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Rise and fall of golden age / classical location theory - Essay Example

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Question 1: Rise and fall of the golden age. Why did the US economy do so well after WWII and why did the US economy fall after that? The U.S. economy did so well after WWII because of the revenues it received from selling munitions during the war, which in turn allowed it to fund the Marshall Plan…
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Rise and fall of golden age / classical location theory
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Furthermore, during this time, the G.I. Bill helped in the education and economic improvements of veterans and their families. Investments in industrialization flourished too. Manufacturing boomed, as well as agricultural productivity, which increased the number of the middle class. The middle class reinforced the economic boom because they had the purchasing power to buy American products, such as automobiles and appliances, while also being capable of buying their own homes. Additionally, the Eisenhower administration implemented Keynesianism as the economic policy of the U.S., which hastened investment in public works programs (which boosted employment and wage rates) and cut back taxes (which encouraged investment and consumption).

Technological changes boosted productivity and revenues also. From the middle of the 1930s to 1945, technological changes improved labor-productivity and capital productivity, creating many jobs with a steady real wage growth rate. By the 1970s, the U.S. Golden Age started to decline. The Bretton Woods system collapsed in 1971. During this time, imported manufacturing products (i.e. automobiles and electronic products), that were cheaper and of better or equal quality to American products, entered the U.S. marketplace too.

These products reduced demand for U.S.-made products on American soil. On January 1973, the stock market crashed because of economic stagnation and inflation. Also, the 1973 oil crisis began in October 1973, when the members of Organization of Arab Petroleum Exporting Countries or the OAPEC declared an oil embargo. These events contributed to economic hardships that pushed the U.S. into a long economic downturn. Another way to explain the economic downturn from 1973 onwards is that “sunk capital” was too expensive or too inconvenient to replace. U.S.

companies did not invest on plant and equipment anymore in the same way other nations did, so U.S. plant productivity slowed down and made them less competitive than other countries. Furthermore, the U.S. lacked the human resources and natural resources to ensure global competitiveness, while on the contrary, later-developing- countries had a large supply of surplus workers. These countries did not have the same problems of sunk capital and obsolescent technology. They caught up through the learning curve that modeling the U.S. provided to them.

In other words, they conducted vast innovation in their industries and learned by doing. Through cheap labor and available raw materials, these countries had higher productivity and produced low-priced quality products that undercut American counterparts. In addition, some would blame Keynesian economics for the decline of the U.S. economy. Keynesian economics did not recognize and prepare for economic cycles, while later-developing countries focused on their global competitiveness. Their governments promoted growth and competition and had the ideology of global markets. The U.S.

government was not able to stop duplicate industries from entering its economy too because it needed profitable markets for its foreign direct investment (FDI) and export markets. At the same time, the U.S. was distracted with its wars against communism. The U.S. entered into Cold War with Soviet Union because of Soviet dominance in Eastern Europe, issue of access to atomic weapons, and the Soviet blockade of Berlin. The Cold War expanded to include China, which became a communist government in 1949 and North Korea,

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