Page 908 - US History

898 Chapter 30 | Political Storms at Home and Abroad, 1968-1980
Once elected, Nixon began to pursue a policy of deliberate neglect of the civil rights movement and the needs of ethnic minorities. For example, in 1969, for the first time in fifteen years, federal lawyers sided with the state of Mississippi when it sought to slow the pace of school desegregation. Similarly, Nixon consistently showed his opposition to busing to achieve racial desegregation. He saw that restricting African American activity was a way of undercutting a source of votes for the Democratic Party and sought to overhaul the provisions of the Voting Rights Act of 1965. In March 1970, he commented that he did not believe an “open” America had to be homogeneous or fully integrated, maintaining that it was “natural” for members of ethnic groups to live together in their own enclaves. In other policy areas, especially economic ones, Nixon was either moderate or supportive of the progress of African Americans; for example, he expanded affirmative action, a program begun during the Johnson administration to improve employment and educational opportunities for racial minorities.
Although Nixon always kept his eye on the political environment, the economy required attention. The nation had enjoyed seven years of expansion since 1961, but inflation (a general rise in prices) was threatening to constrict the purchasing power of the American consumer and therefore curtail economic expansion. Nixon tried to appeal to fiscal conservatives in the Republican Party, reach out to disaffected Democrats, and, at the same time, work with a Democratic Party-controlled Congress. As a result, Nixon’s approach to the economy seemed erratic. Despite the heavy criticisms he had leveled against the Great Society, he embraced and expanded many of its features. In 1969, he signed a tax bill that eliminated the investment tax credit and moved some two million of the poorest people off the tax rolls altogether. He federalized the food stamp program and established national eligibility requirements, and signed into law the automatic adjustments for inflation of Social Security payments. On the other hand, he won the praise of conservatives with his “New Federalism”—drastically expanding the use of federal “block grants” to states to spend as they wished without strings attached.
By mid-1970, a recession was beginning and unemployment was 6.2 percent, twice the level under Johnson. After earlier efforts at controlling inflation with controlled federal spending—economists assumed that reduced federal spending and borrowing would curb the amount of money in circulation and stabilize prices—Nixon proposed a budget with an $11 billion deficit in 1971. The hope was that more federal funds in the economy would stimulate investment and job creation. When the unemployment rate refused to budge the following year, he proposed a budget with a $25 billion deficit. At the same time, he tried to fight continuing inflation by freezing wages and prices for ninety days, which proved to be only a temporary fix. The combination of unemployment and rising prices posed an unfamiliar challenge to economists whose fiscal policies of either expanding or contracting federal spending could only address one side of the problem at the cost of the other. This phenomenon of “stagflation”—a term that combined the economic conditions of stagnation and inflation—outlived the Nixon administration, enduring into the early 1980s.
The origins of the nation’s new economic troubles were not just a matter of policy. Postwar industrial development in Asia and Western Europe—especially in Germany and Japan—had created serious competition to American businesses. By 1971, American appetites for imports left foreign central banks with billions of U.S. currency, which had been fixed to gold in the international monetary and trade agreement of Bretton Woods back in 1944. When foreign dollar holdings exceeded U.S. gold reserves in 1971, President Nixon allowed the dollar to flow freely against the price of gold. This caused an immediate 8 percent devaluation of the dollar, made American goods cheaper abroad, and stimulated exports. Nixon’s move also marked the beginning of the end of the dollar’s dominance in international trade.
The situation was made worse in October 1973, when Syria and Egypt jointly attacked Israel to recover territory that had been lost in 1967, starting the Yom Kippur War. The Soviet Union significantly aided its allies, Egypt and Syria, and the United States supported Israel, earning the enmity of Arab nations. In retaliation, the Organization of Arab Petroleum Exporting Countries (OAPEC) imposed an embargo on oil shipments to the United States from October 1973 to March 1974. The ensuing shortage of oil pushed its price from three dollars a barrel to twelve dollars a barrel. The average price of gasoline in the United
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