Inside America: The Rise and Fall of An Empire

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What was really happening in the American economy during the Eighties and why was Mara so upset? Well, during most of the twentieth century, America grew strong because it produced and exported more manufactured goods than it imported, American citizens saved more than they consumed and America borrowed less money than other counties to fuel its Second Wave industries. After the Second World War most of the planet was in economic ruins and American money and manufactured goods poured into the new markets with little threat of foreign competition. America was the most powerful country on Earth and it not only exported its goods to the world, but also lent money to the world so that it could buy these goods. It was a pretty good deal.

In America during this time of high economic productivity, the industrial unions were strong and they were able to negotiate good wages for their workers. Tax revenues were high and the American government invested in education, housing, and transportation. As farm work decreased, the pace of urban and industrial development accelerated. Besides manufacturing jobs, the American economy began producing many white-collar jobs that demanded more education. It became easier for the average American worker after the Second World war to own a home. Especially, outside the cities in the new expanding suburbs.

We have talked about this before, but it's important to mention all this again. During the Fifties and Sixties the idea of extending consumer credit to more Americans became acceptable because of the continuing prosperity mirrored in real growing wages and low unemployment. Often small businesses extended credit to American customers in the small towns and local regions were many Americans lived, but small businesses and their credit began to disappear when huge shopping malls and giant retail stores began to appear in the new suburbs.

By the early Seventies, mounting international and domestic pressures began to erode America's economic and political foundations. The cost of the Vietnam war and the rise of new economic competitors in Europe and Japan forced many American corporations to shift their attention away from exports and into focusing their energies on producing and marketing for the rich American consumer market. With the exception of the military industries, American companies began investing in consumer products, not in the production of goods. That was done more and more in other countries where labor was cheaper. Financial services, health, recreation, and information became the new money making sources for American big business. These were the new Third Wave industries which would in time become connected to digital computers and credit cards.

These new economic post-industrial trends were accelerated by the oil shocks of the Seventies. Remember, Second Wave industries need lot's of oil. Automobiles need lot's of gasoline and power plants and factories need much fuel to burn. Many new jobs that were created by the new Third Wave economy needed more educated workers. But many of the new service jobs also being created were often low-wage, unskilled, and non-union kinds of work. By the time President Reagan came to power, American corporate profits were falling, more and more Americans were making less money, and America's ability to be the policeman of the world was becoming harder and harder to do without some new kind of economic strategy.

The solution to these problems was simple to President Reagan and his advisors. America would cut taxes for the rich, start a defense boom, and borrow money like crazy from the rest of the world to finance all this new government spending. Social spending was slowed down, but except for cutting programs for poor people little change actually occurred. America now became a nation centered on consumption, debt, and imports. America's national debt began to sky-rocket to over two trillion dollars. Americans stopped saving as foreigners began pumping money into America to finance America's huge military and social programs.

More and more money was used by American companies to buy each other out so that only a few very large companies remained. The American stock market began to boom also. America became a good place to invest one's money if one was rich and also foreign. The decade of the junk bond arrived. Corporate debt became a big business and even smaller companies were able to buy out bigger ones with the new financial tools being invented in New York, but it was all just a paper game with little economic production behind it. Many American investors became rich and the American government benefited also from these short-term economic policies.

But most Americans did not. The number of billionaires in America went up even as more and more Americans scrambled just to keep up with rising living costs and with insecure jobs that paid less and less. The Third Wave was becoming no fun at all. Yet it was the American worker who was told he had to consume more. Where would he find the money to do this? Like the American government he would borrow, but instead of using government bonds he would use his credit card.

This was important because by the late eighties consumer spending would amount to two-thirds of all American economic activity and three-fourths of all American employment. The American consumer was finally king even if he was broke. The credit card would become his lender of last resort and at high interest too. America was fast on its way to becoming a credit-card nation. Plastic money combined with digital computers would define the new post-industrial era.


October 1986, Washington D.C. The American Congress learned during this time that an illegal and secret policy had been carried out by the Reagan administration to sell missiles to Iran in exchange for the release of American hostages in Lebanon. The profits from the sale of arms were then used to finance operations of guerillas in Nicaragua who were fighting a Marxist regime that was opposed by the CIA and other secret intelligence services in Washington.

Both President Reagan and Vice-President Bush were implicated in the scandal and congressional investigations led by a special prosecutor concluded that both President Reagan and many of his advisors had deliberately misled the public and the American government about the secret sales to Iran and Nicaragua. President Reagan went on national television and gave a confused explanation of his administration's actions and took responsibility for the scandal declaring that he had known nothing about its details.

President Reagan's position began to look vulnerable, but after months of further investigations the president was cleared of all wrong-doings. Once more the Great Communicator had survived yet another challenge to his position. Yet, American involvement in the Middle East would continue to escalate both in Iran, Lebanon, and Afghanistan with tragic reprucussions later on, at the end of the century and beyond.

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All contents of this site copyright by Michael Arthur Finberg