CICERO Systems™
Loading...

Notice: You are currently previewing Unit 14: A New Economy

Timeline
Unit Overview

By the 1970s, ever-escalating Cold War military budgets began to take their tolls on the United States and Soviet Union. Budget strains forced the Soviets to forgo many civilian needs. While the United States was still able to provide for the needs of the people, the double-drain on the budget slowed the economy to the point of “stagflation.” Americans experienced both high inflation and high unemployment.

Under Ronald Reagan, however, the United States experienced economic expansion brought on by new technological developments. In addition, Reagan was able to spend the Soviets into collapse, and one-by-one Communist regimes, and eventually the Soviet Union itself, fell. Unfortunately, as one enemy fell, another rose, and the United States soon found itself involved in the Middle East.

Economic Policy

During the Eisenhower Administration, America experienced tremendous economic growth. The right mixture of low taxes, balanced budgets, and public spending allowed the economy to grow. Americans experienced a level of prosperity unknown to them or anyone before. They saw their standard of living exceed what earlier generations could not even fathom. After World War II, the United States also experienced little or no competition from Europeans and Asians who were rebuilding from the devastations of the war.

Supply-side Economics

By the 1970s, Japan and Germany had nearly recovered from the war’s destruction and began to compete economically with large, bloated American corporations. By the 1980s, American businesses realized they needed to return to hard competition. They downsized to compete more efficiently. Union membership decreased as leaner companies began to move to “right to work” states, or sometimes even overseas. There were also calls for smaller, more efficient government. In response, the government cut taxes to give the people more money to invest. The influx of investment dollars helped companies grow, creating more jobs. With more employment, people could buy more products. The companies then had to hire even more people to meet demand. With more people working, more tax revenue went to the government coffers. The Ronald Reagan Administration believed that people could take care of themselves, and that too much government control and regulations held them back. They contended that big government controls only stifled creativity and potential. Reagan believed that the government had no real stake in people’s failures and successes. A buyer and a seller both take a risk in any transaction, and therefore should determine prices, something the government could not efficiently do. 

The “New Economy” led to an economic boom, which lasted from November 1982 through July 1990. This ninety-two month economic boom was the longest peacetime period of sustained growth, and the second-longest period of sustained growth in United States history that included wartime. The growth in the American economy lasted more than twice as long as any period of expansion since World War II. The American economic growth by nearly one-third was the equivalent of adding the entire economies of East Germany, West Germany, or two-thirds of Japan’s economy to the United States economy, during that period.

Economic growth during this period was tremendous. After the Reagan tax cuts, federal income nearly doubled from $591 billion in 1980 to $1 trillion in 1990. While federal spending nearly doubled, it only rose from 21.6% to 21.8% of the nation’s Gross National Product. Due to the arms race with the Soviets, defense spending did increased 50% from 1981 to 1989, but it fell 15% from 1989 to 1993, after the fall of the Berlin Wall. Despite such economic growth, however, federal entitlements more than doubled during the Reagan and first Bush administrations.

George H. W. Bush and Bill Clinton

During his 1988 campaign, George H. W. Bush famously declared: “Read my lips, No new taxes.” As President in 1990, however, he faced a $220 billion deficit. To pay for the deficit, Bush violated his pledge and agreed to raise the Federal income taxes in a deal with Congressional Democrats.  The deal stipulated that for every dollar Bush raised income taxes, Congress would cut spending by two dollars. When Congress failed to hold up their part of the deal and the cuts never happened, the United States experienced a six month recession. Many Republicans felt betrayed by Bush’s going back on his pledge. Combined with the recession before the election of 1992, Bush was forced to face a challenge not only from the Democratic candidate Bill Clinton, but also from Texas billionaire Ross Perot. Although the recession had ended before the election, the damage to Bush had been done. Perot was one of the more successful third party candidates in American history, and took 19% of the vote, giving the Presidency to Bill Clinton.    

As President, Bill Clinton further increased taxes by putting the top rate at 39.6%. The United States economy had modest increases until 1997. Due to the tax increase and an Administration attempt to control national healthcare, in 1994 the Democrats lost both the House and the Senate for the first time in 40 years. The chastened Clinton declared to the nation that the “era of big government [was] over.” He later made a deal with the Republicans and cut the capital gains tax to 20%. Investors looked to invest in the new Internet and technology industry that were first developed during the 1980s. The nation experienced a budget surplus from the economic growth and a great expansion in the dot-com industries. The dot-coms grew extremely fast and formed a bubble. Nevertheless, by 1999 and early 2000 the Federal Reserve had increased interest rates six times, and the economy slowed down. The dot-com bubble then burst and greatly contributed to the recession that started during the end of the Clinton Administration and lasted until third quarter in 2001.

Foreign Affairs

After the North Vietnamese conquest of South Vietnam in 1975, the United States and the Soviet Union continued to compete both ideologically and economically, until the collapse of the Eastern Bloc in 1989. During the Carter years, the Soviets looked to expand their influence into Africa and Latin America. Jimmy Carter, meanwhile, became quite occupied with the Iranian Hostage Crisis. On November 4, 1979, Iranian Islamic militants attacked the American Embassy in Tehran. The Iranian government-backed assailants held 52 Americans hostage for 444 days. The Iranians released the hostages on the day Ronald Reagan was inaugurated President of the United States in January 1981. 

Reagan and the Soviet Union

Reagan’s foreign policy often challenged the Soviets as a legitimate world superpower. In 1982 at Westminster, England he stated, “The march of freedom and democracy will leave Marxism and Leninism on the ash heap of history.” In other speeches he decried the actions of the Soviet Union, and declared them an “evil empire.” His designation of the Soviet Union as an “evil empire,” caused much chagrin of those who believed in a peaceful coexistence with the Soviets.

Able Archer 83

In March 1983 Ronald Reagan introduced a plan to create a “strategic defense initiative,” or a satellite shield to destroy any incoming ballistic missiles. He even offered the technology to the Soviets, once it was developed. The United States had also placed Pershing nuclear missiles in Europe for defense against a conventional Soviet attack. The Soviets had a tremendous fear of Reagan. They also believed that the Americans had infiltrated their institutions and installations. To exasperate the situation, the Soviets had shot a South Korean passage jet, KAL 007, out of the sky, killing 269 innocent passengers. The Americans were able to show that the Soviets had consciously attacked the jet, through the American ability to monitor secret Soviet communications. This technological advantage greatly stressed the paranoid Soviet leadership. Two months after the KAL 007 incident, the United States and its NATO allies began to conduct war exercises named Able Archer 1983, which simulated a nuclear attack on the Soviet Union. The Soviets believed that the West was actually planning on launching a first nuclear strike on the Soviet Union. Fortunately, calmer heads eventually prevailed, and the Soviets realized that Able Archer was only an exercise. Amazingly, a first strike by the Soviets on NATO targets was only narrowly averted. 

Pressure on the Soviets

Although Reagan decided that his heated rhetoric needed to moderated, he held firm to his strong anticommunist convictions. The Reagan Administration continued the largest arms buildup in history. When, western Europeans expressed an interest in running a pipeline from the Soviet Union to supply their nations with inexpensive natural gas, Reagan worried about the Soviets having the ability to hold NATO allies hostage. CIA Director William Casey and Secretary of Defense Casper Weinberg persuaded the Saudi Arabians to lower their inflated oil and gas prices. In exchange, the Americans had to sell the Saudis AWAC spy planes, which outraged America’s Israeli allies. American also had to promise to come to the Saudi’s aid in case they were attacked, particularly by Saddam Hussein in Iraq or by the Iranians. With lower fuel costs, the Europeans did not need Soviet gas and denied the Soviets much needed cash. As the American built up their defenses, the cashless Soviets could not keep up. 

Meanwhile, in Poland shipyard workers had protested against the Communist government’s tight reign, which threatened the Soviet’s role in Eastern Europe. Workers could never strike in any Communist “workers’ paradise.” Reagan decided to closely collaborate with the Polish-born Roman Catholic Pope John Paul II and financially supported the Polish workers’ “Solidarity Movement.” He kept pressure on the Communist government in Poland and on the Soviet occupiers. Pressure from within the Soviet satellites, the economic pressure of the arms race, and American aid to mujahedeen rebels in their fight against Soviet occupiers in Afghanistan all began to wear down the Soviets’ resolve. Later in June 1987, to publicly continue pressure on the Soviets, Reagan called out Mikhail Gorbachev while speaking at Brandenburg Gate in Berlin: “General Secretary Gorbachev, if you seek peace, if you seek prosperity for the Soviet Union and Eastern Europe, if you seek liberalization, come here to this gate! Mr. Gorbachev, open this gate! Mr. Gorbachev, tear down this wall!” When Reagan had negotiated with Gorbachev, the Soviet leader insisted that America eliminate it strategic defense initiative. Reagan refused; however, Gorbachev finally had to give in, and he signed the Intermediate-Range Nuclear Forces Treaty in Washington in 1987. The treaty eliminated nuclear and conventional ground-launched ballistic and cruise missiles, with intermediate ranges.

As the Soviet economy unraveled, the Soviet people, attracted by the relative affluence and freedom of the West, forced the last Soviet dictator, Mikhail Gorbachev, to make moderate reforms. Gorbachev was extremely popular with the media in the West, but had very little popular support at home. His mild reforms got beyond the control of the Soviet government and literally tore down the walls between the Soviet states and the West. One after another, Communist regimes across Europe collapsed. Most Marxist governments quietly went away, except for Romania where the Romanians violently overthrew the brutal dictator Nicolae Ceau?escu. The old Communist governments were replaced with free market democracies. Within a year, the Soviet Empire began to fade away and by 1991, America’s greatest geopolitical rival, the Soviet Union, had ceased to exist.

The Gulf War

As the Cold War ended in 1989-1991, many Americans hoped that this would bring lasting peace and fewer problems. They were soon disappointed, as new problems quickly appeared. As the Soviet Union loosened its grip on Eastern Europe, old tensions between ethnic and religious factions caused bloody conflicts as these countries struggled to redefine themselves. Tensions in the Middle East over Israel, oil, and radical Islamists soon erupted in war when Saddam Hussein, dictator of oil-rich but landlocked Iraq, invaded oil-rich Kuwait, which borders the Persian Gulf. The United States initially sent troops to Saudi Arabia to protect the oil-giant, as the Reagan Administration had promised to do in the early 1980’s. The American operation was named “Desert Shield.” After creating a coalition within the United Nations, the United States launched “Desert Storm” and went to war to stop Hussein. Iraqi forces were easily defeated. The Americans, however, were only authorized to chase him out of Kuwait. Under General Colin Powell’s orders, American advances ceased.

Saddam Hussein was permitted to stay in power, but was monitored by U.N. forces. Saddam Hussein went on to slaughter many of his Kurdish population in Northern Iraq in 1988, using poisonous gas – a weapon of mass destruction. In 1990, when they had answered an American call to revolt against Saddam, he attacked them again. He also attacked and butchered many of the Shia Moslems in southern Iraq who had also answered the allies’ call to revolt. The United States did establish “no fly” zones so Iraqi jets could not attack their Kurdish and Shia co-nationals from the air, But they sent no troops to relieve the slaughter, leaving many of the Kurds and Shia feeling abandoned and betrayed by the Americans and the United Nations.

Al-Qaeda

Powerful Islamist groups that were not from any one country but had money and were capable of launching major terrorist attacks on their enemies, including the United States, became more of a problem. One of these was Al-Qaeda, led by a disgruntled Saudi multimillionaire named Osama bin Laden and his associate, the Egyptian Ayman al-Zawahiri, a member of the Muslim Brotherhood. In 1993, bin Laden’s forces bombed the World Trade Center in New York, doing a lot of damage but not destroying the building. In 1996 Al-Qaeda blew up American military quarters in Khobar Towers in Saudi Arabia, killing nineteen United States airmen and wounding 372 more. Al-Qaeda wanted Americans off of the “sacred” soil of the “Prophet Mohammed’s” homeland, even though the Americans had been stationed there to protect the Saudi Arabians from any Iraqi attacks. Two years later, on August 7, 1998, Al-Qaeda blew up American embassies at Dar es Salaam, Tanzania and Nairobi, Kenya. The date marked the eighth anniversary of the arrival of American forces to defend Saudi Arabia from Iraq in Desert Shield. Suicide bombers killed 212 people and wounded 4,000 more in Nairobi. They also killed at least eleven and wounded 85 in Dar es Salaam. Twelve Americans were killed. Two years later Al-Qaeda attacked the U.S.S. Cole on October 12, 2000, killing seventeen U. S. Navy sailors.

Throughout the 1990’s, it seemed that Al-Qaeda was at war with the United States, but Americans were not fully aware of the threat. While President Clinton did launch missile attacks on Al-Qaeda positions in Afghanistan and in the Sudan, his administration chose to treat these attacks as criminal activities rather than as military assaults. These attacks served as prologues to the major attack on United States soil on September 11, 2001.

  • all of the activities involved in running any type of organization (such as a school or a company); the group of people responsible for running an organization
  • the diplomatic policies of a nation reguarding interactions with other nations
  • an international organization established in 1945 to promote world peace and solve global problems such as hunger and poverty
  • the relationship between politics and geography in reference to foreign policy
  • The Union of Soviet Socialist Republics (USSR) or the Soviet Union was a constitutionally socialist state that existed between 1922 and 1991, ruled as a single-party state by the Communist Party with Moscow as its capital
  • William Jefferson "Bill" Clinton is an American politician who served as the 42nd President of the United States from 1993 to 2001.
  • a contest between businesses to win the most customers or earn the most money
  • Economic condition of inflation and high unemployment.
  • the system which governs or exercises influence over a state or community
  • the power to introduce a new legislative measure by way of voters signing a petition
  • the use of knowledge to develop new devices, tools, or techniques intended to solve an existing problem or to improve, in some way, our quality of life
  • something, such as a trait or circumstance, that helps someone achieve a goal, especially over another person who does not have the benefit of that trait or circumstance.
  • a temporary alliance of nations or people operating in their own self interest for joint action to achieve a common cause
  • a government run by the majority where the people hold the power and have equal rights and privlidges
  • chief executive; the highest position of office in a Republican state
  • a period of temporary reduced economic activity of typically two consecutive quarters
  • a one-party government with a government controlled economy in which government officials, not the free market, determine prices and wages. Communists oppose religion, limit civil liberties and desire the elimination of social classes.
  • a period of sustained political and military tension between the United States and Soviet Union that stops short of full-scale war
  • the main lawmaking body in the United States that consists of the Senate and the House of Representatives
  • a ruler with absolute power
  • the production and sale of goods, in general; a group of businesses that make a particular good or provide a particular service (the automobile industry, the tourist industry)
  • a state of concern or attention; curiosity
  • an electronic network that connects computer networks around the world through a system of shared protocalls
  • the city that serves as the official seat of government in a state or nation
  • the way people use what they have in order to get what they need or want
  • coming from or related to a place outside of one's own country
  • the social, political and economic policies developed by Karl Marx and Friedrich Engels based on class struggle; belief that Capitalism is oppressive and socialism will result in a classless society
  • extremely different; straying from the usual or traditional
  • an amount that is more than what is needed; extra
  • all of the nations that united (including Great Britain, France, and Russia) to defeat the Central Powers during World War I; all of the nations that united (including Great Britain, the Soviet Union, and the United States) to defeat the Axis Powers during World War II
  • the amount of a particular good or service that people want and have the ability to buy
  • an area of dry land with very little rainfall or plant life
  • one very large area or many separate areas under the control of one person or government
  • the highest house of Congress in the United States consisting of two representatives from each state who are elected by the people to serve a six year term
  • a labor strategy in which employees, as a group, refuse to work until the employer agrees to meet their demands or negotiate an agreement that is acceptable to both parties 
  • the amount of a good or service that is available for purchase
  • a formal agreement between two or more nations, usually regarding trade, peace, or alliance
  • a name that refers to all of the states that did not secede from the United States during the American Civil War
  • a proposed law
  • a combination of countries or other parties united for a common purpose
  • part of a larger body of water that extends into land
  • an often customary method of achieving an end
  • the point on a compass that is directly opposite from east; the direction of sunset
  • a period of time marked by a specific characteristic or event that serves as a basis for chronological time