America has one of the greatest national economies, serving as a capitalist and democratic benchmark for many countries worldwide. Its financial markets, growth, and innovation have always helped the government to retain its impeccable reputation. However, the history of the U.S. economy is long and not without failures. The system of the United States has undergone many changes that made the country’s economic state stronger.
The Great Inflation was the second half of the 20th century’s most significant macroeconomic phenomenon. The post-World War II universal monetary system was forsaken during that time, and there were four financial crises, two major resource scarcities, and the first-ever application of wage and price restrictions in peacetime. Inflation in 1964 was somewhat more than 1% annually, and it maintained this rate for six years (Bryan). Midway through the 1960s, inflation started to increase and peaked in 1980 at over 14% (Bryan). In the second part of the 1980s, it gradually decreased to an average of barely 3.5% (Bryan). The Federal Reserve regulations that permitted an unsustainable increase in the quantity of money were the cause of the Great Inflation. As stated by some economists, it was the biggest macroeconomic policy failure. However, that defeat also resulted in a fundamental shift in macroeconomic theory, which finally resulted in the principles that now direct the monetary and fiscal policy of the Federal Reserve and other financial institutions worldwide. In this sense, the Great Inflation sparked the resurgence of central banking in the contemporary era.
The ascent of the service industry to supremacy in terms of employment and value-added shares is a defining feature of the service economy. This increase in the U.S. can be observed during the second half of the 20th century, more specifically from 1970 to 2005 (Witt and Gross 231). American firms boosted their production by 80% during the 1970s while simultaneously cutting back on their personnel by roughly 17% (Witt and Gross 231). In other terms, compared to three decades ago, American manufacturers are approximately twice as productive. Therefore, even as organizations employ fewer people, they are generating an increasing amount of goods. This implies the presence of constant scientific and technological progress, the beginning of which changed the production of the American economy.
While the first two events had at least one positive outcome, the last event, the global pandemic, had a more detrimental and unprecedented effect. The United States trade imbalance has grown due to the country’s quick recovery compared to the rest of the globe (The White House 97). In this situation, imports have surged due to the robust U.S. rebound, as items have come in from overseas to meet rising demand from businesses and consumers (The White House 97). The global pandemic led to the vulnerability of many American companies that relied on overseas imports to make their products.
As a result, the American system has undergone several modifications that have strengthened the nation’s economy. For instance, the Great Inflation triggered the modern era’s rebirth of central banking. The U.S. economy changed to a service economy in the 1970s, which meant that fewer workers were needed to produce the same amount of money and commodities. Lastly, the global pandemic caused a trade deficit in the American economy, leading to an imbalance in demand and supply, accentuating American businesses’ vulnerability to imports.
Works Cited
Bryan, Michael. “The Great Inflation.” Federal Reserve History, Web.
The White House. “The U.S. Economy and the Global Pandemic.” The White House, Web.
Witt, Ulrich, and Christian Gross. ” The Rise of the “Service Economy” in the Second Half of the Twentieth Century and Its Energetic Contingencies.” Journal of Evolutionary Economics, vol. 30, np. 2, 2020, pp. 231-246.