes.

GOVERNMENT INVOLVEMENT

Traditionally, most U.S. government leaders were reluctant to involve the federal government too heavily in the private sector -- except in the area of transportation. In general, the role of the federal government was influenced by the concept of "laissez-faire," a doctrine opposing government interference in the economy except that necessary for the maintenance of law and order. This attitude started to change during the latter part of the 19th century, when small business, farm, and labor movements began asking the government to intercede on their behalf.

By the turn of the century, a middle class had developed that was leery of both the business elite and the somewhat radical political movements of farmers and laborers in the Midwest and West. Known as "progressives," these people favored a government that actively involved itself in the regulation of business practices in order to ensure competition and free enterprise.

A law regulating the railroads was enacted in 1887 (Interstate Commerce Act) and another, preventing large firms from controlling a single industry, in 1890 (Sherman Antitrust Act). These laws were not rigorously enforced, however, until the years between 1900 and 1920, when those sympathetic to the views of the progressives came to power. During this time, many of today's regulatory agencies were created, including the Interstate Commerce Commission, the Food and Drug Administration and the Federal Trade Commission.

Although the era of progressivism peaked between 1901 and 1920, government involvement in the economy increased most significantly in the 1930s as a result of the "New Deal." The 1929 stock market crash had brought on the most serious economic dislocation in the nation's history, the Great Depression (1929-1940). The New Deal was President Franklin D. Roosevelt's attempt to alleviate the emergency. New Deal legislation extended federal authority in all fields, notably banking, agriculture, social security and public welfare. It gave immediate attention to labor problems, creating minimum standards for wages, hours, relief and security -- and served as a catalyst for the expansion of labor unions in such industries as steel, automobiles and rubber.

America had to confront problems such as these at the same time as it was developing a network of manufacturing and financial resources including large-scale industry, banks, stock markets, insurance companies and credit unions. Along with these developments came a modern system of agriculture and a strong organized labor force. Then came World War II.

During the Second World War, the U.S. government intervened in the economy as it never had before. The War Production Board was created to coordinate the nation's productive capabilities so that military priorities would be met. Converted consumer-products plants filled many military orders. Automakers built tanks and aircraft, for example, making the United States the "arsenal of democracy." In an effort to limit inflation due to rising national income and scarce consumer products, the newly created Office of Price Administration controlled rents on some dwellings, rationed consumer items ranging from sugar to gasoline, and otherwise tried to restrain price increases.

THE POSTWAR ECONOMY: 1945-1960

Many Americans feared the hard times of the Depression might return with the end of huge military expenditures. But, responding to pent-up consumer demand, the U.S. economy experienced exceptionally strong economic growth in the postwar period. The nation's gross national product rose from about $200 thousand-million in 1940 to $300 thousand-million in 1950 to more than $500 thousand-million in 1960. At the same time, the jump in postwar births, known as the "baby boom," increased the number of consumers. More and more Americans joined the middle class.

There were many sources of growth. The automobile industry successfully converted from making tanks and bombers, and new industries such as aviation and electronics grew by leaps and bounds. A housing boom, stimulated in part by easily affordable mortgages for returning servicemen, added to the expansion. So did the rise in defense spending, which occurred later with the escalation of the Cold War. Business entered a period marked by consolidation. Firms merged to create huge, diversified "conglomerates": for example, International Telephone and Telegraph Co. bought Sheraton Hotels, Continental Baking, Hartford Fire Insurance, Avis Rent-a-Car and other companies.

The American work force was also changing. During the 1950s the number of workers providing services grew to equal and then surpass the number producing goods. And by 1956 a majority of U.S. workers held white-collar rather than blue-collar jobs. At the same time, labor unions won long-term employment contracts and other benefits for their members.

Farmers, on the other hand, faced tough times. Gains in productivity led to agricultural over-production, as farming became a big business. Small family farms found it increasingly difficult to compete, and more and more farmers left the land.

Other Americans moved too. Increased demand for single-family homes and the widespread ownership of cars fueled a migration of Americans out of central cities to suburbs. Coupled with technological innovations such as the invention of air conditioning, the migration spurred the development of "Sun Belt" cities such as Houston, Texas; Atlanta, Georgia; Miami, Florida; and Phoenix, Arizona.

As new federally sponsored highways created better access to the suburbs, business patterns began to change. Shopping centers multiplied, rising from eight at the end of World War II to 3,840 in 1960. Many industries soon followed, leaving cities for less crowded sites.

YEARS OF CHANGE: THE 1960s AND 1970s

The 1950s in America are often described as a time of complacency. By contrast, President John F. Kennedy ushered in a more activist decade when, during his 1960 presidential campaign, he said he would ask Americans to meet the challenges of the "New Frontier." Many of Kennedy's more far-reaching economic proposals were not enacted; one proposal that was, however, created the Peace Corps, which sends volunteer Americans overseas to assist developing countries in meeting their own needs.

Another of Kennedy's goals involved accelerating the U.S. space exploration program so that it would surpass Soviet achievements. Federal spending increases -- resulting from the expanded space program, the escalation of America's role in the Vietnam War and other new or enlarged federal programs -- contributed to prosperity for much of the decade.

Many new social welfare programs were created during the administration of Kennedy's successor, President Lyndon B. Johnson. He launched a "war on poverty" and succeeded in creating programs to provide medical assistance to the poor and elderly as well as other initiatives.

The 1960s were a period in which the American people began to express a growing concern about the natural and human environment -- from the need to preserve natural lands to avoiding the dangers of air and water pollution. The federal government enacted many regulations to protect the quality of life.

But by the end of the 1960s, economic prosperity was being eroded by persistent inflation. The 1973-1974 Arab oil embargo pushed prices rapidly higher and created shortages throughout the United States. Even after the embargo ended, prices stayed high, fueling inflation and eventually causing rising rates of unemployment. The rest of the decade was characterized by spiraling inflation, increased federal budget deficits, intensified foreign competition, high unemployment and stagnant demand.

THE ECONOMY IN THE 1980s AND 1990s

In 1980, the American people expressed their discontent with the federal government's policies of the 1970s through the election of President Ronald Reagan. Reagan based his economic program on the theory of supply-side economics, which mandated reducing marginal tax rates to encourage people to work harder and longer. This in turn leads to more saving and investment, resulting in more production and stimulating the economy as a whole, according to supply-side economic theory.

The central theme of Reagan's national agenda, however, was his belief that the federal government had become too big and intrusive. In the early 1980s, the Reagan administration pushed through a series of tax cuts, at the same time that it proposed huge slashes in social programs. Throughout his tenure, Reagan also undertook a campaign to reduce or eliminate government regulations affecting the consumer, the workplace and the environment.

The nation endured a deep recession throughout 1982. Business bankruptcies rose 50 percent over the previous year. Farmers were especially hard hit, as agricultural exports declined, crop prices fell and interest rates rose.

But the recession, combined with falling oil prices and the Federal Reserve's tight control of money and credit, helped to curb runaway inflation. By 1983, the economy had rebounded and the United States entered into one of the longest periods of sustained economic growth since World War II. The annual inflation rate remained under 5 percent from 1983 through 1987.

Still, serious problems remained. Farmers' problems continued, and their suffering was compounded by serious droughts in 1986 and 1988. Federal deficits soared throughout the 1980s. From $74 thousand-million in 1980, the federal budget deficit rose to $221 thousand-million in 1986 before falling back to $150 thousand-million in 1987. The U.S. trade deficit hit a record $152 thousand-million that same year. A stock market crash in the autumn of 1987 led many to question the stability of the economy.

In fact, the U.S. economy did slow and dipped into recession in 1991, and then began a slow recovery in 1992. As a result of the slowing economy and other factors, the federal budget deficit began heading upward again. Although the stock market recovered, the financial industry was particularly plagued with problems, with numerous savings institutions, as well as some banks and insurance companies, either collapsing or falling into such a shaky state that the federal government had to take them over. Well into the 1990's, credit market and other problems lingered on. By contrast, other sectors of the economy, such as computers, aerospace and export industries generally showed signs of continuing growth.

An Outline of the American Economy