Chapter 21 Section 3 The Economic Crisis of the 1970s

Economics Problems Under Johnson Economic problems started in the mid- 1960s under President Johnson. During the Vietnam War, he increased government spending. This led to inflation, or a rise in the cost of goods.

Oil Dependency The United States also had become dependent on oil imports, from areas such as Africa and Middle East.

OPEC In the early 1970s, the Organization of Petroleum Exporting Countries (OPEC) began using oil as a political weapon. OPEC decided to embargo, or stop shipping, oil to countries that supported Israel.

Oil Embargo OPEC ended the embargo a few months after it began, but oil prices continued to rise. Americans had little money to spend on goods. – This caused a recession.

Stagflation By the 1970s U.S. manufacturers faced international competition. Factories closed and unemployment grew. Nixon faced stagflation,a combination of inflation and economic stagnation with high unemployment.

Nixon’s Response Nixon tried to control inflation. The government cut spending and raised taxes. However, people opposed the idea of a tax hike. Nixon then tried to get the Federal Reserve to raise interest rates. He hoped this would reduce consumer spending. – This plan failed. Nixon then placed a freeze on all wages and prices. – This plan also failed.

W.I.N. Inflation remained high after Nixon resigned. Ford began a plan called WIN—Whip Inflation Now. He urged Americans to use less oil and conserve energy. Ford then tried cutting government spending and raising interest rates. – Both plans failed.

Helsinki Accords Ford continued Nixon’s foreign policy. In 1975 Ford and the leaders of NATO and the Warsaw Pact signed the Helsinki Accords. They agreed to recognize the borders of Eastern Europe set up at the end of World War II.

Turning Against The Soviets promised to uphold basic human rights. – However, many Americans turned against Détente because the Soviets failed to uphold their end of the deal when they signed the Helsinki Accords.

Election of 1976 The 1976 presidential election pitted Ford against Democrat Jimmy Carter. American voters saw Carter as a moral and upstanding individual who was untainted by Washington politics. Carter was a: – Farmer – One term governor of Georgia – Trained as a nuclear engineer.

Carter’s Response to the Economy Carter dealt with the economy by increasing government spending and cutting taxes. When inflation rose in 1978, he tried reducing the money supply and raising interest rates. – This was unsuccessful.

BIG Problem – Oil Dependency Carter felt the nation’s most serious problem was our dependence on foreign oil. To curb our dependence on foreign oil, he proposed a program to conserve oil and to push for the use of coal and renewable energy sources. He also convinced Congress to create a Department of Energy.

Fixing the Oil Industry Many business leaders wanted Carter to end regulations on the oil industry that made it difficult for oil companies to make a profit, which they could use to invest in new oil wells at home. Carter agreed to deregulate, but he created a profit tax so that oil companies would not overcharge consumers. Because of this tax, however, oil companies did not have money for new wells.

Ambassador to the U.N. During Carter’s presidency, he appointed Andrew Young as the first African American ambassador to the United Nations.

U.S.A. should be honest Carter believed the United States should deal honestly with other nations. President Carter decide to remove a major symbol of U.S. interventionism in Latin America by turning over control of the Panama Canal to the Panamanians.

Punishing the Soviet Union He pointed to the Soviet Union as a violator of human rights. When the Soviet Union invaded Afghanistan in 1979, Carter placed an embargo on the sale of grain to the Soviet Union and boycotted the Summer Olympic Games in Moscow.

Camp David Accords In 1978 Carter helped set up the Camp David Accords, a peace treaty between Israel and Egypt.

Iran 1979 A few months later, Carter faced conflict in Iran. The United States had supported Iran’s ruler, the Shah, but he was unpopular with Iranians. In 1979 Iranian protesters forced the Shah to leave. The Shah as the leader of Iran was replaced by the Ayatollah Khomeini after the country was declared an Islamic republic.

Freeing the Hostages The new government distrusted the United States. In November 1979 revolutionaries took 52 hostages at the American embassy in Tehran. Carter tried unsuccessfully to negotiate for their release. A rescue mission failed and resulted in the death of eight American servicemen. – The hostages were released the day Carter left office.