RUNNING ON EMPTY: THE NATION TRANSFORMED

• The Oil Crisis– following the Arab-Israeli War in October

1973, the Arab oil-producing states cut off oil shipments to the United States and other western countries

– the price of oil rose from $3 a barrel to $12– this sent the price of nearly everything

skyrocketing

– oil heated homes and powered factories; it also was used by utility plants to generate electricity

– nylon and other synthetic fibers, many plastics, paints, insecticides, and fertilizers were based on petrochemicals and, of course, crude oil was refined into gasoline to run cars

– Arab oil embargo pushed up prices and created shortages

– Kissinger negotiated an agreement that involved the withdrawal of Israel from some of the territory it occupied in 1967

– the Arab nations lifted the oil embargo

– America, which had once been an oil exporter,

no longer produced enough oil for its own use

– as gasoline prices in the United States

increased, Americans began to turn to smaller,

more efficient cars

– that hurt the American automobile industry

• Ford as President

– after being appointed, rather than elected, vice-

president, Gerald Ford assumed the presidency

on Nixon’s resignation in August of 1974

– he seemed unimaginative and less than brilliant,

but he was hardworking and untouched by

scandal

– an open and earnest person, Ford seemed

unlikely to venture beyond conventional

boundaries

– although this was what the country wanted, Ford proved unable to contend with the powerful forces that would shake the nation’s economic foundation

– he faced high inflation as well as high unemployment and had to deal with Democratic majorities in both houses of Congress

– even recognizing the difficult situation he faced, Ford’s handling of the economy was inept

• The Fall of South Vietnam

– Congress refused Ford’s request for aid to

South Vietnam, and Saigon fell to the North

Vietnamese in 1975

– the long Vietnam War was finally over

• Ford versus Carter

– after some hesitation, Ford decided to seek the

Republican presidential nomination in 1976

– he narrowly survived a challenge by Ronald

Reagan, a former movie actor and former

governor of California

– Ford’s Democratic challenger was Jimmy

Carter of Georgia

– Carter’s homespun appeal and his outsider’s

image initially gave him a considerable edge

over Ford

– both candidates were vague on issues, but

Carter patched together key elements of the

New Deal coalition and won a narrow victory

• The Carter Presidency– Carter attempted to impart an air of democratic

simplicity and a measure of moralism to his presidency

– he set aside the formal trappings of office, which made a pleasant change from Nixon

– however, Carter filled his administration with Georgia associates who had as little national political experience as he had

– the administration developed a reputation for submitting complicated proposals and failing to follow them up

• A National Malaise– Carter alienated public opinion by making a

television address in which he described a “moral and spiritual crisis” that sapped the nation’s energies

– sermons on the emptiness of consumption rang hollow to those who had lost their jobs or seen inflation shrink their paychecks

– the economic downturn, though triggered by the energy crisis, had more fundamental causes

– the nation’s productivity had declined, in part

because of discontent among workers with

increasingly dull, repetitive jobs

– younger workers grew impatient with aging

union leaders and a system that tied salary

increases to seniority

– as a result, union membership declined

• Stagflation: The Weird Economy– Carter confronted an unanticipated and difficult

economic situation– the nation experienced simultaneously high

inflation and high unemployment– the term “stagflation” was coined to describe

the seemingly contradictory combination of high inflation and slow growth

– Carter’s solutions to the nation’s economic problems closely paralleled those of his Republican predecessors

– he advanced an admirable, if complicated, national energy plan but, typically, failed to press for its implementation

– Congress raised minimum wage and tied social security payments to the cost of living index

– while this helped the working poor and pensioners, it unbalanced the federal budget and caused further upward pressure on prices

– as incomes rose in response to inflation, people moved into higher tax brackets

– “bracket creep” and decreased spending power gave rise to "taxpayer revolts”

– deficit spending by the government pushed interest rates higher and thereby increased the cost of doing business

– soaring mortgage rates made it difficult to sell homes; the resulting housing slump cost many construction workeres their jobs and meant bankruptcy for many builders

– savings and loan institutions were especially hard hit because they were saddled with long-term mortgages made when rates were as low as 4 and 5 percent

– now they had to pay much more than that to hold deposits and offer even higher rates to attract new money

• “You Deserve a Break”: Families Under Strain– oil prices nearly trippled in 1979, which

touched off another round of inflation

– auto makers were especially hard hit

– workers, most of them men, lost relatively high-paying jobs in automobile factories and steel mills

– in many cases, their spouses took lower-paying jobs in restaurants, retail stores, and offices to make up for lost income

– eating out, especially in fast food restaurants became more common; families with two working parents had little time to shop for, prepare, and enjoy leisurely meals

– the recession struck just as millions of young women, raised with feminist expectations, were beginning careers

– nevertheless, well-educated women made significant gains in the 1970s

– as a result, women divided into a professional elite and a poorly paid, struggling class

– one casualty was the Equal Rights Amendment

– although Congress passed the ERA in 1972 and twenty-two states had ratified it by the end of that year, Phyllis Schlafly headed a campaign against the ERA

– Schlafly’s campaign struck a responsive chord with anxious housewives and women who worked for low wages

– the ERA failed to win ratification in the necessary three-fourths of the states

• Cold War or Détente?– Carter’s foreign policy suffered from the same

indecision and inconsistency as his domestic policy

– he announced an intention to place the issue of “basic human rights” before all else

– he cut aid to Chile and Argentina because of their human rights violations, but said little about and continued aid to other repressive nations

– Carter negotiated for the gradual return of the Panama Canal to Panama’s control and a guarantee of the neutrality of the canal

– he also attempted to continue Nixon’s policy of détente

– the president ended American recognition of Taiwan and exchanged ambassadors with the People’s Republic of China

– his policies toward the Soviets were inconsistent, in part because his secretary of state, Cyrus Vance, supported détente while his national security advisor, Zbigniew Brzezinski, was strongly anti-Russian

– the United States and Soviet Union signed a second Strategic Arms Limitation Treaty (SALT II) in 1979

– Carter submitted the treaty to the Senate for ratification, but after the Soviet invasion of Afghanistan, Carter withdrew the treaty from consideration

– Carter also stopped the shipment of American grain and high technology to the Soviet Union and boycotted the Moscow Olympics

– all of this served effectively to end détente– Carter’s major diplomatic achievement was the

signing of the Camp David Agreement in 1978 between Egypt and Israel

• The Iran Crisis: Origins– beginning in World War II, the United States

helped maintain the rule of the Shah of Iran, Muhammad Reza Pahlavi

– the United States sold weapons to the Shah and trained his secret police

– although Iran was an enthusiastic member of OPEC, the Shah was a firm friend of the U.S.

– many regarded Iran to be, as Carter put it, “an island of stability” in the Middle East; this appearance was deceptive

– the Shah angered conservative Muslims with his attempts to westernize Iranian society

– moreover, his regime brutally suppressed political dissenters

– the Shah’s opponents hated the United States. In 1978, the Iranian people overthrew the Shah

– a revolutionary government headed by the Ayatollah Ruhollah Khomeini took power

– when Carter invited the deposed Shah to come to the United States for medical treatment, Iranian radicals stormed the American embassy compound in Teheran and held the Americans inside hostage

• The Iran Crisis: Carter's Dilemma– the militants who seized the embassy demanded

the return of the Shah and the surrender of his assets to the Iranian government in exchange for their American captives

– Carter refused and froze Iranian assets held in the United States

– he also banned trade with Iran until the hostages were released

– Carter initially benefited from the American people’s willingness to support a president in times of crisis

– the hostage crisis derailed Senator Edward

Kennedy’s campaign for the Democratic

nomination

– in April 1980, Carter ordered a military rescue

mission; the raid was a fiasco

– several helicopters broke down, and Carter

called off the rescue

– during a confused departure, a crash killed

eight American commandos

• The Election of 1980– Carter survived the challenge from Kennedy to

win his party’s nomination– Ronald Reagan, the former governor of

California, ran on the Republican ticket– John Anderson, a liberal Republican from

Illinois, ran as an independent– Reagan, a New Deal Democrat turned

conservative Republican, promised to decentralize the federal government and to turn over many of its responsibilities to state and local governments

– both Carter and Reagan ran negative campaigns

– in the end, Reagan won handily

– he polled over 43 million popular votes to

Carter’s 35 million and Anderson’s 5.6 million

– Republicans won the Senate and cut into the

Democratic majority in the House

– Iran released the fifty-two hostages on the day

of Reagan’s inauguration

• Reagan as President– Reagan demanded reductions in federal

spending and the deficit– his calls for cuts in federal programs focused

chiefly on social services, which he wanted returned to the states

– Reagan eliminated many government regulations affecting business

– in addition, he requested tax cuts to stimulate the economy and generate new jobs

– Reagan pursued a hard-line anticommunist foreign policy and engaged in a huge military buildup to meet the threat of the Soviet Union

– he installed cruise missiles in Europe, sought to undermine the leftist government of Nicaragua, and attempted to bolster the conservative government of El Salvador

– Reagan used American troops to overthrow a Cuban-backed regime on the Caribbean island of Grenada in 1982

– he also sent American forces to serve as part of an international peacekeeping force in Lebanon

– in October 1983, 239 marines died when a Molsem fanatic crashed a truck loaded with explosives into a building that housed the marines

• Four More Years– in the election of 1984, Reagan faced Walter

Mondale of Minnesota, Carter’s vice-president– Mondale chose Representative Geraldine

Ferraro of New York as his running mate– Mondale hoped that Ferraro, an Italian-

American and a Catholic, would appeal to conservative Democratic voters who had supported Reagan in 1980 and that her gender would attract bipartisan support from women

– Mondale’s strategy failed to translate into votes

– Reagan benefited from the advantages of

incumbency and the support of the Christian

right

– beyond that, he enjoyed a broad base of support

including a great number of working people

and southerners who had traditionally voted

Democrat

– Reagan’s immense popularity, along with the

collapse of the New Deal coalition, resulted in a

landslide victory for Reagan

• “The Reagan Revolution”

– the shape of Reagan’s foreign policy changed

little at the onset of his second term

– he maintained his call for a strategic defense

initiative, high defense budgets, and vigorous

anticommunist policies

– after Mikhail S. Gorbachev became the Soviet

premier in March 1985, however, Reagan

gradually softened the tone of his anti-Soviet

rhetoric

– during a series of summits, the two leaders began to break down the hostilities and suspicion that separated their nations

– in 1988, the two superpowers signed a treaty eliminating medium-range nuclear missiles

– Congress balked at the cost of Star Wars– the explosion of the Challenger cast doubt on

the idea of basing the national defense on the complex technology involved in controlling machines in outer space

– in domestic affairs, Reagan engineered massive tax cuts with the Income Tax Act of 1986

– the new tax structure did not prevent the gap

between rich and poor from widening

– the president effected a conservative shift in the

Supreme Court through his appointment of

three justices and the elevation of Associate

Justice William Rehnquist to the Chief

Justiceship

– one of Reagan’s nominees, Sandra Day

O’Connor, became the first woman to serve in

the Supreme Court

• Change and Uncertainty– the Reagan years witnessed a wave of legal and

illegal immigration; new immigrants of 1970s and 1980s were primarily Hispanics and Asians

– nation’s population aged creating new demands on health-care and social services

– the traditional family seemed threatened with ceasing to be the norm

– increasing numbers of families were headed by single parents; over a million marriages a year ended in divorce; couples lived together without getting married; the number of illegitimate births rose steadily

• AIDS– during the 1980s, the nation confronted its most

serious health crisis in decades– in the early 1980s, scientists identified acquired

immune-deficiency syndrome (AIDS), disease caused by the human immunodeficiency virus (HIV), which destroyed the body’s defenses against infection

– the disease spread when an infected person’s bodily fluids came into contact with another person’s

– HIV soon infected the nation’s blood banks

– the government responded slowly

– a nationwide campaign urged “safe” sex,

particularly the use of condoms

• The New Merger Movement– across the nation in the 1980s there was a

movement toward concentration in business– “Corporate raiders” raised cash by issuing high-

interest bonds secured by the assets of the companies they purchased

– twenty percent of Fortune 500 companies were taken over, merged, or forced to go private

– some companies took steps to make themselves less tempting to raiders by acquiring large debts or unprofitable companies

– service on debt consumed half of the pre-tax earnings of the nation’s corporations

• “A Job for Life”: Layoffs At Home– corporations coped with debt in two ways; they

sold assets or they cut costs, usually through layoffs

– IBM, the unofficial slogan of which had been “a job for life,” eliminated more than a third of its workforce, 80,000 jobs, between 1985 and 1994

– corporations took jobs abroad, where labor costs were lower

– of even greater significance than the growing

corporate debt was the debt of the federal

government

– Reagan’s policies of tax cuts and increased

military spending produced huge annual federal

deficits

– when Reagan took office, the federal debt was

$900 million; eight years later, it exceeded $2.5

trillion

• A “Bi-Polar” Economy, a Fractured Society– in spite of the corporate and governmental debt,

the economy began to gain strength in 1982 and by the late 1980s was growing at a rate unparalleled since the 1960s

– prices declined, even though the volume of business was growing; the stock market soared

– many economists considered the run-up of stock prices excessive, and their misgivings were seemingly confirmed when the Dow-Jones industrial average fell 508 points on a single day in 1987

– however, stock prices quickly recovered and embarked on another period of dramatic growth

– the economy was undergoing a fundamental transformation

– even as the manufacturing industries of the “rust belt” declined, new industries based on technology sprung up in places like the “Silicon Valley” of California

– by the end of the Reagan years, job opportunities and wages were declining in traditional heavy industry; although the older corporations that survived the shake-out were more competitive in the global market

– high-tech and service industries provided

opportunities for entrepreneurs

– American society was becoming increasingly

polarized as well

– both the changing economy and governmental

policy benefited the affluent disproportionately

and hit the unskilled or semi-skilled the hardest

• The Iran-Contra Arms Deal– the public seemed willing to credit the Reagan

administration for the nation’s successes and absolve it of the nation’s failures

– two initiatives in foreign policy, however, seriously hampered the effectiveness of the administration

– in 1984, Congress forbade the expenditure of federal funds to aid the Nicaraguan contras

– in the Middle East, Iran and Iraq had been engaged in a bloody war since 1980

– further, many blamed Iran for the holding of a number of Americans hostage by terrorists in Lebanon

– Reagan opposed bargaining with terrorists, but he wanted to find a way to free the hostages

– during 1985, he made a decision to allow the indirect shipment of arms to Iran by way of Israel

– when this failed to work, he authorized the secret sale of American weapons directly to Iranians

– Marine Colonel Oliver North, an aide to the president’s national security advisor, Admiral John Poindexter, devised a plan to supply the Contras without directly using federal funds

– he used profits from the arms sales to Iran to provide weapons for the contras

– disclosure of this “deal” led to Senate hearings, court trials, and the resignations of many involved

– although he remained personally popular, Reagan’s influence with Congress and his reputation as a leader plummeted

– Reagan’s success derived from his ability to

articulate, simply and persuasively, a handful of

concepts, including the evil nature of the Soviet

Union and the need to get government off

people’s backs

– in doing so, he created a climate conducive to

political change