annenberg media ♪ ♪ roof hoping to raise a family. how could they realize the american dream a home of their own? when foreign steelmakers were pricing america's largest steel mills out of the market,

how could a minimill hope to compete? baseball. for millions, a pastime. for a few, a paycheck. why was this man's paycheck half a million dollars a year? a visit to a modern shopping center yields a bewildering display of goods and services, the products of a free market. who's to say this is what we want or what we need? markets-- do they meet our needs? economic analyst richard gill will help us examine that question on economics usa. i'm david schoumacher.

the american economy-- the sum total of what goes on in shopping malls, car dealers, supermarkets stock exchanges, 7-elevens, and gas stations all around the country. millions of buy-and-sell decisions everday, trillions of dollars worth every year. and those decisions affect every part of our lives. who decides between a room with a

view and a house in the suburbs? in our demand and supply economy who demands and who supplies? 1945. world war ii was over. millions of ex-gis came home fell in love, got married, and started families. and there was one thing they all needed. when i got out of the service i had a wife. we wanted a place to live. it was like looking for a needle in a haystack. eventually we found a place a converted house where the upstairs was converted into an apartment. in 1947, judge paul widlitz was an ex-gi and a young long island lawyer just starting out. we had the normal problems that you

would have when they convert a one-family house to a two-family house. every time the baby cries, it's heard down below. newman baum and jerry worthing were among the ex-gis with families looking for a place to live. i left the service in november of 1945, and one of the first things i had to do was to renew my love life and get married to helga. but we needed a place to live. we lived in a furnished room in a single family house. we had to eat every meal all three meals, out. there were very few houses around to rent. we lived in the same house with my parents.

then, about a year later we decided to look around and buy a house. families needed homes, but homes were not easily found. depression and war had put homebuilding on hold for almost 20 years. what housing there was was not cheap, beyond the means of most vets with new jobs and families. young families were looking for low-cost housing. homebuilders needed customers. it was demand in search of supply. the american dream included a house and car. henry ford had provided the cars. were there any henry fords in the postwar homebuilding business? every family in the united states is entitled to decent shelter. private enterprise should provide that shelter. the levitt organization was the most famous. it was the henry ford of the housing

market. they recognized the housing shortage in the late 1940s. professor kenneth t. jackson of columbia university a specialist in the history of the suburbs. they built upon their experience in the 1930s. they built upon the experience of a couple of levitts in building warworkers' housing. one of them worked for the seabees in world war ii. these things taught them how to mass-produce. i remember distinctly saying to a lot of fellow officers there "when this war is over "beg, borrow, or steal and build housing because there will be a huge backlog." it was simple economics. people have to have housing. there weren't any houses being built. backed by the promise of va and fha mortgages,

levitt put his money where his judgment was. he laid out 6,000 lots on low-cost long island potato fields. specialized construction teams hit levittown streets like commandos. instead of having a carpenter do all the carpentry we specialized. he did only framing. another carpenter only did roof rafters. we began delivering 150 houses every 5 days. approximately 18 before noontime and another 18 or 17 after noon. as with the model t, assembly-line methods could mean assembly-line sameness. in a nation dedicated to individualism would mass-production houses have mass appeal? houses were built. ads were placed. the case went to jury.

the verdict was not slow in coming in. they needed a place to live. they were coming from all over the country. long islanders were in a minority because they couldn't get there fast enough. newman baum's home movies captured the time for people like the baums, worthings, and widlitzes. new families in a new community. [william levitt] regardless of what the place looked like, it filled a need for these young people that needed housing. for those people who moved to levittown and to levittown-type developments it paid off financially. the psychological payoff was perhaps more important. it gave these families a stake in their community. it gave them an anchor in kind of a rootless world, their own little piece of the universe.

scientists say that nature abhors a vacuum. so does the marketplace. it was the unprecedented demand by veterans for affordable housing that drew thousands of builders into the low-cost housing market and built the foundation for postwar prosperity. we asked richard gill to analyze the forces that drew william levitt and the vets together. there was a large potential demand for housing in the postwar period, and william j. levitt supplied that demand. how does the market system work? through the laws of supply and demand. a professional economist is likely to give you a more complicated response. he's likely to draw you a graph, the most famous in our subject the graph of supply and demand.

and there it is. a fairly harmless-looking contraption. it took economists a long time to come up with this particular diagram. how does this diagram help us? first, what does the graph mean? we measure the quantity of product along the horizontal axis. in this case, number of houses. along the vertical axis, we measure the price of a family home. our demand curve is here. our supply curve is here. the price of the product will be determined where these two curves intersect. at $9,000 per home the quantity of homes supplied and demanded will be equal. let's show how these curves clarifies the levittown story. we said there was a great demand for housing

as the veterans returned. that is too imprecise. we mean to say that there was a great demand for inexpensive housing. the effective demand for housing depends on housing prices. this is what our diagram says in the simplest way. the dd curve slopes downward to the southeast. at a high price, very few houses are demanded. only at a low price is the effective demand high. in a market economy, demand, and supply, too, depend on price. these curves are the simplest possible expression of that important principle. steel is synonymous with strength. a thousand blast furnaces across america forged ribbons of steel into victory in war.

for 75 years u.s. steel producers had the steel market to themselves. they ran the big so-called integrated mills. they made their own steel from iron ore. they set their own prices and their own rules. in the sixties and seventies as energy costs rose steel prices rose even more until foreign steel began to underbid american steel on american buildings and bridges. in the u.s., plants closed. workers were laid off. 5,000 men laid off. i don't see how we'll get employment here. i'll have to leave. the market's verdict on 3/4 of a century of industrial complacency. what could be done to rebuild the faltering steel industry? with america's biggest steel companies hurting,

how could a small steel company compete? nucor was an american steel user which had turned from american steel to foreign producers. but kenneth iverson, president of nucor wondered if low-cost steel couldn't be made in america. we went to europe. we roamed through a number of steel mills to find out how they produce steel and to determine if we could manufacture steel as cheaply as we could buy it from overseas. we decided we could. we made a deal to buy this technology and that's the way we started. iverson rebuilt nucor as a steel minimill, using europe's latest technology. a minimill is defined as first of all we're starting from scrap.

we don't start from ore. secondly, we melt it in electric furnaces. then we cast it to come out with a billet that is rolled into the rounds, the channels the smooth bars, that we supply to customers. it's really much more economical than ingot casting. technology had helped nucor lower costs. but what about the cost of labor? the lower prices of foreign steelmakers were based on lower wages. could nucor make low-priced steel with highly-paid american workers? it's not what you pay an employee that's important. it's what he produces. if he produces a great deal you can pay him a great deal. the average hourly worker in darlington, south carolina, in our steel mill had earnings last year of over $30,000

a year. we had melters who earned over $35,000, which compares reasonably with what unionized workers in the integrated mills earned last year. now, if you look at what we produce, though, that we produced last year some 850 tons per employee where the average for the integrated producers was something like 350 tons per employee. nucor wasn't the only company using minimill techniques to turn red ink into black. dr. robert crandall, an economist with the brookings institution a washington, d.c. think tank. in the steel industry, a minimill industry is growing up to replace the less efficient integrated firms. we're likely to have in the future 75 firms each producing 2 million tons of steel a year

rather than these giant companies producing up to 25 million tons a year. these smaller firms are more efficient. they ought to provide a healthier steel industry. the high technology used in the minimill revolution couldn't save the whole industry. steel for i-beams and auto bodies still must be made in integrated mills. there was a lesson the big steel companies could learn. if we modernize our steel mills, we can compete with any steel company in the world. we'll have a somewhat smaller, but more efficient more productive steel industry than we've had in the last 20 years. people in the steel industry executives say, "we can't compete." i don't care what reason they give--

lower labor costs, better technology-- that's not important. we can compete. we have all the elements in this country to compete with foreign countries. we have to dedicate ourselves to doing it. the american steel industry assumed it was strong enough to sail through the market's storm warnings. it almost foundered. nucor and other minimills paid attention to the signs and used new technology and creative management to follow the market's beacon to higher profits. what kept nucor on the right course when its competitors lost the way? we asked richard gill. one of the most interesting things about markets is that they can produce the unexpected. they can stimulate innovations. the introduction of minimills in the steel industry was such an unexpected innovation.

the supply and demand curves for our steel industry in the 1970s looked like this. because of foreign competition demand was low. we have illustrated this by placing our demand curve far to the left. the price of steel was here, the quantity produced, here. why didn't the domestic steel industry simply lower its prices? as we know from the levittown story the quantity of a product demanded usually increases at lower prices. the answer is, they couldn't expand because of costs. usually, as you expand production your costs go up. this is why we have drawn the supply curve for steel sloping upward towards the northeast. it isn't generally possible for businesses to supply more of a product unless they can get a higher price

or they lower costs. this is where the minimills came in. the minimills lowered the costs of making steel. this produced a downward shift in the supply curve. price could be lowered and the quantity of domestic steel increased. minimills haven't been the complete answer to the problems of our ailing steel industry. such innovations do represent an important way in which markets can respond to economic pressures. baseball. for the fans, a game but for the players, a job. for the star, rare talents meant high pay. for the average player or minor leaguer it was a different story. thousands of players were waiting

in line to play big league ball. like everywhere else big supply equaled low prices. starting minor league salaries less than $6,000 a year. salaries were held down by a player's inability to take his services elsewhere. in 1975, a contract dispute, an arbitrator's ruling and the birth of the free agent. it was a new ball game. we take for granted the freedom to look anywhere for a job. for major league baseball, that was a new idea. how would the first player's market set salaries? some thought the first test would come in new york home of the new york yankees. the yankees had had the proudest names in baseball

hall of famers like babe ruth lou gehrig joe di maggio, yogi berra and mickey mantle. they had led the yankees to a seemingly endless string of world series titles. with the great names gone, the yankees had fallen on hard times. after 29 pennants in 44 years, winning had moved out of reach. in 1972, george steinbrenner came to new york. steinbrenner, a wealthy shipbuilding executive was used to winning and winners. i can't buy a newspaper without paying a lot more than i used to. how much would steinbrenner pay to bring winning baseball back to yankee stadium? $300,000 for catfish hunter, after hunter's contract was declared void on a fluke.

and he hired the man some thought was the best manager in baseball billy martin. by 1975, attendance was up more than 50% and the yankees were back in the world series. but they lost that series four straight to cincinnati's big red machine. there it goes. the final score, 7-2. we were the second best team in baseball. that's nothing to be ashamed of. i shouldn't be critical. the yankees still lacked what ruth, di maggio and mantle gave them-- a slugging outfielder who could put the ball into the seats and fans into the stands. in 1976, that meant reggie jackson.

jackson was clearly the biggest prize in that first free agent market. with 282 home runs in 10 years, he had led oakland to three straight world series titles. reggie jackson was on the market, and the yankees were shopping. when the dust settled, reggie jackson was a yankee. then came the inevitable question. how much did you get? come on! i want to know. i believe it is offensive to talk about things of that nature and things of that matter. my financial matters are my business. if reggie wouldn't tell, the papers would. former baseball commissioner bowie kuhn. reggie puts people

in ballparks. he has some of the elements of a ruth. he has a style that makes him a great player. if he stays healthy and plays enough then you can probably generate extra people in your ballpark. therefore, he is worth something. steinbrenner's investment paid off. reggie jackson took the yankees to the world series his first year in new york. this time, they came out on top. the yankees were back in the series three out of the five years of the contract jackson and steinbrenner had signed. yankee home attendance up over 100,000 in jackson's first year in new york. reggie! reggie!

reggie! they even nad a candy bar after him. reggie! reggie! the multimillion, multiyear contracts players sign today take our breath away. it's a lot of money for playing a game. but the calculations on both sides are strictly business. an employee offering a rare skill and a following of paying customers can command a high salary. when hiring an employee means higher profits most employers see the higher salary as a good investment. but why is there such a difference between the incomes of different people? why does reggie jackson earn more than an economic analyst? the answer, sadly, is rather obvious. there are fewer reggie jacksons, and the product reggie jackson produces

is more highly valued by the market. the laws of supply and demand we have been talking about in connection with the prices of products can also be applied to the prices of our services, our wages, our incomes. if public demand is high for certain kinds of rare-skilled labor, then customers and employers will be willing to pay extra sometimes a great deal extra for their services. in a market economy, supply and demand affect the prices and quantities, of products and factors that produce products-- labor, natural resources machinery, and other capital goods. the market operating in this way, does not always produce the result we find personally agreeable. should an agile 7-footer who can shoot a basketball earn five times as much as the u.s. president?

markets are potent but not always ideal. ask any economic analyst. we speak of the market's decisions. no market really makes decisions. we--manufacturers, merchants consumers, employers, employees-- make the decisions in response to the forces of supply and demand. the market takes our decisions and renders the ultimate judgment, an economic success or failure profit or loss. for economics usa, i'm david schoumacher. captioning is made possible by the annenberg/cpb project captioning performed by the national captioning institute, inc. captions copyright 1986 educational film center