That Seventies Show
Stein's proposition is that, besotted by hubris that the good times would never end, and also by perceived cold war strategic imperatives, America gifted the rest of the industrial world with unprecedented trade concessions: unfettered access to the US market, a blind eye to others' protectionism and a willful indifference to the possibility that these policies could render American industry vulnerable (indeed, we even encouraged Europe to form an economic cartel that "allowed Western Europeans to trade more with each other, even though this trade came at the expense of America's own commerce"). We worked a similar generosity on one strategic corner of the industrializing world. Japan's per capita GDP in 1950, Stein points out, was about the same as ours was in 1850. We helped that country catch up: the president of Toyota called the Korean War "Toyota's salvation" because of the thousand trucks a month the US military began ordering. In 1953 "the National Security Council urged the entry of Japanese goods to the United States to halt 'economic deterioration and falling living standards' in Japan that 'create fertile ground for Communist subversion.'" Walter Heller, chair of the Council of Economic Advisers during the Kennedy and Johnson administrations, said one of the advantages of the 1964 income tax cut was that it would make it easier for Americans to buy Japanese products.
Heller and his ilk assumed that America would be the kingdom and the power and the glory forever, amen. ("No one imagined" and "never imagined" are phrases that redound across Pivotal Decade's early chapters.) "After the war," Stein reports, "the United States contained 60 percent of all the capital stock of the advanced capitalist countries and produced 60 percent of all output. Even in the 1970s, these figures were still 50 percent." But by 1971 the United States was running a trade deficit for the first time since 1893. How did a country with just about half the wealth in the world end up buying more stuff from abroad than it sold? Our elites let it happen on purpose. They gave away the store.
Through tax incentives companies were encouraged to transfer technology to foreign competitors. The Trade Expansion Act of 1962 let them build factories in Europe, which they loved to do not merely for the cheaper labor and reduced costs for transport to European customers but also because it eased the charge that they were foreign interlopers. The law made it easy for the president simply to strike wide classes of import tariffs from the books, which he was eager to do; what Stein calls the "new European mercantilism" one old-fashioned New Deal economist described as "the administration's holy cause." A 1964 innovation let US components assembled abroad re-enter the United States taxed only on the value added in assembly. "Even Americans who predicted economic harm," she says, "supported unilateral trade reductions." Numbers tell the story: "U.S. companies increased their investment in foreign countries at a rate 50 percent faster than the investment in the United States"; from "1962 to 1972 the payments deficit grew from $3.6 to $11.2 billion"; between 1967 and 1970, imports from Japan doubled and America's trade deficit from Japan was $3 billion—in 1971 it was $8.5 billion.
The best and the brightest—Republicans, Democrats, even those self-identifying as "liberal"—fashioned transnational capitalists as the heroes of freedom's story. The State Department's George Ball, a former lobbyist for the European Economic Community, when meeting with American textile manufacturers, used to love to show off the European labels of his suit, shirt and tie. In this Stein sees the harbinger of Democratic working-class sellouts to come: "His delight...left him no space to contemplate the situation of thousands of Southern agricultural workers who needed textile jobs." Meanwhile, manufacturing real wages fell 82 cents an hour from 1965 through 1969.
Some worried. The Wall Street Journal, for example, complained about all the "unsophisticated electronics" being marketed from Taiwan for gullible US teenagers. Midwestern Congressmen—dreaded isolationists!—excoriated the State Department for selling out American manufacturers. (They "were right," recollected a State Department trade specialist.) Nixon and Kissinger did not care; they had a cold war to fight. "Working as an economist for Kissinger," said the man whose job it was to make sure the National Security Council paid attention to domestic industrial interests, was comparable to "being in charge of the military for the Pope." Asked why he was indifferent to the tariff walls Japan was erecting to protect its computer industry, President Nixon said Japan must be given "more than our trade interest, strictly construed, would require"; later he said "computers were not politically important." Neither, it soon would arrive, were American factories—or at least it was assumed the factories could take care of themselves.
What about the factory workers? Here is the core of the rage that burns in Stein. Democratic intellectuals wrote books like The Affluent Society and The Challenge of Abundance. Stein's most crucial contribution to our understanding of the era is demonstrating that by the 1970s wage earners actually weren't all that affluent. Unemployment in 1969 was 3.9 percent. But among the 96.1 percent, one in five workers was unemployed for some period of the year, and one-third of those for almost four months. "In 1970," Stein points out, "government figures indicated that 30 percent of the nation's working-class families were living in what was actually poverty."
She uncovers what the Bureau of Labor Standards recorded as a typical budget recommended for the average working family. It is a meager measure of affluence. That average American family could buy a new refrigerator after seventeen years and a TV after ten. It could have a toaster, which was supposed to last for thirty-three years. It could buy a two-year-old car that it should keep in working order for another four years. "The husband will take his wife to the movies once every three months and...will go to the movies alone once a year. A total of two dollars and fifty four cents per person per year is allowed for admission to all other events.... The budget allows nothing whatever for savings."
That was in 1970. Why was Archie in his bunker? Because, according to Judith Stein, financially his life rather sucked, and he was reasonably terrified it might soon suck worse. And all this was before the October 1973 oil shock set America's economic hegemony on its ear.
* * *
The oil shock rightfully hangs over all these books. Stein explains better than most just how traumatic and blindsiding it was. At the beginning of the Great Compression, America did not use all that much oil. What we used mostly came from domestic sources. US consumption tripled by 1972. Japan's went up 137-fold. For the first time, oil in large part came from elsewhere. Saudi Arabia and its neighbors produced 1.1 million barrels a day in 1948 and 18.2 million barrels by 1972, and for the first time America imported 6.2 million more barrels a day than it consumed; but the strategic consequences were not much apparent, since Western countries controlled the oilfields. The Organization of Petroleum Exporting Countries, formed in the 1960s, was more "a band of rivals," Stein notes, than a "band of brothers"; its attempt to punish the United States for its support of Israel in the 1967 war was a thoroughgoing failure.
Col. Muammar el-Qaddafi was the first to point a new way forward: in 1969 he overthrew the Libyan monarchy; then he jacked up the price for Occidental Petroleum to operate in his country. The ace held by such Middle Eastern potentates was their authoritarianism: they could slow their oil production at will, indifferent to the near-term economic consequences for their sparse populations. "People who have lived without oil for 5,000 years," Qaddafi paradigmatically declared, "can live without it again for a few years in order to attain their legitimate rights."
Nikita Khrushchev had called the strategic city of Berlin the West's "testicles": all he had to do was squeeze it to get what he wanted. Now it was the likes of Colonel Qaddafi who had the West by the balls. Nixon and Kissinger, who could see the world only in cold war terms, reacted with slack inanity to the rising cartel. Kissinger bellowed to his aides, "Don't talk to me about barrels of oil. They might as well be bottles of Coca-Cola. I don't understand!" The president puffed up his chest and cited the example of Iranian Prime Minister Mohammed Mossadegh, whom the CIA overthrew in 1953, when Nixon was vice president. "I think the responsible Arab leaders will see to it that if they continue to up the price," the president warned at a September 5, 1973, press conference, and to "expropriate, without fair compensation, the inevitable result is that they will lose their markets."
Inevitable, Mr. President? On the occasion of the 1973 Arab-Israeli war, the OPEC producers banned the sale of petroleum to the United States, effecting what one historian called "the greatest nonviolent transfer of wealth in human history." Henry Kissinger once famously cried as the bombs fell on North Vietnam, "I can't believe a fourth-rate power...doesn't have a breaking point!" In 1972 the Dow Jones Industrial Average was 1,000. Then came the Revenge of the Fourth-Rate Powers. By 1975, Stein relates, when the Dow was closer to 600 and helicopters were ingloriously rescuing Americans from the roof of the embassy in Saigon, "Kuwait shoved aside British Petroleum and Gulf [Oil], taking over the Kuwait Oil Company, founded in 1934. Compensation? The two companies asked for $2 billion, and received $50 million."
Other nations that produced strategic commodities followed suit. "By the middle of the 1970s," Stein records, "at least 75 percent of the holdings of U.S. raw materials corporations located in Third World nations had been nationalized." Stein calls it the "trade unionism of the developing world." The consequences shattered the globe. The section on lowly Jamaica telling America precisely how high it had to jump to access its bauxite—essential to the manufacture of aluminum—makes for the book's most riveting archival reconstruction.