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Chapter 3 THE SPREAD OF MARKET VALUES “This is like 1931,” long-time socialist writer and activist Michael Harrington wrote in 1978. “Just as the conventional wisdom of the 1920s was totally shattered by the depression, the conventional wisdom of the 1960s has been shattered by inflation .” Economic growth had defined human history for two hundred years, reaching a peak in the generation after 1945 when world economic growth averaged an extraordinary 5–7 percent per year. Americans rode that growth to a higher standard of living than anyone else. But in the 1970s it all seemed to be flowing away. Unemployment, oil shortages, a plunging stock market, recession, and, above all, inflation were apparently ending the golden years of unparalleled prosperity. Inflation hit everyone , and it hit the poor hardest of all. Persistent inflation undercut dreams and hopes for the future. Pan American Airlines ’ popular 1974 advertisement suggested how continuous high inflation might alter basic assumptions and behaviors: “Live today. Tomorrow will cost more.” The economic trauma of the 1970s threatened to destabilize Americans’ understanding of how the world worked.1 Recession and inflation together undermined the confidence of Americans in their government’s management of the economy . Inflation tends to corrode citizens’ faith in their government , which is seen as not keeping the promises it prints on the paper it issues. The money just is not worth what it says it is worth. For Americans in the 1970s, this brought into question the entire political economy built upon the New Deal of the 1930s and producing extraordinary economic growth and affluence ever since. If this system no longer worked, what was to be done? For the first time in more than a generation, a new cohort THE SPREAD OF MARKET VALUES 123 of economists began to look to the mechanism of the unrestricted market as a more efficient way of allocating resources, and they began to doubt the prominent role of the federal government in regulating the U.S. economy. In the broadest sweep of world history, the 1970s can be seen as the most important turning point on the journey from 1945, a Left-leaning moment in world history when socialism and welfare states were newly ascendant as fascism and colonialism collapsed, to 1989, a Right-leaning moment around the globe when Communism collapsed and capitalism stood triumphant as the only credible economic system. In the United States, the political traumas of the Vietnam War and the Watergate scandal served as additional tributary streams into the rising river of disillusionment with government. This was not a total break with the past. The rhetoric of disillusionment—the “tax revolt” and the disdain for “big government” and “bureaucrats”—often masked enduring expectations of government entitlement programs such as Social Security and Medicare. Democrats in Congress vigorously defended such provisions. Indeed, a last salient of New Deal-style reform, focused on environmental and health issues, pushed well into the 1970s, like the final shot of a fireworks display going up while previous shots fall away. But the dominant trend of the decade was a separation of citizens from the national government that they had embraced for the preceding two generations, and therefore also from the political party that had most fully embodied that system of governance: the Democrats.2 Long-term structural changes in the U.S. economy accelerated in the 1970s, further weakening the old New Deal political and economic order. Labor organizing declined. The growth of the Sun Belt, made up of the non-union South and the less unionized West, shifted populations, jobs, and power away from the more unionized Rust Belt of the Northeast and Midwest. The nationalist and “Fordist” model of capitalism with its functional alliance of big business, big labor, and big government— and model cities like Detroit and Buffalo—increasingly gave way to an internationalized model of capitalism with emphasis 124 CHAPTER 3 on free trade, government deregulation, and entertainment and information industries—and model cities like Los Angeles and Orlando, where Disney World opened in 1971. Globalization encouraged technological innovation, including the personal computer industry of Microsoft (1975) and Apple (1977), as well as the biotechnology industry that appeared with Genentech ’s successful application of gene-splicing to the engineering of human insulin in 1978, key stimuli to the growth of Silicon Valley in California. Cheaper competition from abroad wooed manufacturing plants south of the border to Mexico and across the Pacific to Taiwan and Korea. Jobs in the growing service and...


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