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How Did The Vietnam War Affect The Economy

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The economical situation of America has always been a hard solved problem for economists since the Great Depression. America’s economy is based on a mix of socialism and capitalism to make a mixed economy. Although, before the mixed economy, many economical decisions for America were based on Keynesian economics. This economic system was based in the concept that the government has to increase spending and demand to promote growth in the economy. These theories and principles were written by John Maynard Keynes and is a British economists who is seen as the founder of modern macroeconomics. This economic system could look like the government increasing spending on infrastructure and education. The system also increases profit coming into the …show more content…

The Vietnam War did exactly that for the U.S. After the Vietnamese War, the U.S went through a cycle of inflation that went on for years. According to an article written by “DigitalHistory”, “The Vietnam War severely damaged the U.S economy” (“The War’s”). The damage done by the war was due greatly to ideas based off of Keynesian economics. Since Keynesian economics was the commonly used economic concepts, economists were not ready for the disadvantages that the concept would bring. Stagflation was the disadvantage that Keynesian economics brought due to high inflation and slow growth. Many economies in the 1970s suffered both inflation and slow growth. Unequal economic growth and high inflation contributed stagflation and limited growth. Due to this, Keynesian concepts lost their popularity (“What is Keynesian”). High inflation causes prices to rise and recessions to happen. With the rising of prices, many lower income households lose purchasing power and can no longer afford to purchase their necessities. Recessions, a weak GDP and increase in unemployment, also happens due to high inflation and this could lead to fewer job opportunities and lower wages. Keynesian economics is not good in the aspect that it does not work against stagflation and its …show more content…

In the short term, this type of economy will use government spending on education, infrastructure, and unemployment benefits. It also will add money into the economy leading to an increase in employment, tax revenue, and production. The Keynesian policies goal is to reach stability and it uses the government to get there. Nonetheless, this only works in the short term and not the long term. Due to the government increasing its spending, it puts the economy at the risk at increased inflation and living cost. Due to the increases in both areas, disposable income is in the economy leading to the increase of prices of goods and services. The National Debt could also increase because of the increased borrowing the government is doing. A increasing debt is not good in case something like an economic shock happens and the country has no cushion to fall back on. Wages also become stagnant because due to Keynesian policies that advocate for increased employment rates, wades do not moved leading to the exploiting of workers because there are so

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Keynesian economics suggests that increasing government spending and decreasing tax rates are the better ways of stimulating aggregate demand, and reducing spending and increasing taxes after the economic boom begins. For this case, the federal government will increase its spending up to the point where the inflation starts to rise while unemployment has decreased to lower levels. For the economic growth to be attained at a preferable rate, then the government should spend on public such construction of roads, incentives to producers and provision of essential services to producers for them to thrive. The expenditure will indirectly trigger the producers to produce thus leading to attainment of desired economic growth while keeping inflation at a low

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