A relatively young country, the US
inventing a culture to deal with the constant
Institutional framework changes are
infrequent and driven by war.
As wars have changed, so the framework
needed to change.
End of Current Institutional Cycle
Our WW 2 victory
was achieved with large federally directed projects managed by experts in
grew between governments and their citizens.
Now, unhappy citizens are
forcing US Government institutional change.
Force theWW 2 large project expert driven, complicated, hard to manage
Institutional Approach out of government.
Inspired by Storm Before the Calm.
Weak Articles of Confederation
Winning the War
|1. Constitution in 1787 to winning of the Civil War||
2. Civil War Amendments of 1865 through WW2
|3. Post WW 2 expanded federal authority through end of globalization|
US began the continuous development
Federal Government Institutional Framework.
Federal Government would be the
predominate. national institution.
||Outcome: US expanded
federal government size and power
to mitigate the recession and win a war..
|Unanswered Question: Relations with the very important State governments was unclear.||Unanswered Question: Accommodating the intersectional differences among states, the economy and society||Unanswered Question:
Solutions to the ever increasing gulf
within and among participants.
Note: There was no Federal Institution during the War for Independence.
Every fifty years or so the American economy and her society pass through a
painful cycle when it often feels that both were collapsing. Existing policies
no longer worked.
Politics is not the problem. The problem is a significant deep social and economic dislocation. Political strife and noisy are not the engines of change. Change is pushed by the need for a new system. Over time a new common sense is put into place and America flourishes.
End of the Current Socioeconomic Cycle
|Instigator Articles of Confederation||Instigator: Slavery.||Instigator: Winning the War|
|1. Constitution in 1787 to winning of the Civil War||2. Civil War Amendments of 1865 through WW2||3. Post WW 2 expanded federal authority through globalization|
3. Hayes-Hoover |
Quarrel between a Federalist and a Republican in the House of Representatives Foreign influence on Domestic Politics
Prelude: Northern Business Aristocrats and Southern Planter Aristocrats triggered and financed a revolution. Unlike the French and Russian revolutions, stability was maintained and America's leaders remained.
The Political Storm began with the 1796 election ended in an Electoral College tie. Receiving votes were two Federalists , Adams( 65) and Thomas Pickney(64) plus two Republicans Jefferson(73) and Aaron Burr(73), John Jay had one vote. The election went to the House of Representing. Hamilton worked behind the scenes for Jefferson who he felt was less-dangerous than Burr. The runoff was tied for 36 ballots and finally on number 37 Jefferson was declared the winner. .
Rising tensions began when a trade war with England created the massive 1807-09 recession. Then came the War of 1812. To keep pace economically and militarily, more Industrialization and a new social structure and would developed. A larger capital base and increased population would be needed.
Innovation Growth came from the Louisiana Purchase. It added to the Northwest Territory need for settlers brought over new roads through Appalachian. Increased immigrants from Ireland were loathed as illiterate violent drunks.. Ben Franklin said the Germans immigrants were stupid and swarthy.
Large numbers of immigrants challenge the stability of society and locals have always reacted negatively. This eroding of the existing social order causes much consternation.
Forced into Appalachia, immigrants quickly questioned the apportionment and sale of land controlled by absentee English landlords. The controlling local politicians claimed to be people's government but they was were controlled by a local developing pseudo aristocracy.
The private Bank of the US allowed lots of inflation which made themselves and existing land owners rich, but it hurt most others including settler immigrants. Then a 1819 European financial panic caused Eastern US bank losses. Investments in foreign Napoleonic War debt went south. Founding Fathers were not only more prudent, they were motivated by self-interest. Their political future was in Deep Doo Doo.
Political trouble came when the Second Bank of the US. lowered the money supply. Western land values tanked causing settlers farmers whose mortgages were now greater than farm values to lose their property. Resulting lower farm production raised Eastern food prices. Depression resulted.
Hamilton's banking system no longer worked. In 1824 election, Adams II representing the English elite tied A. Jackson, a member of the Scotch-Irishman lower class. The House elected Adams and his inability to allow needed institutional change created his failed presidency.
Geopolitics change came with the Louisiana Purchase. This created a need for even more settler immigrants. Ethic change came with the additions of different immigrant cultures. Economic change occurred when the Hamilton bank system no longer fulfilled the nations needs. We would have a system reboot or the nation would fragment. Jacksonian Democracy was next.
A "mob" descended upon Andrew Jackson at the White House to celebrate his victory in the election of 1828. Public parties were regular occurrences during Jackson's administration.
Tensions rose from 1819 to 1836 ended somewhat when the Second Bank of the United States bank finally dissolved after Jackson's reelection. The continuing need for stable money with stable credit was a cause of the US Financial Panic of 1837. Other causes were a poor wheat crop and another British Financial Crisis. Transitions to new cycles are often long-lasting and cause economic pain.
Before the Civil War, the South could not afford a tariff war and the North wanted tariffs to protect infant Industries. The war destroyed the South and Northern industry increased dramatically. The Midwest had become America's Hartland with many small towns to service American agriculture.
Radical cultural changes caused by the massive import of foreign labor.
The Civil War, financed by the fiat Greenback eventually led to the Coinage Act of 1873. Greenbacks, not backed by Gold or Silver, supplemented the gold/silver backed dollar.
Metallic backed currency soon left circulation for safe keeping. Confederate debt was useless and the Greenback was almost useless. Inflation, which helped those in debt, but devastated their creditors. Many were being seriously hurt.
Innovative Technology Growth came from RR were the caused the of the era. There stockholders, many located in Europe, were wiped out!
Small town, now symbols of a virtuous life, had many small banks which would fold. Now prosperous immigrants had clustered. Towns were stuck between the now mostly irrelevant Jacksonian era guidelines and northern industry which was trying to destroy them.
Change was needed as the Jackson era focus on cheap land with moderate inflation was no longer appropriate. Big cities were bringing more immigrants.
Tensions Increased from a corrupt Grant presidency and Southern efforts to remove Northern war controls made the 1878 election one of the most tumultuous in history. Hayes received fewer votes and won the electoral college vote through complex chicanery. He would have to preside over the new cycle by managing two emerging technologies.cheap foreign labor.
Innovative Technology Growth
1) electricity would spin off into communication and illuminating the night 2) internal combustion engine would radicalized the auto and aviation industry plus create the need for the oil industry. All needed immense capital but the 1873 financial crisis hampered capital formation. Treasury Secretary Jackson dropped Jackson's bimetallic standard for a Gold Standard. This instilled confidence that there would not be substantial inflation. Investment capital flowed into the US capitalistic system as Gold backed dollars came out of savings and European Investor augment the supply of capital. With less gold there was less currency and less credit . Small farms were lost to foreclosure. Buyers were banks and larger farmers. Trying to help resulting disposed rural poor was presidential hopeful Williams Jennings Bryan. Famous for his Cross of Gold Speech, he wanted more credit which required a return to a bimetallic money standard.
The small town now set society norms by providing community and morality. They relied on hard work and needed order to maximize trade. Bigotry toward Blacks, Jews and Roman Catholics replaced the past eras bigotry towards Scotts/Irish, Germans and Scandinavians.
Big cities with wealthy industrialist with their immigrant workforce replaced small town merchants just as small town merchants had replaced Irish Germans immigrants. Increases industrial success only exacerbated rural distrust.
WW 1 set the stage for a cyclical shift. The fall or exports created the need for customers. America's credit based Consumerism was how capitalism adjusted. The 1920's roared but the consumer bubble ended with a thud. The crash lowered employment and aggregate demand spiraled downward. The periods high level of production simply could not be sustained.
The Hayes era was over. Its Gold Standard had created a stable currency. Credit had created consumer demand. Now, consumers were disappearing. Hover only understood the past era where a balanced budget and sound money were the answer to economic malaise. Now, more spending based on credit was the solution.
Hoover's decision to send troops to disband a veterans army that had settle in Washington in hopes of receiving early payment of their WWI bonus check due in 1945. Soldiers attacked veterans and their families. Four including children died. Click
Tensions rose during them 1920's due to the First Red Scare and social conditions exemplified by the reemergence of the Ku Klux Klan.
The era's social foundation was
Roosevelt necessary programs caused larger deficits, but they were insufficient. Unemployment remained high until even larger WW 2 deficits substantially increases aggregate demand enough to win the war. Then, the war created large industrial plant and a skilled work force went to work satisfying war caused pent-up demand. Consumer credit dramatically increased American Consumerism.
Innovative Technology Growth The war had crated a method of thinking about and controlling large organizations. This Technology Management class of Technocrats were practical and wanted to get things done They would control most of American life.
A technocratic had expertise in a certain area and credentials to certify their expertise. They rose in power because of merit and had no ideology other then their expertise. Efficiency was their ideology. The manager, not the hands-on worker, were praised.
The system worked well until the early 1970's when experts allowed inflation to grow out of control. Nixon instituted price controls did not work very well. Then he and his economic experts suffered a dramatic loss of prestige when an Arab oil embargo created the economic disaster of Stagflation.
This era had focused on consumption and a high 70% tax rates. Wealthy Investors and potential entrepreneurs disappeared because of the high risk/reward imbalance.
The US old industrial base had been built during and after WW2. It could not easily compete in both cost and quality with products built with newer, more efficient German and Japanese factories. Americans were increasingly consuming more imported goods. US companies, trying, to maintain high profit, invested less in product quality and used fewer lower-paid workers.
The usual end of cycle political turmoil began with the social unrest caused by the murders of Presidential candidate B .Kennedy and Civil Rights leader M.L. King. Social unrest finally slowed after Watergate.
Then high inflation, slow growth and the Iran Hostage failures of President Carter signaled a new seriocomic cycle.
Tensions slowly began to ease
in 1973 when the military draft ended. Then tension from long-gas lines ended
with odd-even gas allocations. The Iran Hostages standoff finally ere release
just as Reagan took office. Morning in American had begun.
Curing 1970's economic stagflation began with lower taxes for the investor class to increase their reward. Also, RR allowed the FED to continue Carter's tight money policy lowering both inflation and interest rates. Together they improved risk/reward causing growth to return.
Innovative technology growth centered on the microchip would last until the 2008 financial crisis.
With the end to auto industry rapid profit growth from manufacturing, GM looked to GMAC for profit growth. It quickly expanded to many areas of providing credit and soon became GM's most profitable product. Experts in Process Manager took the place of manufacturing experts.
Credit and other product lines dramatically expand This decreased their auto manufacturing focus. When added to an old inefficient plant, competing in the their core markets with the German and Japanese was difficult. Management bureaucracy was lowering Return on Capital.
Increased management complexity and loss of focus
increased inefficiency. The solutions:
The high growth microchip industry caused job losses, companies to fold, and industries to disappear. Anxiety increased. New job requirement.
The increase in the Wealth of Nations from globalization
raised two issues
In the abstract world of free market capitalism, this price of creative destruction must be paid. People will be hurt. But in the real world of society and politics, where the deposed have more power, the process is often destabilizing. Destabilization peaked in the middle 2010's. Just like there was no way out of the Roosevelt cycle without the Reagan cycle changes so to will there be change out of the Reagan Cycle.
GDP growth was not been reasonably distributed. Too much went to the very top. Change to solve this and other problems was required.
Success of the early Regan cycle led to a surplus of financial capital. Disposition of these excesses went toward unproductive, often third world, investments.
Micro chip innovation also took some of ths excess savings but some remained causing lower interest rates. But these lower interest rates were often not available to small business after the 2008 financial crisis.
Low interest was paid to savers and when coupled with increased deposed industrial workers, an economic crisis was brewing. Eventually it led to a social crisis as tension between the declining class-those receiving less interest on savings and those who benefited, the technocrats of a rising class of technocrats who gained as entrepreneurs and investors.
More importantly, the diving edge of this cultural crisis, may be a divergence in values. The existing political crisis increased with the Trumps Presidency as social forces intensified the two decade battle.
In 2026 or 2030, a final declining years president will following measures required of the old era. Measures that will not work. This will pave the way for a more open to change president. They will not know what to do, but it will be new and is required to continue the American Experiment.