With President Warren G. Harding's post–World War I "Return to Normalcy", the United States enjoyed a period of great prosperity during the 1920s. The stock market grew by leaps and bounds, fueled by easier access to stocks. However, the Great Depression ended that period. President Franklin D. Roosevelt introduced an array of social programs and Public works, known collectively as the New Deal. The New Deal included a new social safety net involving relief programs like the Works Progress Administration (WPA) and the Social Security system. In 1941, the U.S. entered World War II. The homefront saw enormous prosperity, as labor shortages brought millions of housewives, students, farmers and African Americans into the labor force. Millions moved to industrial centers in the North and West. Military spending accounted for over 40% of GDP at the peak, driving debt up to record levels.

The post–World War II years were a time of great prosperity in the United States. The economy remained stable until the 1970s, when the U.S. suffered stagflation. Richard Nixon took the United States off the Bretton Woods system, and further government attempts to revive the economy failed. As the decade progressed, the situation worsened. In November 1980, Robert G. Anderson wrote, "the death knell is finally sounding for the Keynesian Revolution." Ronald Reagan was elected President in 1980, and was of the opinion that "government is not the solution to our problem, government is the problem." Reagan advocated a program of 'supply-side economics', and in 1981

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