The 1970S "Neither a State Nor a Bank Ever Has Had Unrestricted Power of Issuing Paper Money, Without Abusing That Power." David Ricardo
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The 1970s "neither a state nor a bank ever has had unrestricted power of issuing paper money, without abusing that power." David Ricardo The Setting for the Monetarist Experiments The 1960s will be remembered for "sex, drugs, rock-n-roll, and fiscal policy." It was a decade viewed by many as the Golden Age of Capitalism, but by the decade's end there were signs all was not well and the mood was beginning to change. Americans began to realize many of the promises of the 1960s could not be easily delivered, but nothing could have prepared the nation for the 1970s. In Vietnam, the war expanded beyond anyone's expectations in the 1960s with 500,000+ American troops being deployed by the end of the decade. At home the war triggered widespread campus antiwar protests including one at Kent State where national guardsmen killed four students in May of 1970. The truth was, the war was winding down as Nixon and Kissinger looked desperately for an exit strategy that would allow the US to "save face." By 1973, in a sure sign of the war’s winding down, the military draft ended, and two years later it was "official" when the North Vietnamese entered Saigon and US helicopters evacuated the US embassy. With the end of the Vietnam conflict, the Cold War seemed to thaw a bit with President Nixon visiting both Russia and China and by the end of the decade lengthy negotiations with the Soviet Union produced the Strategic Arms Limitations Talks (SALT II) in 1979 to limit offensive nuclear weapons. There was also change in China with Mao’s death in 1976 and the eventual emergence in 1979 of Deng Xiaoping who would transform China into the world economic power that it was by the beginning of the 21st century. Also occurring in Asia in the decade was a conflict between Pakistan and India that produced a new country in 1971 – Bangladesh – and the rise of the Khmer Rouge who took control of Cambodia after the collapse of Vietnam and launched a cleansing campaign that may have reduced the country’s population by ¼ by the decade’s end. The end of the Vietnam War did not, however, bring peace to the US or the world. The 1970s was a decade where terrorism replaced traditional war as the primary concern of Americans and the news was dominated by stories of international terrorist groups. With the arrival of larger jets like the Boeing 747 introduced in 1969, international travel was growing rapidly and this provided a very visible target for terrorists. The result was a rash of plane hijackings.i In one day in September of 1970 there were five hijackings of planes headed to New York City by members of the Popular Front for the Liberation of Palestine. Two years later, the Palestine Liberation Organization (PLO) group "Black September" entered the Olympic athletes' compound in Munich and people around the world watched a standoff that resulted in the killing of the hostages in a gun battle at the airport that I’ll never forget – those images on TV of the attackers in ski masks on the porch of the dorm. A year later, in1973 there was the assassination of the U.S. Ambassador to Sudan by the same group, and the bombing at LAX. Closer to home, the Cold War did not show signs of thawing. The decade opened with Salvador Allende winning the presidential election in Chile, and after surviving some US led efforts to kidnap him, he set out to implement his socialist agenda that included nationalization of key industries, land redistribution, and default on international debts. What followed was a period of hyperinflation, rising unemployment, and political unrest that set the stage for a coup in 1973. The decade closed with President Anastasio Somoza being overthrown in Nicaragua by leftists. The 1970s was also a decade in which the Middle East got the attention of Americans. In 1972 Iraq and the Soviet Union signed a 15-year Treaty of Friendship and Cooperation and within months Iraq became the first Arab nation to nationalize its oil industry. With Soviet technical help, it cranked up its oil output and become the region's second largest oil producer by 1979 - the year the anti-communist Saddam Hussein assumed power. There was also another Arab-Israeli conflict - this one the Yom Kippur War in 1973.What was clear in this war 1 was the military superiority of Israel had disappeared and the balance of power in the region had shifted. This helped bring Egypt and Israel to the bargaining table and in 1979 Egypt and Israel signed a peace treaty known as the Camp David Accord. Israel kept the land it had gained in the earlier war - the Gaza Strip and Golan Heights - areas that to this day remain a major problem in the region.ii It was the OPEC embargo of 1973, however, that had the biggest impact on the lives of all Americans. The Arab countries that dominated the OPEC cartel retaliated against the US for its support of Israel in the 1973 war by cutting off oil supplies.iii There was simply not enough oil at the existing price, which had been set earlier by price controls, so an alternative scheme for the rationing of oil appeared. It was looooong lines, and I can assure you this was not pretty. There was lots of time spent in long lines, more than a few fights as tempers flared, and weekend trips cancelled because gas stations were closed. And things looked even worse as the decade closed. In 1979 the Shah of Iran, an ally of the US, was overthrown by Ayatollah Khomeini and Americans faced a second round of OPEC price increases that threatened those muscle cars that dominated this country in the 1960s and watched on TV as US hostages were taken by protestors in Tehran. And if that was not bad enough, the Soviet Union invaded Afghanistan, a decision that would ultimately bring a decade-long military conflict that would hasten the collapse of the Soviet Union - but at the time it was viewed as a loss in the Cold War. The dramatic oil price increases were only one of the shocks to the US economy during the decade. This was also a decade when globalization returned to the US. The international flow of goods and people that had been severely reduced during the Great Depression and WWII, returned in the 1950s and 1960s and then accelerated in the 1970s. In the decade the ratio of imports to GDP more than doubled - from under 4% to over 8% and the US began running trade deficits as Americans began to buy imported cars, VCRs, and Sony Walkman's in substantial numbers. The expanded trade also showed up in the manufacturing sector where employment growth slowed from 15% in the 1950s and 1960s to 4% in the 1970s, and we began to see on Time magazine’s covers stories about rising competition from Europe and Japan. The deindustrialization of the US economy was underway and by the end of the decade anxiety about the conditions of American workers rose among workers and policy makers. The rising inflow of goods in the 1970s was accompanied by a rising inflow of people. Between 1950 and 1970, the percentage of the nation that was foreign-born actually dropped slightly, but this was reversed in the 1970s. Immigration was overshadowed, though, by the three dominant demographic phenomena of the 1970s. The first was acceleration of the movement out of the North and East as people moved out of the older, energy-dependent, manufacturing regions in the north and east (New England (NE), Middle Atlantic (MA), East North Central (ENC)). This region experienced slower than average growth, as people moved toward the energy-rich West South Central (WSC) and Mountain (MT) regions that were experiencing rapid growth. This was the era where TV aired the show Dallas captured the excesses of a region experiencing new-found wealth and where news programs ran stories of people packing all of their belongings into their cars and heading west looking for jobs. 2 The second demographic phenomenon was acceleration in the suburbanization of the population. In the nation's twenty largest metropolitan areas, a net gain of less than 100,000 in the central cities in the 1960s turned into an exodus in the 1970s. During the decade population declined in fifteen of these cities for a total loss of about 3 million. In some metropolitan areas, such as St. Louis, Detroit, and Cleveland, the central cities lost 20+ percent of their 1970 population during the decade, and by mid decade stories of New York City’s potential bankruptcy were in the news.iv The nation’s major cities were also hurt by rising crime rates that had Time magazine running lead stories such as “The cities lock up: Fear of crime creates a life-style behind bars,” “Cops v. crime: Ready for a hot summer,” “The urban guerillas” and “Crime: Why and what to do.” The third demographic shock was the movement of the leading edge of the baby boomers into the labor market that helped push the labor force growth rate to its highest level since WWII. The combined impact of the oil price shocks, coupled with the baby boomer's flooding of the labor market and the return of globalization that flooded the US with foreign imports and immigrants, helped push real wages lower - erasing nearly all of the increases of the 1960s.