Changes in the American Economy: The Energy Crisis, Deindustrialization, and the Service Economy

1
Changes in the American Economy The Energy
Crisis, Deindustrialization, and the Service
Economy
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Stagflation

• Throughout 1970's, the American economy was
  plagued by the unprecedented combination of
  soaring prices, the high unemployment, and low
  economic growth.
• Economists dubbed the phenomena "Stagflation," a
  period of rising prices in a stagnant economy.
• The high standard of living in the US following
  World War II suddenly began to lag behind that of
  Western Europe and Japan.
• Americans found it increasingly difficult to
  sustain a middle class lifestyle.

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Stagflation
Compare the rates of inflation between 1972 and
1980 to those of the 1980's and 1990's.
4
Stagflation
GDP measures the total market value of all the
goods and services produced within a region. Note
the sharp decline in GDP beginning in 1973.
5
Stagflation
In 1975, unemployment reached almost 9, the
highest level since the Great Depression at that
time.
6
The Oil Crisis Begins

• By the late 1950's, the demand for oil in the
  United States outstripped domestic production
  capabilities.
• By 1970's, the US imported a third of its oil,
  making the American economy vulnerable to
  geopolitical upsets in the Middle East.

7
The Oil Crisis Begins

• On October 6, 1973, the Yom Kippur War began when
  Egypt and Syria attacked Israel from two sides.
• The US airlifted supplies to Israel, prompting
  OPEC to levy an oil embargo against Israel's
  allies that lasted until March 18, 1974.

8
The Oil Crisis Begins

• Gas prices suddenly doubled and fueling stations
  frequently ran out of gas.
• The oil crisis effected almost every sector of
  the economy .

9
Coping with the Energy Crisis

• The oil embargo led to dramatically increased
  prices for all types of fuel, including gasoline,
  home-heating fuel, and electricity.
• Prices for virtually everything else rose in
  response to high energy costs, causing record
  inflation.
• Long lines for gasoline became everyday
  occurrences.

10
Coping with the Energy Crisis

• President Nixon appealed to the nation to make
  sacrifices in the name of conserving energy.
• He warned that the country was "heading toward
  the most acute shortages of energy since World
  War II.
• The President asked Americans to reduce air
  travel, reduce work and school hours, turn down
  thermostats by 6 degrees, and reduce highway
  speed limits to conserve energy.

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Coping with the Energy Crisis

• Nixon also urged the use of coal and nuclear
  power rather than the limited commodity of oil.
• He asked Congress to approve measures for
  increased exploration and extraction of domestic
  oil and to relax environmental standards that
  impeded energy requirements.

12
Economic Policies of President Ford

• Gerald Ford inherited an economy in crisis when
  replaced Richard Nixon in August 1974.
• Ford lacked the economic vision to curb the
  effects of stagflation.
• Ford attempted to initiate a grassroots
  anti-inflation campaign, but the Whip Inflation
  Now (WIN) program was little more than a public
  relations maneuver.
• Skeptical Americans began wearing the red and
  white WIN buttons upside down to stand for "No
  Instant Miracles."
• After a few months, the WIN effort was abandoned
  as sluggish industrial and business productivity
  along with rampant unemployment compelled Ford to
  focus on broader anti-recessionary measures.

13
Economic Polices of President Ford

• As a Republican, Ford believed that a balanced
  federal budget and reductions in government
  spending were the best way to curb inflation.
• Democrats in Congress favored increased federal
  spending as a stimulus to economic and job
  growth.
• Ford admitted in 1975, the state of the Union is
  not good.
• Ford vetoed more major bills than any president
  in the 20th century.
• Despite the legislative battle, recessionary
  pressures eased somewhat by 1976.

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Deindustrialization

• "Deindustrialization" refers to a shift away from
  a manufacturing-based economy.
• In the United States and Europe,
  deindustrialization has preceded a shift to a
  service-based economy.
• The trend toward deindustrialization began in the
  1960's and continues into the present day, as the
  service sector overtakes the manufacturing
  sector.

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Deindustrialization

• During the 1970's, the oil crisis and the falling
  productivity of the US manufacturing sector sped
  the decline of several industries, including
  steel, automobiles, and electronics.
• The industrial production index measures the
  total output of US factories. A decline in
  production indicates slow economic growth.

16
Deindustrialization

• Increases in foreign industrial efficiency
  allowed Europe, Asia, and Latin America to
  effectively compete by producing quality goods
  for a lower cost.
• Many American companies began outsourcing labor
  to foreign countries to remain competitive.
• This chart illustrates the balance of trade. The
  United States increasingly imports more than it
  exports.

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Deindustrialization

• Structural unemployment often spikes during
  deindustrialization.
• In this case, "structural unemployment" refers to
  unemployment that occurs during the transition
  from a manufacturing to a service economy because
  workers lack skills, education, experience, or
  proximity to the new types of jobs available.

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The Decline of Organized Labor
Membership in AFL-CIO Unions

• AFL-CIO lost over 4 million members between 1970
  and 1982. Along with declining membership came
  decreased political power for organized labor.

19
The Service Economy

• Economies in the developed world typically change
  over time. Agrarian economies first transition to
  industrial, then develop into service economies.
• Service industries include retail, wholesale,
  banking, public utilities, entertainment, etc.
• This graph shows the eclipse of the manufacturing
  sector by the service sector by the early 1980's.
  The trend toward deindustrialization resulted in
  a service-based economy.

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The Rustbelt and the Sunbelt
21
The Rustbelt and the Sunbelt

• The economic region known as the Manufacturing
  Belt became known as the Rust Belt by the 1970's,
  as manufacturing and heavy industry declined due
  to high energy costs and foreign competition.
• Cities in the Rust belt were subject to
  unemployment, underemployment in low-paying
  service jobs, "white flight" to the suburbs, and
  general out-migration as manufacturing jobs moved
  south and abroad.

22
The Rustbelt and the Sunbelt

• Meanwhile, Sunbelt states in the West and
  Southwest continued to enjoy the economic growth
  trend spurred by Cold-War defense spending and an
  influx of retirees.
• The South profited from a booming agribusiness
  industry and the California's Silicon Valley
  became the hub of the technology industry.
• As population in the Sunbelt increased, so did
  the region's political influence.

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Working Women

• High inflation, a series of recessions, and the
  changing role of women in society encouraged more
  females to enter the workforce throughout the
  1970's.
• Working women became the norm, as more households
  depended on two incomes.

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Working Women

• Women, especially women of color, continue to
  make substantially less money than their male
  counterparts.
• Several factors account for this wage gap,
  including discrimination and female
  concentration in low-wage, non-union industries.

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The Feminization of Poverty

• Despite increased participation in the labor
  force and the progress made during the women's
  movement, women experienced a decline in economic
  status during the 1970's.

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The Feminization of Poverty

• Low pay and inflation combined with increased
  rates of divorce and teenage pregnancy led to a
  phenomena known as "the feminization of poverty,"
  as females became increasingly economically
  marginalized.

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Economic Policies of President Carter

• As a rhetorical device during 1976 presidential
  campaign, Governor Jimmy Carter combined the rate
  of inflation (6) and unemployment (8) into a
  "Misery Index" of 14.
• At first, Carter modeled his economic recovery
  program after FDR's New Deal by advocating tax
  cuts, public works, and employment programs to
  stimulate the economy.
• The Democratic Congress responded with
  legislation in accordance with the President's
  plan, but as unemployment decreased, inflation
  continued to rise.

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Economic Policies of President Carter

• In response, Carter tried an almost opposite
  approach. He attempted to curb inflation by
  slashing government spending, deregulating
  industries, and implementing wage and price
  controls.
• Many Democrats were alienated by what they
  perceived as a shift to the right in presidential
  policies.
• Despite the President's sincere efforts, the
  "Misery Index" soon rose to 21.

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President Carter and the Continuing Energy Crisis

• Although the oil embargo had ended and gas lines
  had ceased by Carter's presidency, the threat
  created by US energy dependence loomed on the
  horizon.
• Carter characterized the energy crisis as "the
  moral equivalent of war," which critics
  derisively nicknamed "meow."
• His calls for sacrifice and conservation were
  opposed by the influential oil and auto
  industries, and accordingly the subsequent
  National Energy Act of 1978 focused on increasing
  domestic production rather than conservation.

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President Carter and the Continuing Energy Crisis

• Carter was successful in creating the Department
  of Energy as a cabinet-level position, and he
  continued to try and set an example for citizens
  by conserving energy in the White House.
• President Carter had solar panels installed atop
  the White House in 1979 (which President Reagan
  later removed).

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President Carter and the Continuing Energy Crisis

• Following the 1979 Islamic Revolution in Iran,
  Ayatollah Khomeini stopped all oil shipments,
  further exacerbating US energy woes.
• In July the president delivered a televised
  address that became known as the "Malaise
  Speech," in which he entreats Americans to share
  the responsibility of energy conservation.
• The public and the press responded defensively
  and Carter's approval rating plummeted.
• Although the speech was a frank diagnosis of the
  country's ills, Carter was criticized for
  "blaming" the American people and offering few
  solutions.

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Photo and Graph Citations

• Slide 2 http//www.time.com/time/covers/0,16641,
  19701214,00.html
• Slides 3-5 http//facstaff.bloomu.edu/wblee/macd
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• Slide 6 http//www.eere.energy.gov/vehiclesandfu
  els/images/facts/fotw376a.jpg
• Slide 7 http//www.businessweek.com/1999/99_40/7
  0frame/70s.htm
• Slide 8 http//inflationdata.com/inflation/image
  s/charts/OilPrices.gif
• Slide 9 http//images.encarta.msn.com/xrefmedia/s
  haremed/targets/images/pho/t049/T049147A.jpg
• Slide 10http//img.timeinc.net/time/magazine/arch
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• Slide 15 http//www.economagic.com/em-cgi/charte
  r.exe/feddal/b00004196919900112905450
• Slide 16 http//www.econedlink.org/lessons/EM208
  /images/chart3.gif
• Slide 17 http//www.library.pitt.edu/labor_legac
  y/images/deindustrializationBILL2.jpg
• Slide 18 http//www.afscme.org/images/ffch1.gif
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