Economy and Government

Economy and Government

As had been the case with the automobile and other new technologies of the past, the full impact of new technology that aided environmental protections, along with other major innovations of the 1970s such as microcomputers, would not be realized for nearly a decade. These new technologies created jobs in numerous fields throughout the 1970s. However, new technology also allowed companies to do more with fewer employees. For example, new technologies in communications created jobs but also allowed US companies to operate overseas more efficiently. By 1970, hundreds of US firms had become multinational corporations with operations around the globe. Not only did this globalizationThe development of a more integrated global economy with fewer trade restrictions that would permit corporations to compete equally around the globe. Many Americans oppose globalization for fear that permitting foreign firms to operate on the same terms as domestic companies could result the reductions of worker pay, environmental protection standards, or the loss of jobs overseas. of industry allow manufacturing operations to occur closer to the source of raw materials, but globalization also permitted US-based businesses to hire foreign employees for lower wages and avoid abiding by US labor standards and tax regulations.

Defenders of multinational corporations pointed out that these businesses improved international relations. At the very least, nations that traded with one another seldom went to war. They also claimed that America profited from overseas operations through declining prices for consumer goods and rising corporate dividends for US investors. While offshore operations might have been exempt from US taxation, globalization advocates pointed out that the federal government still received some revenue because the profits of individual stockholders were taxable. Critics countered that these companies were shipping jobs overseas and avoiding their fair share of taxation.

More distressing to many US workers than the details of corporate taxation, it appeared that globalization was an attack on the domestic job market. The United States had produced 40 percent of goods and services worldwide in 1950, but this percentage had declined to 25 percent by the 1970s. Others worried about the military implications of a US economy that lost its manufacturing base. After all, these individuals explained, US victory in World War II was based on the rapid conversion of existing factories to wartime production. By the late 1970s, the United States imported more goods than it exported. Each of these statistics warned of a possible return to America’s subordinate role in the global economy. Even more alarming to some, the nations that were making the largest gains in the production of automobiles and aircraft were Japan and Germany. While some Americans resented the fact that the rapid turnaround of these war-torn nations was partially due to US aid, others believed that German and Japanese economic recovery was inevitable. From this perspective, US aid had converted former rivals into two of America’s strongest allies in the global war against Communism. Japan and Germany’s economic recovery certainly benefited the US and global economy. However, the simultaneous decline of US industry was a bitter pill for World War II veterans, many of whom faced layoffs that may have been the result of international competition.

The late 1970s saw a resumption of economic growth and personal income, although these increases were modest in comparison with the rapid gains of developing economies. All of this added to the perception that the United States was on the decline. Inflation doubled between 1967 and 1973, while unemployment remained high at 8 percent. In the past, unemployment and inflation had usually moved in opposite directions. Prices increased when the economy was doing well but fell during periods of recession. This double whammy of rising inflation and unemployment led economists to create a new label to describe it: stagflationAn economic condition pairing high inflation with economic stagnation..

President Nixon responded in dramatic fashion by abandoning the gold standard in 1971. Prior to this decision, the world’s economic system was anchored by the US dollar, which was directly exchangeable for a set amount of gold. Abandoning the gold standard allowed the United States more flexibility to respond to the financial crisis. However, it also furthered the impression that the nation was on the decline. This perception was increasingly strong with industrial workers in the Rust Belt, many of whom experienced significant declines in their real wages as they coped with the consequences of inflation and layoffs. Even those whose wages did not decline often made less money in real terms because of inflation, which exceeded 10 percent by the time Ford took office.

Nixon’s domestic policies were guided by an idea he called the New FederalismIn general terms, New Federalism refers to the transfer of powers and authority from the federal to the state government. Nixon hoped to follow this doctrine regarding a host of social programs turning over certain government functions to the states to be funded by federal grants.. The core of the president’s approach was to share federal tax revenues with states to administer as they saw fit. A pragmatic politician, Nixon actually made few changes—especially when it came to popular federal entitlement programs such as Social Security and Medicare. Nixon actually increased spending for these and other welfare-state initiatives to maintain electoral support and the cooperation of the Democratically controlled Congress. Nixon even supported the creation of the Occupational Safety and Health Administration (OSHA) in 1970, which enforced regulations regarding workplace safety.

However, Nixon also demonstrated his disdain for liberals and their ideas when he tried to remove the funding Congress had set aside for the Office of Economic Opportunity (OEO). When this failed, Nixon appointed a new OEO director who was instructed by the president to destroy the agency. Ultimately, the federal courts ruled that Nixon’s efforts to eliminate the OEO represented an unconstitutional effort to thwart the will of Congress. The OEO was spared and continued to administer antipoverty programs such as Volunteers in Service to America (VISTA) and provide funding for Community Action Agencies (CAA).

Figure 12.13

President Ford is pictured meeting with Donald Rumsfeld and Dick Cheney, two leading officials in his administration. Cheney replaced Rumsfeld as chief of staff when Ford appointed Rumsfeld as secretary of defense in 1975.

CAAs were grassroots community welfare organizations that administered federal antipoverty grants. They legally required the poor to participate in making decisions about how to administer federal funds. In other words, CAAs applied the principles of Nixon’s New Federalism to welfare and rewarded initiative rather than simply distributing cash to recipients. Ironically, Nixon hoped to encourage this kind of initiative among the poor during his many attempts to overhaul the welfare system. For example, Nixon’s Family Assistance Plan of 1969 would have replaced direct welfare payments with a system requiring job training and other proactive steps before one might receive welfare payments. Nixon’s proposed welfare plan also would have provided supplemental income to those who found and accepted employment at a job that failed to provide a federally guaranteed minimum income. Many of Nixon’s other domestic policy ideas also failed to pass Congress. During Richard Nixon’s 1974 State of the Union speech, for example, the president called on Congress to pass a comprehensive health insurance act. Had the plan passed, it would have required employers to purchase health insurance for all of their employees and would have created a federal health plan that any citizen could have joined.

President Ford’s chief domestic priority once he assumed office was to reverse stagflation. Ford began with an ineffective program called “Whip Inflation NowGerald Ford’s plan to reduce inflation by asking citizens to reduce their discretionary spending thereby using supply and demand to bring down prices.,” which had the president distributing “WIN” buttons and giving speeches touting voluntary energy reduction and personal savings. Ford’s solution was based on the idea that if consumers saved more and purchased less, the laws of supply and demand would slowly reverse inflation. Ford also raised interest rates and reduced federal spending in hopes of tackling inflation. While all of these measures could reduce inflation, they did little to stimulate the economy. The president’s Democratic opponents in Congress presented Ford as the next Herbert Hoover, accusing the president of supporting measures that might turn a recession into a depression. Ford’s decision to veto dozens of spending bills, including a popular New-Deal-like federal jobs program, did little to bolster his image among working-class voters.