During the 1960s, government spending increased approximately 3 percent per year to fund social welfare programs and the Vietnam War. This resulted in low unemployment rates and a stable economy. However, in the 1970s, the end of the Vietnam War, high inflation rates and an energy crisis created a major economic recession.

Government Expansion

In the 1960s, the government began to expand its role, which was supported by the majority of Americans. However, there was little agreement on which federally funded programs should be expanded. When President Lyndon Johnson came to office following President John F. Kennedy's assassination in 1963, he focused on social welfare programs and began the "War on Poverty." Under Johnson's leadership, Medicare and Medicaid were established, and money was appropriated to improve public education. The Office of Economic Opportunity was also created under the Johnson administration to organize community programs and provide job training to the poor. These programs provided economic relief and reduced the unemployment rate, but they also resulted in federal expenditures reaching $150 billion by the mid-1960s.

Stock Market Trends

A combination of economic expansion, low inflation rates and an interest in private investment resulted in a growing stock market in the 1960s. In fact, during the early 1960s, the Dow Jones Industrial Average rose an average of 18.4 percent for three consecutive years. The stock market peaked in February 1966 before dropping 25 percent by the end of the year. However, the market recovered and stabilized in 1968, partially due to inflation rates remaining at 1 to 2 percent. However, in 1970, as a result of the energy crisis and rising inflation, the market plummeted and failed to recover by the end of the decade.

Energy Crisis of the 1970s

The energy crisis of the 1970s was caused by the Organization of Arab Petroleum Exporting Countries (OAPEC) imposing an embargo on shipping petroleum to countries that supported Israel during the Yom Kippur War. OAPEC also quadrupled the price of oil and refused to negotiate with oil companies. Many Americans initially underestimated the crisis. However, when schools were forced to shut down, gas was rationed and American struggled to afford heating bills, the extent of the crisis was realized.

The End of the Vietnam War and the Nixon Administration

When President Richard Nixon took office, he began withdrawing troops from Vietnam. By 1972, fewer than 50,000 U.S. troops were stationed in Vietnam, and by the end of 1975, all troops had been withdrawn. A reduction in defense spending after the war caused an economic slowdown that combined with already high unemployment and inflation rates to create a recession. In response, Nixon became the first president to increase deficit spending to stabilize the economy. In addition, he instituted a 90-day wage-price control that limited increases to prices and wages to stabilize inflation. Although the control did not fix the economy overnight, it was effective at preventing worsening economic conditions in the following years. Nixon also set price controls on oil and natural gas after the energy crisis to prevent a monopoly in the energy sector.