Major U.S. Economic Developments Since 1945

Instructor: Elizabeth Foster

Elizabeth has been involved with tutoring since high school and has a B.A. in Classics.

There have been many economic developments in the United States and the world since the end of World War II. This lesson will explore stagflation, globalization, and other economic periods experienced by Americans.

After World War II

The years right after World War II were great for the American economy. In 1940, the total value of all goods and services produced in the USA was around $200 billion. By 1960, it was more than double that: $500 billion. This is now known as the postwar boom.

Corporations started growing during this time as smaller companies merged into bigger ones. Also, the industrial economy started transforming into a service economy. While some people still worked in manufacturing and industry - the automobile industry in particular did really well - more and more people started taking office jobs.

A car advertisement from the 1950s
1958 car advertisement

There were many reasons for the postwar boom. Soldiers were coming home and wanted to buy houses and start families. After years of war, people wanted to buy fun things, so consumer spending rose. Military spending during the Cold War and the Vietnam War also created jobs: someone had to make all those planes and uniforms!

Keynesian Theory and Social Programs

During this time, Keynesian economic theory was dominant. A major idea of Keynesian theory is that unregulated markets aren't always best: sometimes it's better for government to stabilize the market. In keeping with the idea of regulation and stabilization, the end of the postwar boom also saw a lot of antipoverty and social welfare programs, especially from President Lyndon Johnson.

The Hart-Celler Act

In 1965, America's immigration policy also changed in ways that affected the economy. Before 1965, the US had allowed immigration on a strict quota system. The Hart-Celler Act of 1965 changed that. Instead of quotas by nationality, American immigration laws now prioritized immigrants with families in the US and immigrants with valuable job skills. While this sparked conflict about the economic impact of immigrants willing to work for lower wages than native-born Americans, it also allowed more scientists, artists, and other professionals to come to the US and contribute to the economy here.


The postwar boom was over by the 1970s. There were several reasons for this, including:

  • Oil crises in 1973 and 1979. During these crises, oil prices rose, raising prices of almost all consumer goods and causing economic pain.
  • A stock market crash in 1973-74
  • An increasing flow of imported goods into the United States. This undercut American manufacturing because countries with lower labor costs could produce goods more cheaply. (Remember this one - it's going to be a recurring theme)

People living in the 1970s coined a new term to describe their problems: stagflation. Stagflation is what happens when stagnation (slow economic growth and high unemployment) meets inflation (when the dollar becomes less valuable). People were struggling because many lost their jobs, especially those in manufacturing.


During this time, people started turning away from Keynesian theory toward unregulated free markets. The most famous champion of this was President Ronald Reagan, who was elected in 1980. In fact, Reagan is so famous for his economic policies that we refer to them collectively as Reaganomics (Reagan + economics). Reagan cut taxes dramatically and deregulated key industries, like the airline industry.

Ronald Reagan and his wife, Nancy
Ronald and Nancy Reagan

Starting in the early 1980s, the economy started to recover. By cutting down on the money supply, the Federal Reserve Board got inflation under control and lowered unemployment rates. This led to an economic boom that lasted through the 1980s. Most people did well in the 1980s, but wealth inequality increased, leaving a bigger gap between the rich and the poor.

In the long run, the problem with Reagan's tax cutting plan was that he didn't cut federal spending to match. This massively increased the U.S. federal debt. American industry also continued to struggle to compete with foreign imports. When President George H. W. Bush was elected in 1989, his famous campaign promise was 'Read my lips - no new taxes,' but he went back on that and ended up raising taxes after all. There was just no way around it.

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