RUNNING ON EMPTY THE NATION TRANSFORMED The Oil

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, vicepresident, 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 longterm 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 highpaying 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 1970 s – 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 1970 s and 1980 s 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 1980 s, the nation confronted its most serious health crisis in decades – in the early 1980 s, 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 1980 s there was a movement toward concentration in business – “Corporate raiders” raised cash by issuing highinterest 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 1980 s was growing at a rate unparalleled since the 1960 s – 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