The American Economy: Leading the World

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7 The American Economy: Leading the World

In 1960, the United States was the most prosperous nation in the world, and it was still growing fast. The nation's prosperity had come on quickly; in the fifteen years since the end of World War II (1939–45), the gross national product (GNP), or the value of all the goods produced in the nation, had shot up by 250 percent. Then, in the first half of the 1960s, GNP grew another 36 percent. Altogether, in the 1960s the United States experienced its longest uninterrupted economic expansion to date in American history (a record for consecutive months of growth unmatched until the 1990s).

This economic boom was fueled by thriving American businesses. By 1962, 66 percent of American manufacturing assets were controlled by the 500 largest companies. Some American corporations grew into global giants. General Motors, IBM, and Coca-Cola, among others, extended their businesses throughout the world. Growing companies brought jobs—many more well-paying, white-collar jobs (that is, salaried jobs that do not involve manual labor) than ever before—and unemployment levels shrank. More and better jobs offered workers more money. The median family income (the income level at which half of all incomes lay above and half lay below) in the United States rose from $3,319 in 1950 to $5,620 in 1960 to $9,867 in 1970, according to the U.S. Census Bureau. (Measured in constant 1993 dollars, which allow direct comparison, these figures become $19,900 in 1950, $27,435 in 1960, and $36,747 in 1970.) No matter how people measured it, the amount of money circulating through American households increased dramatically from 1950 to 1970.

Manufacturing facilities—producing such goods as televisions, cars, furniture, and other goods—in particular provided workers with the highest wages in the world. As American business expanded into international markets and increasing sales fueled record high profits, labor unions pressed companies into offering high salaries and substantial benefit packages, including health and life insurance. To secure these generous contracts, unions staged some of the biggest, longest strikes in history. The United Steel Workers held the industry's longest steel strike between July 1959 and January 1960; an airline workers' strike grounded five airlines for six days in 1961; dock workers struck for a month in 1963; and the United Auto Workers halted production at General Motors for nearly two months in 1964. The settlement of strikes and other labor negotiations usually ended with costly labor contracts that specified the wages and benefits of workers. Companies simply passed the extra expense of these agreements directly on to the consumer. For example, U.S. Steel raised its prices after signing a new union contract in 1962, and just five days after signing a three-year contract with the United Rubber Workers union in 1967, Firestone raised its tire prices.

Highs and lows in a thriving economy

For white Americans in the nation's urban centers, opportunity seemed endless in the 1960s. Jobs were plentiful, wages were high, and businesses offered consumers more goods than ever before in an expanding number of malls and retail outlets. Especially for those who had lived through the economic hardships of the Great Depression (1929–39) and the rationing, or limiting of certain goods, of World War II (1939-45), when hard work earned low wages, the economic boom of the 1950s and 1960s seemed like a marvelous reward. With higher wages and access to easy credit (see side-bar), Americans began living more luxurious lifestyles. More and more people came to own their own home, a car (or two), and a television. By the end of the decade, the one million telephones in the United States comprised half of the total number of phones in the world. American homes abounded with technological innovations, including refrigerators, clothes washers and dryers, radios, and other gadgets. U.S. prosperity allowed Americans to buy more products and enjoy more expensive forms of leisure. Americans took more vacations—traveling to national parks or flying to foreign countries—watched more ballgames, and enjoyed leisure activities ranging from bowling to boating, and much more.

Buy Now, Pay Later: The Rise of the Credit Card

As American businesses recorded higher profits and offered workers higher wages, they also sought ways to encourage Americans to buy more things. One way to do this was to offer credit, allowing people to buy now and pay later. Many companies—especially those selling large-price items such as cars or refrigerators—had extended credit to consumers for decades. In the 1960s, many more banks and finance companies offered credit cards that enabled people to enjoy the wide variety of consumer goods offered by merchants.

Credit purchases in the decades before the 1960s were rather limited, because companies offered credit for purchases only at their establishments or for single large purchases. Credit that could be used at many different merchants was introduced in 1949 when the Diners Club company issued its first cards. The Diners Club company required cardholders to pay off their balances each month but made money by charging consumers a monthly fee for using the Diners Club card and merchants a fee for using the credit service.

By the 1960s, however, credit became easy to get and even easier to use. A handful of credit companies had begun offering universal credit cards (those that could be used at a variety of different places) in the late 1950s. Some of these cards had revolving credit, meaning that card carriers only had to pay a minimum fee each month instead of paying off the total amount of the bill charged to their card accounts. By the mid-1960s two companies, Bank of America and a conglomeration of large banks called Interbank Card Association, offered universal, revolving credit cards to consumers across the country. The cards issued by these two companies came to be known as VISA (in 1976) and MasterCard (in 1980), respectively. Buying on credit quickly became a way of life in United States. Bank of America serviced two million consumer credit cards in 1966 to 64,000 merchants. Within two years the company had doubled the number of cards to four million and increased the number of merchants to 316,000. By 1970 a full 16 percent of American families had at least one credit card and the number continued to rise to over 50 percent in the coming decades. As the number of credit cards increased, so did the level of Americans' consumer debt. But with optimism that the economy would remain strong, Americans did not worry about their growing credit card debt.

The general prosperity in the country lifted up nearly all Americans. Every segment of the American population realized some improvement in its living conditions, at least relative to past conditions. Even in Appalachia, a region in the United States in the Appalachian Mountains stretching from New York south to Alabama and the poorest U.S. region, with unemployment rates of 25 percent in 1959, living conditions improved in the 1960s. Harlan County, Kentucky, was the poorest county in this region and in the country as a whole. A depressed coal mining industry had reduced a huge portion of the residents' income to below the poverty level, yet 67 percent of the households had a television and 59 percent of the families owned a car, according to David Farber in The Age of Great Dreams. Thus even America's poorest were richer than people in other countries.

However, comparing American wealth to the financial state in other countries offered no consolation to poor U.S. citizens, and the comparison did not satisfy U.S. policy makers who were convinced that American wealth should be spread more widely. Many Americans became aware of poverty in their prosperous nation following the publication of Michael Harrington's 1962 book, The Other America. Harrington argued that poor Americans were invisible, hidden from media attention and from the view of wealthy Americans who were living in the suburbs. But he pointed out—and census figures confirm—that poverty was a real problem in the United States.

Statistics paint a clear picture of the nature of poverty in the United States. Despite the general improvement in Americans' lives, about 20 percent of Americans lived in poverty in the early 1960s. More African Americans experienced poverty in America; while they constituted only 10 percent of the population, they represented over 30 percent of the poor in 1960. And in 1963, fully 50 percent of blacks lived below the poverty line, according to statistics taken by USA Today. Poverty for blacks stemmed from extreme and frequent racism, which kept African Americans from gaining access to higher-paying jobs and from the education needed to get those jobs. Pushed from southern farm work as advances in machinery replaced their jobs, many blacks moved to northern cities looking for work with only meager formal education and skills often limited to rural work. Poor blacks were often younger and were concentrated in urban ghettos characterized by their substandard housing and high rates of crime. The condition of these urban poor was in stark contrast to the abundance and prosperity enjoyed by white people in the suburbs. Though blacks constituted a higher percentage of the poor, the total number of poor whites was in fact higher. Poor whites were generally old and lived in outof-the-way rural areas. Though their numbers were larger, these poor Americans were not as visible as those in more populated, urban areas.

There were a number of conditions that trapped African Americans in poverty. For example, corporations regularly and legally discriminated against people based on race and gender in all parts of the country, limiting their access to jobs or providing lower rates of pay. Suburban housing developers discouraged blacks from even trying to buy their houses. Such discrimination was exposed by the civil rights movement and the women's movement, which got stronger during the 1960s. Some people thought that continued improvements in the economy would naturally lead to the end of poverty and that making laws against discrimination would allow blacks full access to better jobs and housing. But many Americans believed that they should use the nation's vast wealth to actively combat the problems. They thought that economic strength could be used as a tool to bring social justice.

Does prosperity bring responsibility?

While prosperous Americans were happy about their ability to enjoy luxuries, they worried about the greater purpose of the nation's immense prosperity. The success of capitalism seemed apparent; it had made other countries envy the United States. Politicians frequently said that capitalism worked well, and they held up American prosperity as proof that Communism, such as that in the Soviet Union and the People's Republic of China, did not. But other Americans wondered if U.S. wealth could not be used more wisely to lift more Americans out of poverty.

President Lyndon Johnson (1908–1973; served 1963–69) saw U.S. prosperity as an invitation to the federal government to take care of its citizens. In 1964, the first full year of his presidency, he argued that the United States could become a "Great Society," and he proposed a set of government programs that would help realize this goal. White House staff assistant Joseph Califano described the underlying reasons for the Great Society: "We simply could not accept poverty, ignorance, and hunger as intractable, permanent features of American society. There was no child we could not feed, no adult we could not put to work, no disease we could not cure, no toy, food or appliance we could not make safer, no air or water we could not clean," as quoted by Farber. With the rising tax money, which came from Americans who made higher wages, Johnson hoped that the federal government would help reduce inequalities, lift up poor people, and in this way spread the promise of the American system to every citizen. While American business focused on producing profits and jobs, the government would focus on helping those in need.

Although Johnson's Great Society programs were intended to improve every social level of American society, the poorest Americans received special attention. Johnson declared a "War on Poverty" in 1964. He did not want to just give money to poor people; instead, he wanted the federal government to give poor people the tools they needed to lift themselves out of poverty, including federally funded education and job training, among other support. By the end of the decade, dozens of legislative bills aimed at relieving poor people's conditions had passed through Congress, including preschool programs, housing acts, and medical assistance. Food stamps and free and reduced school meal programs greatly reduced the number of hungry Americans and the 1965 passage of the Medicaid and Medicare programs offered free or reduced-cost medical care to the nation's poor and elderly. Although the healthcare programs begun during the 1960s cost billions of dollars, they extended the lives and improved the quality of life for the poor.

Overall, poverty did decrease throughout the 1960s. The percentage of Americans who were poor fell from just over 20 percent in 1959 to 12 percent in 1969. Yet many believed that the War on Poverty was not a success. Many worried about the increasing size of the federal government and about the dependency of the poor upon the government. The percentage of government spending on social welfare programs increased from $52.3 billion in 1960 to $113.6 billion in 1968. One example of this increase in spending is the increase in welfare provided by the Aid to Families with Dependent Children program (AFDC). AFDC offered money to more and more families during the decade: the number increased more than five times between 1960 and 1975, according to Farber. The sharp jump in AFDC participants came from several factors: political activism that forced the government to make applying for AFDC aid easier and a shift in the poor people's expectations about federal aid. By the end of the decade, many poor people had come to consider federal aid something they deserved from a society and government that had discriminated against them. The shift in their attitudes can be seen from the numbers of eligible participants in the AFDC program. While only one-third of those who qualified for federal aid applied for help at the beginning of the decade, that number reached nearly 90 percent by the end of the decade, according to Farber.

Domestic spending on anti-poverty programs was not the only drain on the economy as the decade progressed. By the end of the decade the high costs of an expanding war in Vietnam weakened Johnson's ability to pursue his vision for the Great Society. Though he introduced more than a dozen pieces of legislation and new federal programs designed to create jobs, provide training, improve housing, offer basic education, and provide food to the poor, the increasing costs of the war drew criticism and reduced support for the costly federal programs needed to create the Great Society.

Although the American economy remained strong at the end of the decade, it faced new foreign competitors, especially companies from Germany and Japan. With the arrival of foreign products, American businesses focused on becoming more competitive, spending money on research for improved quality and developing more efficient processes. The unions that had forced companies into providing generous benefits and wages to workers lost power by the end of the decade, especially when more conservative politicians began winning seats in Congress after 1968. In the 1970s American businesses struggled to keep up in a far more competitive international market.