American History, 1877 to present

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The Changing American Economy, 1972-present Introduction In the wake of World War II, the United States entered into the longest period of prosperity and economic stability that it had ever enjoyed. The fruits of this prosperity were broadly distributed. Both major parties were committed to keeping unemployment low through public investments, and record levels of union representation improved wages for millions.

Economic growth in these years supported a stable middle class of working people who might own their suburban homes with a federally guaranteed mortgage, drive to work on federally financed highways, and send their children to a vastly expanded system of affordable public higher education. About one-third of working families enjoyed access to paid vacations, holidays, pensions, and health insurance. Legal discrimination, however, meant that whites benefited disproportionately. The booming American economy had resulted in part from World War II itself. With the federal military as a guaranteed, high-

paying customer during the war, American industries had hired more workers, bought new technologies, and built new plants. The war also largely destroyed international competition for many American industries. Unlike much of Europe or Japan, the US emerged in 1945 with its industrial infrastructure intact. In addition, the depression and war had convinced the richest nations that they had more to gain by coordination than pure competition. Under an arrangement of international agreements referred to as the Bretton Woods system, the US led the non- communist world in organizing trade and investment into a stable framework after the war. International trade was governed by rules worked out among the capitalist countries over many decades and enforced by the World Trade Organization. The rules were put in place to avoid the kinds of instability that had preceded the stock market crash of 1929. Exchange rates were pegged to the US dollar at a fixed ratio--that is, other nations defined their currencies in terms of the dollar, and in turn the United States defined the dollar in terms of a set amount of gold. Thus government action bolstering the US dollar gave an advantage to American banks and businesses in their international dealings. When the United States entered into international economic treaties, in short, it did so as the most powerful player. This post-war system--a bigger economic pie, divided more equally and stabilized by US-led international controls--began to unravel in the 1970s. It was replaced through 4 related processes: deindustrialization, automation, globalization, and financialization. The volatile new service economy that emerged from these transformations has returned the country to a level of inequality last seen in 1928.

Section 1: Deindustrialization and the Rise of the Service Economy • Section Question: How did deindustrialization affect middle

class America? • Question: How did the American dollar affect the world

economy in a way that was beneficial to American business in the post WWII era? Terms:

• 1971 is first time US imported more goods than exported • The world's reserve currency • The fixed currency system • Guarantee of US dollars in gold • The floating currency exchange system In 1971, for the first time in almost 80 years, the United States imported more manufactured goods than it exported--a sign that industries in other parts of the world were surpassing America's capacity. That same year, President Nixon abruptly ended the guarantee that the United States would redeem, or buy, American dollars in gold. Thus, the United States dollar was no longer

guaranteed to be the world's reserve currency, the currency that other nations would use to make international transactions. Nixon's decision recognized the loss of America's former dominance as an exporter of manufactured goods. US businesses were changing, moving away from trade in tangible, material items toward more volatile financial instruments and the sale of currencies themselves. In 1970, for example, virtually all the commodities, or goods and services, traded on the futures market of the Chicago Mercantile Exchange were tangible products like grains or gold;; by 2004, about three-quarters were intangible currencies or financial instruments. Americans had been paying for all those imports of consumer goods and oil in dollars. If the foreign firms and governments that held those dollars now were to try to redeem, or buy, them in gold as promised, US gold reserves would be drained. But when the United States suddenly cancelled the promise of convertibility, all those stable exchange rates were thrown into flux. Exchange rates now "floated" rather than being calculated against the dollar in a fixed, predictable ratio. The Swiss franc, for example, might be worth about 24 cents one month and 25 cents the next---and if you bought enough francs at the right moment, and sold them again in a hurry, you might make a considerable profit out of that single penny's difference. On the other hand, if the slight change in value went the other way, your Swiss counterpart would come out ahead. Either way, the profits to be made from buying and selling money or financial instruments instead of goods or services depended on volatile prices and nonproductive investments. • Question: After 1970, increased productivity did not improve

wages. How did an increase in the power of businesses influence this? Terms:

• Rise in prices in the 1970s • Rise in the price of oil in the late 1970s • Stagflation • Income increase 1979-2009 • Inflation-fighting strategies • Business Roundtable lobbies Congress • Pro-business influence on Democrats and Republicans Other signs of deindustrialization hit closer to ordinary people's jobs and homes. In the decades after World War II, productivity had increased--that is, each individual worker had produced more goods and services, and more profits for his employer. In response, employees had organized into unions and collectively pushed for wages and benefits to increase alongside profits.

In 1973 that annual growth in productivity slowed down dramatically;; but growth in wages slowed even more, and essentially came to a halt. After the early 1970s, therefore, the majority of Americans could no longer expect to live better than their own parents even when producing more and working longer hours. While wages stalled out and unemployment increased dramatically, however, prices rose. In the 1970s, many oil- producing countries remade petroleum markets in line with their

own economic and political interests. When the price of oil almost doubled, it boosted the cost of everything it touched, from the rush-hour commute to the wheat grown with petrochemicals on America's massive mechanized industrial farms. This combination of high inflation, on the one hand, with high unemployment and stagnant wages, on the other, contradicted economic common sense.

A new term, "stagflation," had to be coined for such an unprecedented development. The administrations of both Jimmy Carter and then Ronald Reagan had to choose whether to make unemployment or inflation their economic priority, since actions to fix one problem could be expected to exacerbate the other, at least in the short term. Both chose to address inflation rather than unemployment. A robust new economic philosophy thus aggressively sacrificed jobs and wages to reining in inflation. The new economic orthodoxy represented a social movement of financial and corporate actors. Organized into lobbying groups like the new Business Roundtable, the nation's largest corporations influenced tax policy in their favor and scored notable victories over organized labor in the 1970s and '80s. Concerned about the rising consumer protection movement, they also successfully championed legal changes that protected

corporations from lawsuits and insulated them from responsibility for environmental destruction. Business Roundtable members are the chief executive officers of leading US companies. Listed are a few of the companies in the Business Roundtable. While the Business Roundtable performs a number of services for the business sector, they became particularly adept in the 1970s and 80s in lobbying and influencing Congress for and against legislation. Their influence in Washington, D.C., continues to this day.

This newly influential movement opposed collective bargaining on the job and public safety nets in favor of strong private property rights and militant anti-communism. It argued for expanding some functions of government, like the military and prison systems, while limiting social services. This vision was popularized in part through foundations and think-tanks that drew their funding from corporate fortunes. Their influence extended to the White House, where experts nurtured by this apparatus became influential economic advisors. The new economic thinking, moreover, became necessary to national electoral success by both parties. Democratic administrations as well as Republican ones promoted free trade, privatization, and financialization, or the process by which banking and trade in currencies becomes a

dominant part of the economy. The changing economy, in other words, remade the political landscape. • Question: How did working Americans manage to survive in

an age of wage decline and dropping incomes? Terms: • Growth of income by social class • Percentage of working poor • Growth in low income jobs • Growth of household debt • Chinese origins of borrowed money • Two income household • The hottest job categories in the service economy • Underground economy • Racial component of drug dealing • Cocaine and crack cocaine • US incarceration rates compared to other countries The result was a reversal of the policies that had increased and stabilized the middle class since World War II. The top 20 percent of households saw their incomes rise by almost 50 percent between 1979 and 2009;; the bottom 20 percent saw theirs shrink by more than 7 percent.

Whereas a growing economy had once meant that incomes grew for all sectors of the population, after the early 1970s growth was concentrated in the very wealthiest households;; middle-class incomes grew much less, and the poorest households lost ground. The deliberate dismantling of the New Deal after 1970 produced a level of inequality that had not been matched since right before the Great Depression. Inequality grew, moreover, both in good times and bad after 1970. More than half of all new jobs created in the Reagan years paid below the poverty line. During the long boom of the Clinton presidency (1992-2000), low unemployment did not mean that the most plentiful jobs could sustain families. And even with inflation under control, some of the most important items in family budgets became increasingly expensive. The costs of housing, transportation, health care, and a college education absorbed ever greater shares of family incomes. The working poor are classified as people who are working but their incomes fall below what the federal government calls the poverty line--the minimum income needed to sustain a family. The Bureau of Labor Statistics began to more accurately track the numbers of working poor in 1987, classifying them as working for at least 27 weeks or more but with wages that fall below the poverty line.

Faced with flat wage rates and frequent lay-offs, but higher prices for the economic basics of stable family life, middle-class Americans had only a few routes open to them to maintain their standard of living and secure their children's futures. One widespread solution to the shrinking wage was borrowing. While the owners of American business and industry were reluctant to pay their employees higher wages, they were increasingly eager to loan them money to make up the difference, now that they had invented ways to package and trade consumer debt around the world as a profitable new form of speculative currency. In essence, the surplus savings of countries like China could be recycled as credit for American households, whose continued consumption--with this borrowed money--stimulated production in other parts. Taking on record levels of household debt helped plug the gaps caused by stagnating wages and rising fixed costs, but by itself it was seldom enough to make up the difference. Household debt is the total of all debts incurred from home mortgages, home equity loans, auto loans, student loans, and credit cards debts, which is then averaged per American family.

The other major solution was to send another member of the household out to earn a paycheck. By 1980, the majority of households included 2 earners. Women's movement into the workforce offset the loss of household buying power through unemployment or stagnant wages. With more mothers working

outside their homes some of their household work had to be replaced, and their husbands did not take up the slack. Even when husbands and wives both worked full time, women from the mid-1980s to the 2010s continued to do about twice as much housework as their husbands. Instead, then, of dividing domestic labor equally, families that could afford it relied more on commercial service providers like restaurants, day-care centers, and nursing homes that hired minimum-wage employees. Some families paid other women to perform housework and childcare at home--increasingly, women who could be paid less than minimum wage because of their undocumented immigration status. Across the board, from domestic workers to doctors, women continue to earn 20 to 30 percent less than men in the same occupations. A woman in 2008 had to earn a college degree to make the same as a man with just a high school diploma.

Conditions that strained middle-class families nonetheless rewarded many women with new access to meaningful, challenging, and even relatively well-paid work once new federal law prevented discrimination on the basis of sex. Poor women experienced these changes differently. Leaving the work of the

home for paid work, in their cases, usually meant taking on stressful, insecure, low-paid jobs without benefits--the kinds of jobs that sectors like retail and fast-food relied upon for their record profits. This sharp division in the kinds of jobs available was not confined to women workers. Despite all the faith placed in the "knowledge economy," none of the hottest job categories of the 2010s required a college education. The single biggest job category was retail clerk, for example, and the fastest-growing was home health aid. Both pay median wages below the federal poverty threshold for a family of 4. Meanwhile, the business-backed free-market policies demanded cuts in the public investments that had raised many Americans-- especially white Americans--into the middle class during the postwar period. To help sway public opinion against the kind of social safety nets offered by other industrial countries, conservatives found a useful scapegoat in the figure of the "welfare queen." Ronald Reagan never used the term "welfare queen" in his speeches. But he did on several occasions tell the story of an African American woman, Linda Taylor, to illustrate his arguments for the reduction of social service programs. Taylor was a welfare mother who had committed fraud on a large scale not only of the Aid to Dependent Children program, called welfare, but other major federal programs to help the poor. "Welfare queen" became a popular term in politics and the media for poor women, particularly African American women, who received government support. Resentment toward taxpayer-funded social programs for the poor grew as tax structures changed to rely more heavily on the middle class than on corporations or the wealthy. Once the Civil Rights Act of 1965 forced states to stop denying relief to black citizens while providing it for white ones, media coverage overwhelmingly represented aid recipients as African American. In 1996 President Clinton signed a bipartisan bill that shed many mothers and children from the welfare rolls. But with these

welfare moms largely entering minimum-wage work, even a full- time job couldn't raise them from poverty, especially as the federal minimum wage shrank in real terms to less than its value in 1970. An equally drastic way to handle unemployment lay in the development of the largest carceral, or prison, state in human history. The United States began imprisoning its citizens at a rate unseen anywhere in the world at any time, a rate 6 to 10 times greater than any other industrial nation. In the 30 years between 1960 and 1990, for example, crime rates in the US and Germany were almost identical;; yet over that period, the US incarcerated people at 8 times the rate of Germany. Most of the growth in the incarcerated population came from new policies toward non-violent drug offenders. While research consistently demonstrates that virtually equal proportions of blacks and whites use and sell illegal drugs, some states convict black men at 20 to 50 times the rates of their white counterparts. Even after sentences were served, the explosion in racially skewed nonviolent drug convictions created a pool of citizens who could be legally discriminated against in hiring and shut out of benefits like student loans, public housing, or food stamps. Meanwhile, communities across the country lobbied for prisons to be constructed where factories had fled and farms had collapsed. Taxpayer money could create jobs in building prisons and guarding inmates in rural, largely white towns.

Section 2: The Effects of Automation and Globalization • Section Question: What is the difference between automation

and globalization and what impact did the processes have on American workers?

• Question: How did computers change the American workplace? Terms:

• Increase pay of CEOs • Bifurcation of the economy--high wage knowledge employees,

low wage service sector • Technological developments from defense contracts • Automation • Manufacturing production and employment • African Americans replaced by automation The computing revolution enabled the economic transformations of the millennial era, the years before and after 2000, from Wall Street to Walmart, from the dot-com bubble to the housing bubble. But the technology by itself could not fundamentally remake work, production, and exchange--even, perhaps, consciousness itself, through the increasing integration of networked computers with their human users. Instead, like all tools, computers wrought their changes in the hands of specific actors, who turned them to particular ends under historically unique conditions--and often with unintended consequences. Both computers and the networks that multiplied their power grew from a complex web of Cold War defense dollars, publicly subsidized universities, and private, for-profit contractors. The silicon transistor that anchored California's Silicon Valley and the entire global microprocessor industry, for example, was originally developed to withstand the performance demands of guiding the first Minuteman ballistic missiles. The Internet was born of a Vietnam War-era Department of Defense project to connect its research projects at major universities on the East and West coasts. Information technology transformed the American experience of producing and consuming in important ways. Changing production involved automation, or replacing people with machines. Even during the postwar boom years, companies were trying to produce more with fewer workers-- indeed, that was the definition of the productivity gains that underwrote those secure, high-wage jobs. DARPA and the Internet

As long as overall output grew, the factories were still dependent on actual employees. Each individual employee, however, was responsible for producing more than previously, so that new workers were not hired at the same rate as before. Between 1957 and 1964, for example, manufacturing output in the US doubled;; the number of blue-collar workers, however, fell slightly. Growing industry did not necessarily mean growing employment, but it did mean relative stability for those already on the job.

But the advent of computer-assisted production--developed through government investment in research and Cold War markets for military technologies--accelerated the process of replacing jobs with machines. The effects hit African American workers first, well before the 1970s. The wartime boom and the executive order forbidding discrimination in industries that accepted government contracts had encouraged millions of black Southerners to leave behind a system of racial terrorism and head to greater political freedom and economic opportunity. In the northern and western cities, however, they were shunted to the worst of the jobs in auto assembly, meat-packing, or chemical factories. It was these jobs that felt the first brunt of unemployment--twice that of whites-- when manufacturers built new, automated, computer-assisted

plants in the suburbs during the postwar boom years. Automated Assembly Line of Ford's F-150, Dearborn, Michigan, 2010 In the increasingly automated factories, these downsized workers and other close observers could see the outline of the future as far back as mid-century. Mathematician Norbert Weiner, the father of cybernetics, warned in 1950 that an "automatic machine…is the precise economic equivalent of slave labor. Any labor which competes with slave labor must accept the economic consequences of slave labor." Immediately after the end of World War II, novelist Kurt Vonnegut was working in a GE factory and watching computer-operated milling machines replace skilled work. From that experience he created a dystopian fantasy of mass unemployment from automation in his 1952 novel Player Piano. About the same time, at a Ford Motor plant in Ohio, a company manager showed the president of the powerful auto union around the newly automated plan. Pointing to the robots, he asked, "How are you going to collect union dues from these guys?" The labor organizer replied, "How are you going to sell them Fords?" • Question: How did the computer create globalization--making

the labor and products of world economy available to American businesses--and ultimately take labor away from American workers? Terms:

• Wall Street becomes center of international business networked through computers

• "Knowledge workers" • "No collar" workplace • Dot-com industries • Computers and the financial industry • "Casino economy" • Speculative v. productive investment Computer technologies quickly moved into many offices, too, polarizing the workforce into white-collar and pink-collar jobs. An IBM computer in an insurance firm of the 1960s, for example,

might offer tools that empowered some of the high-end "knowledge workers." At the same time, it split off more routine functions into low-wage, high-stress, monotonous data processing, overwhelmingly performed by women. Computerized airline reservations systems built on military technologies and helped turn air travel from a luxury into a relatively commonplace experience. But the computerized systems also micromanaged the reservation clerks, imposing a rigid structure on their interactions with customers, listening in on their calls, and generating hourly reports of their productivity down to the second. The introduction of computers into the workplace meant greater freedom for some, greater control and routinization for many more. Airline Ticketing Agents

In a later wave of innovation, the public money that subsidized the Internet sector sparked the rise of the "no-collar" workplace, in which companies like Google strove to make work feel like play for a select echelon of knowledge workers. Their "campuses" came equipped with massage therapists, giant playgrounds, and 24-hour cafeterias to encourage round-the- clock creative labor--the opposite, in some ways, of the automated drudgery that computerization represented for low- wage workers. The dot-com boom of the 1990s was touched off by federally subsidized research and infrastructure resulting in web browsers that transformed the World Wide Web into a more useful tool for accessing goods and services. New start-ups leapt into the Internet sector and concentrated on building public awareness of their brands through aggressive marketing rather than creating profits. Indeed, many of their

services they offered for free, in the expectation that they could later charge for them or sell advertising once they commanded a large enough market share. The dot-com stocks soared through the late 1990s, reflecting widespread optimism about the future profitability of the new medium. The dot-com employees themselves often accepted stock options in place of straight pay, and the new technology itself allowed individuals to speculate on the industry through Internet trading. By 2001, many of the speculative new companies had burned through their initial public offerings of stock or venture capital investments without ever having managed to produce revenue, let alone profits. Many failed completely;; others survived this low and rebounded;; a few were shown to have engaged in illegal fraud in an effort to surf the speculative wave. Information technology was enormously significant, then, both as a tool to change older forms of industrial and office work and as a volatile new sector of the economy itself. But arguably its greatest impact was the least visible one: The world of finance seized on the new tools to change the underlying basis of the global economy. Powerful calculating capacity and instantaneous communications combined to empower Wall Street to expand its products and its markets. Once it became possible to calculate vast, complex new forms of financial relationships, respond to split-second changes, and track millions of transactions simultaneously, the investment bankers and bond traders had every incentive to alter the rules as well. The Old Stock Exchange, 1960s, and The New Stock Exchange, 2000s

The "casino economy"--this explosion of creative, globalized financial activity--came at the expense of the older productive economy, those post-war factories where workers' rising productivity and union representation produced stable jobs with benefits and rising wages. Simple arithmetic came into play. Before the Great Recession (2007-2009), a dollar invested in the new securities (partial ownership in companies or financial entities), a dollar speculated on real estate, or a dollar bet on wildly fluctuating exchange rates around the world could produce more profit than a dollar invested in an American factory or a small business.

• Question: How are modern companies organized differently

than older ones, as an example Nike? Terms: • Nike makes a brand, it does not own a factory • "Our industry follows poverty" • Coca-Cola sales internationally But while the dollars followed the higher profits into speculation rather than productive investment, Americans continued to need the kinds of goods that factories produced. In addition to automating to eliminate employees, businesses therefore moved

their production--first to the poorer parts of the country, then to poorer parts of the world as they succeeded in changing the rules of international trade. Earlier in the 20th century, giants like the Ford Motor Company had struggled to get control of the whole chain of production, from manufacturing its own steel to generating its own advertising. In contrast, many companies in the late 20th century saw factories, products, and workers themselves as liabilities rather than assets. Instead, the key to profitability lay in cultivating a blue-chip brand name by ever more sophisticated marketing, advertising, and celebrity sponsorship. Actually making the products was less important and could be outsourced to contractors around the world. "[T]he future belongs to companies--like Coca-Cola Co.-- that own little but sell much," proclaimed Business Week in 1998. The chairman of Nike advised, "There is no value in making things anymore." Lobbying successfully for free trade agreements that opened borders to corporations and capital (but not to most workers), American companies spread their contracts for manufactured goods around the globe. The big brands hunted out the locations with the lowest wages and laxest labor controls in order to subcontract production at the speed and price the marketing demanded. Disney products were made in Haiti for 28 cents an hour, but as a Disney spokesman said, "We don't employ anyone in Haiti." By outsourcing, Disney and others avoided any responsibility for how the goods they marketed were produced. As soon as wages begin to rise in one country, suppliers are on the hunt for a cheaper corner of production in another, from Colombia to China to Bangladesh. Export processing zones even offered a better deal to employers. In return for locating a factory to one of these special enclaves in a poor country, a company could avoid taxes and labor laws for many years, and move on when the holiday ended. "Our industry follows poverty," a garment manufacturer stated bluntly. With fewer American factories came fewer of those stable

working-class jobs. Instead, a small number of Americans would work in offices and a growing number would slide down the employment chain into an expanding pool of traditionally female service occupations like retail, childcare, health services, or food preparation. These "McJobs," as they came to be called, commanded low wages and the part-time schedules that allowed even large, highly profitable companies to avoid paying benefits. Not coincidentally, they largely lacked union representation, so the major tool that had allowed employees to improve working conditions and compensation in earlier decades was not available to these workers. The McJobs remained dominated by white women and people of color, but under pressure from the low-wage economy, white men's jobs, too, came to look more like them. At the same time, the export of jobs did not mean that factory workers around the world moved into the kind of middle-class stability that Americans had enjoyed mid-century under different policies, because the company could always move on. Thus, while international trade itself was nothing new, the globalization of the late 20th century was quite different in a number of ways from what had gone before: The old firms had largely employed Americans to make the goods;; by 1980, in contrast, 80 percent of the revenues of US corporations actually came from overseas production. At the same time, they came to depend more heavily on overseas consumers of their products than ever before, often dissolving the distinction between "domestic" and "international" markets. By the mid-1990s, for example, 4 out of every 5 bottles of Coca- Cola were sold outside the US What was an "American" corporation, then, when only a fraction of both production and consumption was based at home? And with a minority of workers and customers in the US, why should a company keep its profits at home if taxes or interest rates or regulations elsewhere were more favorable? Liberia, for example, designed its ship registration laws to the specifications of US oil companies, so that they could register ships there and

avoid complying with American labor law. Financial firms closed up shop in the US and reincorporated in Bermuda, where the US insurance industry had drawn up the legal system to their liking. Rather than antagonize such companies into pulling up stakes, governments had to acquiesce, or agree, to their preferences. Political positions came to be measured in part by their effect on stock prices, and corporate taxes, which had once provided a third of US public revenues, now accounted for little more than 10 percent.

Section 3: The Financialization of the American Economy • Section Question: What is financialization and how did it

impact the American middle class? • Question: How did American financial institutions encourage

Americans to get themselves into debt and why? Terms: • How inflation affected the economy • Increase in household debt • Reduction in corporate income taxes • NINA mortgages

• Financialization • "Vast casino economy" The inflation of the early 1970s created the opportunity for this technology-assisted revolution in finance that stretched from international investment banks all the way down to individual households. Inflation meant that money sitting in a savings account was actually losing value. The modest, safe levels of interest it was earning in a traditional bank could not offset these losses, and meanwhile prices on goods and services would continue to rise. By the same token, inflation meant that money borrowed as credit was worth more today, when it was spent, than in the future, when it had to be paid back. The logic of savings versus borrowing, in other words, was turned on its head. Households therefore borrowed more, increasing the demand for credit. The trend only accelerated through the turn of the 21st century;; from 1975 to 2007, total household debt more than quadrupled.

Aware that they were in effect losing money in traditional savings accounts, American consumers also sought out other places to put their savings in the hopes of higher returns. To win the business of these potential new small investors, financial institutions had to figure out ways around the federal regulations that had been put in place during the Great Depression of the 1930s to stabilize banks and protect the deposits of ordinary people. One way to avoid these regulations was to bundle together many

small investments into a larger instrument, like a money market mutual fund. These funds could buy and sell short-term debt that earned a higher rate than the safer, regulated accounts. This kind of investing went against many Americans' cautious approaches to their savings. So financial institutions innovated in the 1970s with new ways to market their new financial instruments to individual households, just like any other consumer product. "We took ideas from Proctor and Gamble," one equity firm told a reporter. "If one company can sell fifteen different brands of soap flakes, why can't another peddle as many bond funds?"

Marketing directly to middle-class households stressed by inflation and unemployment turned out to work. From an initial $1.7 billion in 1974, the money market funds came to hold $200 billion by 1982--much of it from Americans who had never invested before. Soon, other regulations that had limited stock market trading by smaller investors were dropped. Firms like Charles Schwab rushed in to offer stock brokering services to people who, a decade earlier, would largely have put their money into risk-free savings accounts or certificates of deposit. As regulation after regulation fell to the new conservative political pressure, investment firms found new ways to bundle and sell household debt, from credit cards charges to the cornerstone of American middle-class life--the home mortgage. This new way to sell

household debt gave American households access to cheap credit from around the world to offset stagnant incomes. It gave the architects of US economic policy a way to make US investments attractive for foreign wealth. Overseas investors had been sitting on the US dollars with which America paid for its oil and consumer imports. Now, the new derivatives offered an enticing new place to put that money. • Question: How did the financialization process eventually lead

to the Great Recession with devastating results for the American middle class? Terms:

• Mortgage-backed securities process • Percentage of subprime mortgages • Collateralized debt obligations • Mortgage-backed securities and the Great Recession • Gordon Gekko and the investing climate And it wasn't just international investors who leapt at the chance to earn interest on their savings by loaning it to homebuyers. The new Reagan-era regulations encouraged pension funds and other retirement savings plans to invest in these new financial instruments as well. By the end of the 1990s, outstanding mortgage-backed securities totaled 1 trillion dollars.

With so many customers lining up on both sides of the transaction, the private mortgage market aggressively pursued people who could not easily qualify for cheaper, safer credit. Borrowers who had been shut out of federally guaranteed mortgages in the postwar decades were increasingly sought as customers for "subprime mortgages." These subprime mortgages were riskier and more expensive for the borrower, because of high fees, and higher, variable interest rates, meaning that the interest was not set but changed with money markets. Mortgage companies made their money on the fees generated by writing new mortgages. They then quickly sold the mortgages to the brokers to bundle and slice and securitize. Thus, the brokers had every incentive to write as many loans as possible. If the borrower defaulted down the road, the brokers' money had already been made. This new model of pooling many households' debt, then slicing it up and selling it off as different kinds of securities (where investors could own the debt and the interest that was paid on it), created a whole new market in consumer debts. Besides these collateralized mortgage obligations, there were now other "collateralized debt obligations" such as credit card debts, student loans, and corporate bonds. These were also bundled, sliced up, and sold around the world. The changes in law and oversight that allowed for securitization--for turning individual debts into securities that could be bought and sold--helped finance the most influential sector of the economy. At the end of the 20th century and the opening years of the new millennium, Americans produced debt the way they had built cars in an earlier generation. To justify the new rules that encouraged this boom in financial speculation, the newly influential conservative economists argued that the stock market was an instrument for channeling investment into productive industries. If people at the top of America's business world were permitted to collect a larger share of the nation's wealth, the reasoning went, they would then turn and invest it in building new factories and creating new jobs for everyone else.

Instead, it became what one scholar calls a "vast casino," where short-term profits could be made by betting on fluctuations in financial markets around the world. The old cycle of economic panics and crashes that had been deliberately stabilized by national policies in the post-war decades now returned in full force, for the first time since the Great Depression. The new financial instability made headlines first with a series of sleazy insider-trading scandals in 1986. Individual white-collar crooks like junk-bond king Michael Milken were easy to understand. They cheated, they broke the law, and they gamed the system. Less comprehensible to most people were the systemic failures, like the stock market crash of October 1987 and the subsequent meltdown of the savings and loan industry that had built itself up on risky real estate speculation. Insider trading was a clear case of breaking the rules. In contrast, these wider financial disasters were proof that the rules themselves had changed. Sophisticated forms of gambling were now entirely legal, yet they produced even worse outcomes than

the cheating and illegal dealing. Without clear-cut villains in real life, many Americans sought to make sense of the risky, high- stakes world of finance through best-selling novels like Bonfire of the Vanities, or memoirs like Liar's Poker. Both novels made the booming world of high finance seem as glamorous as Hollywood.

Stories like these dramatized individual narratives of the free- wheeling, cocaine-powered young bond-traders as a new kind of hero. They were attractive for their brash, rule-breaking audacity but also repugnant for their amoral methods--much like cowboys or gangsters of earlier stories. In 1987, director Oliver Stone's movie Wall Street gave the Reagan era one of its most lasting emblems in the character of Gordon Gekko, a ruthless corporate raider. He advises his young protégé that "Greed is good." Gekko is the movie's villain, but as the Soviet bloc crumbled and capitalism emerged triumphant in the Cold War, audiences from Manhattan to Moscow interpreted him as a hero.

• Question: What was the impact of the Great Recession on the

finance institutions and the American middle class? Terms: • The Great Recession • The bailout • The progress of the social classes in 2000-2010 If these earlier crises were difficult to comprehend, then the worst financial calamity since the Great Depression left the nation dazed and, in many cases, destitute. Housing prices, it turned out, could not climb endlessly. When they started to fall in 2006, people who had borrowed against that future promise were caught short. The financial wizards and their sophisticated algorithms had miscalculated, and they turned to the federal government to make up the difference.

The nation began to slide into a recession in December 2007. But it soon became clear in September 2008 that this was no ordinary or mild recession. In the space of a little over one month, some of the largest financial institutions in the world went bankrupt, sold themselves out to competitors, or submitted to public oversight in return for accepting $700 billion dollars in the federal bailout. In short, the US government and other governments around the world were forced to buy significant shares of the banking institutions rather than let the world economy slide into an even worse depression. Ironically, after 30 years of anti-government ideology and deregulation, the financial champions of free

markets demanded a level of government participation that would have shocked the most ardent communists of the Cold War. From the cusp of the 1970s, the economic landscape of the 2010s would appear a precarious wilderness indeed. American life in the twentieth century had been organized around the corporation. These corporations set the pattern for production, employment, ownership, development, even family life and leisure. Essay: The Changing American Economy, 1972-present Introduction

Bretton Woods system 4 Processes of the Modern American Economy: Deindustrialization,

Automation, Globalization, and Financialization

Section 1: Deindustrialization and the Rise of the Service Economy 1971 is first time US imported more than exported The world's reserve currency The fixed currency system Guarantee of US dollars in gold The floating currency exchange system Slowdown in productivity and growth in wages in 1973 Rise in prices in the 1970s Rise in the price of oil in the late 1970s Stagflation Income increase 1979-2009 Inflation-fighting strategies Business Roundtable lobbies Congress Pro-business influence on Democrats and Republicans Growth of income by social class Percentage of working poor Growth in low income jobs Growth of household debt Chinese origins of borrowed money Two income household

The hottest job categories in the service economy The underground economy Racial component of drug use and dealing Cocaine and crack cocaine US incarceration rates compared to other nations

Section 2: The Effects of Automation and Globalization Increase pay of CEOs Bifurcation of the economy--high wage knowledge employees, low

wage service sector Technological developments from defense contracts Automation Manufacturing production and employment African Americans replaced by automation Wall Street becomes center of international business networked through

computers "Knowledge workers" "No collar" workplace Dot-com industries Computers and the financial industry "Casino economy" Speculative vs. productive investment Nike makes a brand, it does not own a factory "Our industry follows poverty" Coca-Cola sales internationally

Section 3: The Financialization of the American Economy How inflation affected the economy Increase in household debt Reduction in corporate income taxes NINA mortgages Financialization "Vast casino economy" Mortgage-backed securities process Percentage of subprime mortgages Collateralized debt obligations Mortgage-backed securities and the Great Recession Gordon Gekko and the investing climate The Great Recession The bailout

The progress of the social classes in 2000-10 Effects of the 4 processes (deindustrialization, automation,

globalization, and financialization) on American workers in the last 40 years

Lecture/Slides/Problems Lecture: The Gay and Lesbian Rights Movement

Experience of gay and lesbian service in WWII Psychology used to stigmatize gay and lesbian Americans Lavender Scare "Sexual perverts" and a national security risk Executive Order 10450 Private and defense employers follow the government State department investigations Suicides and resignation Supreme Court ruling in 1969 against federal employment

discrimination Local and state crackdown following the Lavender Scare Mattachine Society and common or group interests Same-sex politics and the 1960s "Right to privacy" The protest against the American Psychology Association Compton Cafeteria and Stonewall Inn "Gay Pride" celebrations Harvey Milk New Christian Right AIDS Gay and lesbian fight for civil rights at local level Election of Ronald Reagan in 1980 Reagan cuts social services Christian right Jerry Falwell C. Everett Coop Reagan speech in 1987 Lawrence v. Texas LGBT (Lesbian, Gay, Bisexual, and Transgender) Gay marriage Hawaii decision in 1993 Federal and state Defense of Marriage Act (DOMA)

US v. Windsor

Problem: The Rodney King Riots Rodney King incident Los Angeles Riots Proof of aggressive policing LAPD and police brutality claims Trial in white neighborhood Different interpretations: Law and order problem vs. protest and

resistance

The New Deal system of social provisions that created a mass American middle class represented the political power of industrial employees. A third of the stable tax base that funded it came from American corporations rooted to their national base of workers and customers. With American business as well as the American military triumphant in World War II, the United States had brokered the rules of international trade and investment.

Forty years later, markets themselves lay down many of the rules for American life through socially embedded tools like information technology and securitization. Both corporations and governments respond to the imperatives of financial markets, seeking to attract capital from a global cast of potential investors. For employees, this reorientation has meant an end to stable employment, a slide into low-wage, no-benefits service work, and a rise in risk. For citizens, it has meant the reduction of the social safety net, a shrinking public sphere, and record inequality.