with the Drafting of Constitution, ended with the Civil War 1787-1865
after the Civil War and lasted until after WW2. 1865-1945
after WW2 and will end this decade. 19452025
4. Cycle will redefine the FEDs Institutional Framework in relation to itself.
Institutional framework changes are
infrequent and driven by war.
As wars have
changed, so the framework needs to change.
Our WW 2 victory
was achieved with large federally directed projects managed by experts in
Communication issues grew between governments and citizens.
Now, unhappy citizens are
forcing US Government institutional change.
Every fifty years or so the American economy and society pass through a painful cycle where it often feels that both were collapsing. Existing policies no longer work. A financial crisis often precedes the coming political/cultural crisis. Current leaders say nothing is wrong but protecting their vested interest causes them to lose control of difficult events. Failed old thinking presidents are replaced by new more d\flexible presidents. Think FDR and Ronald Reagan replaced . They were successful because
they allowed for the beginning of unknown TBD changes. Politics are 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 that works. Over time a new common sense is put into place and America flourishes.
|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
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 in place.
Political Tensions began 1801 when the election ended in an Electoral College tie. Receiving votes were 2 Federalists , Adams( 65) and Pickney(64) plus 2 Republicans Jefferson(73) and 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 a 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, the US needed more industrialization and a new social structure. A larger capital base and increased population would be needed.
Innovation Growth came from the Louisiana Purchase. A need for Northwest Territory settlers brought new roads through Appalachia. 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 would, as 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 the people's government but they 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 large Eastern US bank losses. Investments in foreign Napoleonic War debt lost much. The in control Founding Fathers 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 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.
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, but 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 while 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 helped those in debt, but devastated their creditors. Many were seriously hurt.
Prosperous immigrants had clustered in rural areas. Small town merchants replaced Irish/Germans immigrants as the leaders of commerce. These small towns became, a symbols of the virtuous life, But they were stuck with old, now mostly irrelevant, Jacksonian era guidelines. Meanwhile, northern industry was creating new, more appropriate urban guidelines.
Eventually, excess RR growth caused stockholders, many located in Europe, to be wiped out. Many small rural banks were also wiped out.
Tensions Increased as 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. This period would be known as the Long Depression for sixty years.
All needed immense capital but the 1873 financial crisis had 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.
But with less currency and rural area credit disappeared. Small farms were lost to foreclosure. Buyers were banks and larger farmers. Trying to help the 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.
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 and a large immigrant workforce replaced small town merchants as the center of commerce. This 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 Great Crash lowered employment and aggregate demand spiraled downward. The periods high level of production simply could not be sustained.
The Gold Standard era with stable currency was over. 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 sent troops to disband a veterans army that had settle in Washington to receive early WWI 1945 bonus checks. Soldiers attacked veterans and their families. Four, including children died.
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
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 class of Technology Management Technocrats was 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 they 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. Some feel 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. The result was Americans were increasingly consuming more imported goods. US companies tried to maintain high profit with lower product quality and by using fewer workers.
The usual end of cycle political turmoil began with the social unrest caused by the murders of Presidential candidate Kennedy and Civil Rights leader M.L. King. Social unrest finally slowed after Watergate.
Then high inflation, slow growth and 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 were release
just as Reagan took office. Morning in American had begun.
Reagan began curing 1970's economic stagflation with lower taxes for the investor class. This would increase their reward and make them eager to expand the economy.. 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 and would last until the 2008 financial crisis.
When auto industry rapid profit growth from manufacturing ended, GM looked to GMAC for profit growth. It quickly expanded to many areas and soon became GM's most profitable product. Experts in Process Manager took the place of manufacturing experts. Other product lines dramatically expand. GM had 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. An increased 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. What were the new job requirement? When would the creative destruction end?
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 has 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 class of technocrats who had gained as entrepreneurs and investors.
More importantly, the driving 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 next decade will see our last declining years president methods. that will not work. A more open to change president will be elected. They will not know what to do, but it will be new and is required to continue the American Experiment.