Significant price inflation (1 gen 1971 anni – 31 dic 1982 anni)

Descrizione:

stagflation:An economic term coined in the 1970s to describe a combination of high unemployment, stagnant consumer demand, and inflation

deindustrialization: The dismantling of manufacturing in the decades after the 1960s, reversing the process of industrialization that characterized the American economy between the 1870s and the 1940s.

Rust belt: The once heavily industrialized regions of the Northeast and Midwest that went into decline after deindustrialization. By the 1980s, these regions were full of shuttered plants and distressed communities.

Alongside cultural dislocation and political alienation, the country confronted economic setbacks. Beginning in 1973, inflation climbed at a pace unprecedented in the postwar era, and economic growth slowed. An energy crisis, aggravated by U.S. foreign policy in the Middle East, produced fuel shortages. Foreign competition in manufacturing brought less expensive, and often more reliable, goods into the U.S. market from nations such as Japan and West Germany — and drove some American plants to close. The great postwar boom was coming to an end.

The period between the energy crisis (1973) and the election of Ronald Reagan to the presidency (1980) is distinguished by a collective national search for order in the midst of rapid social change, political realignment, and economic crisis. The pillars on which postwar prosperity rested — Cold War liberalism, rising living standards, and the nuclear family — weakened and wobbled, and most Americans agreed that urgent action was needed to restore stability. For some, the search drove new forms of liberal experimentation. For others, it led instead to the conservatism of the emerging New Right, culminating in the political movement that put Reagan, a conservative Republican, in the White House.


The economic downturn of the early 1970s was the deepest slump since the Great Depression. Every major economic indicator — employment, productivity, growth — turned downward, and by 1973 the economy was in a tailspin. Inflation, brought on in part by military spending on the war in Vietnam, proved especially difficult to control. An oil embargo with political roots shot prices even higher and sent tremors across a culture built around automobiles. Unemployment would stay high and productivity growth low until 1982. As twenty-five years of steady prosperity ended, Americans confronted an “era of limits,” as California governor Jerry Brown first described it.


In this time of distress, Americans were forced to consider limits beyond their pocketbooks. The growth that had long defined national progress had taken a toxic toll on the natural world. A new movement called attention to the environmental impact of modern industrial capitalism. As more Americans filled up the suburbs, the urban crisis of the 1960s intensified, and several major cities verged on bankruptcy. Finally, political limits were reached as well: none of the presidents of the 1970s could reverse the nation’s economic slide, though each spent years trying.


Beyond the energy crisis, a host of longer-term problems beset the economy. Government spending on the Vietnam War and Great Society programs drove deficits and additional inflation. In the industrial sector, the country faced increasing competition from West Germany and Japan. America’s share of world trade dropped from 32 percent in 1955 to 18 percent in 1970 and continued to shrink. In a blow to national pride, nine Western European countries had surpassed the United States in per capita gross domestic product (GDP) by 1980.

EXAM TIP
Recognizing how the transformation from a manufacturing to a service-based economy impacted the overall U.S. economy in the 1970s is critical for success on the AP® Exam.

Many of these economic woes highlighted a broader, multigenerational transformation in the American economy, from industrial manufacturing to provision of services. That transformation, which continues to this day, meant that the United States produced fewer automobiles, appliances, and televisions and more financial, health-care, and management consulting services — as well as millions of low-paying jobs in the restaurant, retail, and tourist industries. The shift from manufacturing to services, starting in the 1960s, exerted a broad social impact, because it changed who could become part of the middle class. Many manufacturing jobs paid middle-class wages and required only a high school education, while service jobs were sharply divided between a narrow cluster of well-paying positions, which required higher education, and a massive sea of minimum-wage positions, which didn’t require more than a high school degree but which were insufficient to support a family. As the economy changed, so did individual opportunity.

In the 1970s, the U.S. economy was hit by a phenomenon called stagflation: a combination of high unemployment, stagnant consumer demand, and inflation. This contradicted a basic principle taught by economists: prices were not supposed to rise in a stagnant economy (Figure 28.2). For ordinary Americans, stagflation meant declining purchasing power, which fell by as much as 20 percent between 1973 and 1982. None of the three presidents of the decade — Richard Nixon, Gerald Ford, and Jimmy Carter — could find a solution. Nixon’s New Economic Policy was perhaps the most radical attempt. He imposed temporary price and wage controls in 1971 in an effort to curb inflation, and then took an even bolder step: removing the United States from the gold standard, which effectively ended the Bretton Woods monetary system established after World War II (see “Economy: From Recovery to Dominance” in Chapter 25). These measures brought temporary relief — and contributed to Nixon’s landslide reelection in 1972 — but they did not change the underlying weaknesses of the economy, and successive presidents had no more luck than Nixon.

A line graph shows the inflation rate from 1960 to 2000.
FIGURE 28.2 The Inflation Rate, 1960–2000

The impact of the oil crisis of 1973 on the inflation rate appears all too graphically in this figure. After a dip between 1974 and 1976, the inflation rate zoomed up to a staggering 14 percent in 1980. The return to normal levels after 1980 stemmed from very harsh measures by the Federal Reserve Board, which, while they succeeded, came at the cost of a painful slowdown in the economy.


The line graph plots years from 1960 to 2000, in increments of 2 on the horizontal axis and percentage of increase on the vertical axis, ranging from 0 to 14, in increments of 2. The approximate data from the graph are as follows. The inflation rates are as follows. 1960: 2 percent; 1962: 1.7 percent; 1964: 1.9 percent; 1966: 3 percent; 1968: 4 percent; 1970: 6.4 percent: 1972: 4 percent; 1974: 10 percent; 1976: 6 percent; 1978: 7 percent; 1980: 13.8 percent; 1982: 6 percent; 1984: 4.2 percent; 1986: 4 percent; 1988: 4.1 percent; 1990: 5.6 percent; 1992: 3 percent; 1994: 2.6 percent; 1996: 2.8 percent; 1998: 1.7 percent; 2000: 3.5 percent.

Deindustrialization
America’s economic woes struck hardest at the industrial sector. The decline of America’s manufacturing backbone was sudden and shocking — nowhere more than in the steel industry. For seventy-five years steel had been the economy’s crown jewel, and since World War II had enjoyed an open, hugely profitable market. But a lack of serious competition left American steelmakers without incentives to replace outdated plants and equipment. The revived West German and Japanese steel industries had new facilities with the latest technology. Less expensive but equally durable foreign steel flooded into the United States during the 1970s, and the American industry foundered rapidly. Formerly titanic steel companies began a massive dismantling. The Pittsburgh region, once a national hub of steel production, lost virtually all of its heavy industry in a single generation. By the mid-1980s, downsizing and new technologies made American steel competitive again — but its heyday was over.

Steel was only one prominent example of deindustrialization, the economic transformation that left the United States largely stripped of its industrial base. A swath of the Northeast and Midwest, the country’s manufacturing heartland, soon became the nation’s Rust Belt (Map 28.1), strewn with shuttered plants and distressed communities. The automobile, tire, textile, and other consumer durable industries (appliances, electronics, furniture, and the like) all started shrinking in the 1970s. In 1959, manufacturing accounted for 25 percent of all American jobs; by 1984, the figure was 18 percent. In that same twenty-five-year period, the American population increased by one-third. As the nation continued to grow at a steady pace, industrial manufacturing jobs were losing ground. In the midst of that decline, in 1980, Business Week bemoaned “plant closings across the continent” and called for the “reindustrialization of America.”

One of the most significant developments of the post–World War II era was the growth of the Sunbelt. Sparked by federal spending for military bases, the defense industry, and the space program, states of the South and Southwest experienced an economic boom in the 1950s. This growth was further enhanced in the 1970s, as the heavily industrialized regions of the Northeast and Midwest declined and migrants from what was quickly dubbed the Rust Belt headed to the South and West in search of jobs.


Deindustrialization eliminated tens of thousands of well-paid union jobs and upended the lives of the newly unemployed. One study followed 4,100 steelworkers who lost their jobs in the 1977 shutdown of Youngstown Sheet & Tube Company’s Campbell Works factory. Two years later, 35 percent had retired early at half pay; 10 percent had left the area; 15 percent were still jobless, with unemployment benefits long gone; and 40 percent had found local work, but mostly in low-paying, service-sector jobs. In another massive job loss, between 1978 and 1981, eight Los Angeles companies — including such giants as Ford, Uniroyal, and U.S. Steel — closed factories employing a total of nearly 18,000 workers. Many of these Ohio and California workers, and hundreds of thousands of their counterparts across the nation, fell from their perch in the middle class

Deindustrialization dealt an especially harsh blow to the labor movement, which had facilitated the postwar expansion of that middle class. In the early 1970s, as inflation hit, the number of strikes surged; 2.4 million workers participated in work stoppages in 1970 alone. But strikes produced fewer and fewer concrete results. In these hard years, the much-vaunted labor-management accord of the 1950s, which raised profits and wages by passing costs on to consumers, went bust. Instead of seeking higher wages, unions now mainly fought to save jobs. Union membership went into steep decline, and by the mid-1980s organized labor represented less than 18 percent of American workers, the lowest level since the 1920s. The impact of labor’s decline on liberal politics was huge. Yet another bastion of the New Deal coalition was collapsing.

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