RETURN Stagflation and "Reaganomics"

The 1970s proved to be difficult years for the American economy. Unemployment persisted at average levels around 6 per cent of the labor force, with the figure being much higher for certain groups, including the young, and in some parts of the country. Yet there was also inflation, especially after the OPEC oil embargoes drove energy prices to previously unimaginable levels. Conditions in the larger cities remained difficult and there was growing concern about illegal immigration, crime, drugs, and a host of other social maladies. Under Nixonís successor, Gerald Ford, there was little action and voters who elected a Democrat, Jimmy Carter, to succeed him in 1976 were disappointed as his administration became bogged down in a series international crises including the Iranian Hostage taking episode in 1979 and the Soviet invasion of Afghanistan. 

In the election of 1980 the voters again reversed their direction and enthusiastically endorsed the Republican candidate Robert Reagan. Reagan ran on a strongly conservative platform which appeared to owe much to the policy positions advocated by Margaret Thatcher in Britain. Couched in the language of so-called "supply side economics" the Reagan Republicans were committed to downsizing government, reducing taxes, deregulating private enterprise, and a massive military buildup. Concern about the effect a policy of cutting taxes and increasing military spending would have on the growing national debt was countered by the argument that by stimulating economic growth employment would fall, incomes would rise, government revenue would increase and government deficits would fall, helping to reduce, not increase the public debt. Of course this did not happen. Instead unemployment rose to levels not experienced since the end of the Great Depression. Inflation did decline, but the annual federal deficit almost doubled and the economy sank into a severe recession.

Fortunately for all concerned, the economy began to recover in 1983 and while some regions of the country dependent on agriculture and the crumbling heavy industries of central northern states remained depressed, many middle and upper class Americans prospered mightily thanks to lower taxes and lower inflation rates. Despite the failure in Viet Nam, the new Reagan administration adopted a bellicose posture with respect to the Soviet "evil empire" and heavy defense spending bolstered the aero-space industries of the west coast, especially in Reaganís home state of California. There was little in the way of actual military activity on the part of the US during this period, however, except for an invasion of a tiny Caribbean island, Grenada, to crush a government suspected of being supportive of Cuba and the clandestine support provided to rebels in Nicaragua who were attempting to overthrow the left-wing Sandinista government. 

Domestic policy during the Reagan years became more and more focused on the issue of the growing federal deficit. The debate over supply-side economics continued, with defenders of the President crediting his strategy of cutting taxes on corporations and the wealthy while expanding military spending with creating enough new jobs to reduce the unemployment rate to the lowest levels since the 1950s while at the same time reducing inflation from above 10% to less than 4%. Critics, however, pointed to the sharp rise in the number of people living below the poverty line, the reduction in social welfare programs and in subsidized housing, the growing number of people without health insurance coverage, and the continuing escalation of the deficit and the public debt. Concern was also expressed about the apparent deterioration in the countryís economic relations with the rest of the world. For the first time since World War I, the United States was now borrowing more from foreign sources than it was lending abroad.

Such concerns, however, seemed to detract little from Reaganís popularity. During his second term he proceeded to implement his conservative agenda, using the powers of the presidency to make large numbers of judicial appointments, including three to the Supreme Court, which went far to reversing the accumulated strength of liberals in the judiciary. His credibility was severely tested, however, by the Iran-Contra affair in the late 1980s, in which several high officials were found to have been involved in a plot to finance aid to the rebels in Nicaragua through sales of arms to Iran. On a more positive note, a series of negotiations with the Soviet Union led to significant arms reduction treaties between the two powers and a further reduction in East-West tensions. 

These efforts were continued by Reaganís successor, George Bush, who easily defeated the Democratic candidate, Michael Dukakis, in 1988. The collapse of communism in Eastern Europe the following year left the United States once again the unrivaled economic and military power in the world, a status soon confirmed in the successful Gulf War of 1991. On the domestic front, however, the situation was less positive. The economy once again slid into a severe recession, as it had a decade earlier. With the deficit still rising, Bush found himself forced to break his campaign pledge to not impose new taxes, giving rise to a strong political challenge from the right wing of the Republican Party.

An increasingly disillusioned electorate in 1992 brought the long period of Republic rule in the White House to an end by electing Bill Clinton, a somewhat left of center Democrat, running on a platform promising to clean up government and implement major economic and social change, including implementation of universal health care coverage, and a host of measures designed to appeal to the many disaffected interest groups demanding public support for their causesóblack Americans, native Americans, feminists, gays and lesbians, AIDS victims, environmentalists, pro and anti-abortion advocates, to name a few. Within a year the popular mood seemed to be turning against such efforts and a resurgent conservative Republican dominated Congress appeared determined to ensure that most of the Presidentís initiatives would be defeated.