The Aftermath of World War II

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Why did the US economy grow in the post-World War II setting?

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There were a number of reasons the economy grew rapidly after World War II. First, during the war there was full employment: everyone who possibly could earned money working for the war effort. Yet because of rationing, people couldn't spend all of their earnings. After the war, there was a...

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There were a number of reasons the economy grew rapidly after World War II. First, during the war there was full employment: everyone who possibly could earned money working for the war effort. Yet because of rationing, people couldn't spend all of their earnings. After the war, there was a great deal of pent up demand. People wanted everything they had been denied during the war: clothes, shoes, cars, vacations, and houses. This drove inflation, but it also drove employment: many people were needed to produce, transport, and sell all these goods.

Further, Europe and Japan had been more or less destroyed by the war. Without enough factories or supplies, these areas were dependent on U.S. products, which also heated up the U.S. economy.

Finally, because the U.S. emerged from the war with strong labor unions, workers could negotiate good wages and benefits, which further fueled their ability to buy. This added to the overall prosperity. Money wasn't bottle-necked sitting in the bank accounts of the wealthy, but moving in an active way through the economy, stimulating growth.

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I would say that the 1950s brought with it unprecedented economic progress because the war generated enough production as the wheels of industry moved after a long silence.  The Great Depression had caused industry to shut down and be invisible.  Yet, the need for war production and consumption helped to restart this process, causing a high level of material prosperity in America following the war.  At the same time, the United States was the unquestioned world economic leader.  Europe had been decimated by World War II, and the new nations that emerged from colonization were fledgling, at best.  Japan was crippled following the dropping of the atomic bombs, and China was not a world power.  The Soviet Union was seen as a militaristic adversary to the United States, but one that could not rival its wealth and material prosperity.  In the end, this world status also contributed to the expansion of the economy because there were new markets to be conquered internationally.  The market for exports was unprecedented as every nation sought to "buy American," for its own nation could not produce what was needed.  These factors led to the United States' economy expanding so quickly in the period after the Second World War.

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