Topics in the News
America in the Global Economy
The United States had been a leading industrial power since the late nineteenth century, when industrialists and entrepreneurs such as Andrew Carnegie and J. D. Rockefeller made the names of their companies synonymous with American prestige. However, by the 1980s the American economy was changing. The emergence of the service economy brought into question the accuracy of labeling the twentieth century as the American Century, a term coined by Henry Luce to emphasize the powerful status of the United States in relation to that of other nations. Indeed, some began to refer to the 1980s as the end of the American century. U.S. involvement in World War II had helped to strengthen the position of the United States as the American economy emerged from the war at the height of its power while other industrial rivals, especially Japan and Germany, lay in ruins. In 1946 the United States produced 60 percent of the steel in the world, but by 1978 the United States provided only 16 percent of the world's steel. After 1973 and the first oil shock, American economic productivity slowed, averaging about 2.3 percent annually (compared with 3.2 percent in the 1950s). To make matters worse, from 1979 to 1982 the United States experienced the most severe economic downturn since the Great Depression. During this recession, economic growth came to a virtual halt as real gross national...
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Deindustrialization: Heavy Industry in Trouble
Heavy industry had long been one of the hallmarks of the American economy. However, during the 1980s, heavy industries and those sections of the country that relied on those industries did not fare well. Long-term trends offer a partial explanation for the downward trend, while other causes were more immediate. From the 1950s to the 1970s Americans invested no less than 3.3 percent of the nation's total income in new industrial plants and equipment regardless of the business cycle. This pattern came to an end during the 1980s; at no time during the 1980s did American investment in new plants reach 3 percent of the national income. The trend can also be seen in the amount of plant and equipment supporting the average nonagricultural American worker. Between 1950 and 1980 the figure rose from $26,000 to 143,000 (in 1980 dollars). Again during the 1980s another major trend came to an end as the growth of the workforce slowed along with an even greater slowing in capital stock investment. In 1987 the average American worker had just $45,900 of plant and equipment behind him, barely more than in 1980. America's investment rate in plants and equipment had been cut in half
Once upon a time the American steel industry dominated global markets by size, modern equipment and techniques, and efficiency. The post-World War II world...
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Deregulation, reducing the restraint placed by government on economic activity, gathered momentum in the late 1970s. The movement grew out of the antibureaucratic rhetoric that was popular in the late 1960s, especially around the presidential campaign of conservative Democrat George Wallace. By the 1970s some liberals had also endorsed deregulation as a way to protect consumers against legally sanctioned monopolies, such as the telephone company, AT&T. President Carter brought several of these trends together when he promised to free the American people from the burden of overregulation. By 1980 Carter had begun deregulating airlines, trucking, railroads, and interest rates. However, Carter did increase environmental regulation.
When Ronald Reagan assumed the presidency in 1980 the basic framework of deregulation was already in place. Indeed, Murray Weidenbaum, Reagan's chairman of the Council of Economic Advisors, described Reagan as extraordinarily timid in taking leadership on deregulation. By 1985 the Reagan administration had taken action in bus deregulation, oil price control, and piecemeal dealings with telephone, electric, and gas utilities. Airline deregulation was saving the public $6 billion a year in airfares. Reagan also expanded the scope of the Carter administration's deregulation efforts. The...
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The Economy in Transition
The 1980s saw the culmination of a long-standing trend in the American economy. Throughout most of the twentieth century, most workers had earned their living producing items in factories or working in other jobs related to manufacturing. By the mid 1980s, however, three-fourths of America's 113 million workers earned their living providing services. They were part of the growing service sector and a symptom of the transformation of the economy from an industrial economy to a service economy. Instead of manufacturing products such as automobiles, service workers provided information or performed tasks for customers. Occupations in the service sector varied widely, ranging from work in the fast-food industry, derided as "Mcjobs," to careers in such fields as computer programming, law, and medicine.
The decade saw the reversal of another long-term trend in the American economy. Since World War II the prosperity of the middle class had become the hallmark of the American dream and the gaps between the wealthy, the middle class, and the poor had been lessening. During the 1980s, though, the well-heeled began to leave the middle class and the poor behind. The chief economic beneficiaries in the 1980s were the wealthiest 20 percent of the population, with the greatest
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The Family Farm.
Farming has always held a special, and unusual, place in America. Thomas Jefferson's perhaps naive view of the farmer as a virtuous citizen who served as the cornerstone of the republic has been preserved in the American national culture. The romantic image of the farm family working the soil is not the only reason for the prominence of farming in American society. Taken as a whole, agriculture is the nation's largest industry. More people work in businesses related to agriculture than in steel and automobile manufacturing combined. During the 1980s agriculture accounted for 20 percent of the gross national product but also faced a serious crisis.
Boom and Bust.
The history of American agriculture during the 1970s and 1980s is the reverse of what is typically expected. The 1970s were boom times for farmers, while in the 1980s farmers faced a severe bust. During the 1970s Secretary of Agriculture Earl Butz urged farmers to plant from fencerow to fencerow to meet the increasing demands in sales, domestic and abroad. To increase productivity farmers bought new farm equipment and more land. Low interest rates made these loans seem like sound investments since farmers expected increased revenues. However, as the new decade emerged the bottom began to drop out of American agriculture. Part of the explanation lies in foreign...
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During the early years of the 1980s, the financial institutions of the United States in effect became the chosen industry and corporate champion of the nation. The secretary of the treasury, Donald Regan, who was also the former president of Merrill Lynch, dreamed of the day when American banks would dominate the world. The American finance system had emerged from the 1970s in relatively good shape, and members of the Reagan administration wanted to un-leash the potential of the business. The hallmark of free market theory, the doctrine of comparative advantage, holds that in a global economy nations should specialize in doing what they do best. This would maximize the positive effects of competition, In the United States the theory provided a way to explain why heavy industry was doing so poorly while banks and computer industries were doing so well.
Support for the banking industry reached high levels during the 1980s. Corporate raiders and speculative buyouts were tolerated and, to some extent, encouraged by the administration, whose belief in the power of market forces to direct the economy helped to provide rationalization and support for speculative activities. The 1981 Recovery Tax Act had added fuel to the speculative impulse. Intended to spur economic growth by cutting taxes and government...
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Microelectronics: Semiconductors, Computers, and Copiers
The microelectronics industries demonstrate several of the defining characteristics of the American economy during the 1980s. One segment of the economy would prosper while other businesses suffered. Innovation and entrepreneurship marked the origins of industries and fortunes, some of which then proved uncompetitive in the global economy. Americans were behind the scientific advances that created the industry: the transistor, the semiconductor chip, and computers large and small. Microelectronic industries such as IBM, Digital Equipment, Intel, Apple, and Xerox led American business.
Yet America's share of the microelectronics market fell during the decade. The U.S. share of semiconductor production fell from 60 percent to 40 percent during the 1980s. By the end of the 1980s three Japanese companies, NEC, Toshiba, and Hitachi, were the leading semiconductor companies in the world. Underlying this trend was the American pattern of early innovative technological success followed by a failure to establish the company, secure investment, and continue the innovation that would lead to future growth. Typically, in such companies skilled employees left to pursue their own businesses and proprietary knowledge was sold to the highest bidder, often to a foreign company. In contrast to the premium Americans placed on...
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When Ronald Reagan ran for president in 1980 he rejected the prevailing economic theory that had dominated American economic policy since World War II. Reagan affirmed his belief in free markets and rejected the idea that the federal government should influence the business cycles with its fiscal policies. Indeed, one of the favored targets for Reagan's wrath was the deficit spending that Keynesian economists called for, and the ensuing debt. Upon election, Reagan inherited, as he put it, a runaway deficit of nearly $80 billion in 1981, leading Reagan to proclaim that the federal budget was out of control. Reagan promised to balance the budget and to bring a new type of economics to Washington.
Reagan desired to change the nation's economic path. During the 1980 presidential primaries Republican presidential hopeful George Bush labeled Reagan's plan as "voodoo economics/' although after the election Bush upheld Reagan's economic policies both as his vice president and after his own election to the presidency in 1988. At the heart of supply-side economics was Reagan's belief in incentives. Proclaiming that government was the problem, not the solution, Reagan argued that across-the-board cuts in the personal tax rates would provide enough economic stimulation so that lower tax rates would deliver...
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The Savings and Loan Crisis
Historically, savings and loan associations (S and Ls) have served a different body of customers than banks. S and Ls made most of their money by providing services to working-class and middle-class people rather than to large businesses or other financial institutions. In 1903 journalist D. A. Tomkins wrote that the building and loan association gave a solution to the problem of financing people's homes that is most essentially advancement by self-help. According to two authorities on banking systems, with the turn of the century the American banking system rested on three legs: (1) deposit-owned mutual savings banks, (2) stock-chartered savings banks that profited investors rather than depositors, and (3) building and loan associations, later known as savings and loans associations. In 1928 the first great banking crisis of the twentieth century began as the American financial system began collapsing in one of the early symptoms of the Great Depression. The result was an extensive set of regulations put in place by New Deal reformers to prevent a similar collapse in the future and to restore the public's confidence in the banking system.
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Silicon Valley: The Computer Revolutionizes America
A New Day.
During the 1970s and 1980s, many people made fortunes in the computer business. Beyond the importance of individual fortunes, the computer and the various industries that produced computers and related materials dramatically changed American society. The desktop and the laptop computers made it possible for individuals working a wide variety of environments to accomplish tasks that before required substantially more resources.
The computer industry in the United States is only about forty years old. Originally the computer industry was dominated by IBM, or International Business Machines. During the 1960s the phrase "IBM and the seven dwarfs" was used to describe the computer industry because of IBM's dominance. During the 1960s both RCA and General Electric tried to enter the computer business only to fail. RCA finally wrote off $300 million in losses in 1970. IBM specialized in manufacturing mainframe computers, the computers that were as big as a room—sometimes larger—and required specially trained employees to program and enter data into the computers through punch cards. Indeed, IBM intended for those computers to last for decades and to make most of the profit not through the initial sale but through servicing the mainframe. To escape from IBM's virtual monopoly, many American companies, such as...
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Boesky, Ivan 1937-
DEAL MAKER AND INSIDE TRADER
Ivan Boesky became one of the most famous, and notorious, deal makers of the 1980s. By the middle of the decade Boesky was one of the leading figures on Wall Street and a leading symbol of the prosperity and the corruption of the decade. Boesky was a restless, driven man who found success on Wall Street.
Ivan's father, William, an immigrant from Russia who owned a chain of bars that featured topless dancing and strippers, became a source of embarrassment for his son as Boesky matured. Boesky never seemed to be accepted by the right crowd. During his teen years Boesky briefly attended the exclusive Cranbrook preparatory school where he had an average academic record, eventually transferring to the public Mumford High School. Boesky attended a variety of colleges and universities before going to Iran with a high-school friend. Boesky's years in Iran are a mystery, but upon returning to the United States he attended law school. Boesky spent five years getting his law degree because he dropped out twice. Upon graduation he went to work in his father's business. Boesky's success came when he moved to New York and entered into the arbitrage business. In 1975, backed by his wife's money, Boesky founded the Ivan F. Boesky Company. Boesky's new business was speculating on...
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Deming, W. Edwards 1900-1993
Deming grew up in Wyoming when the horse and buggy was still a common means of transportation. Deming began graduate school at Yale University in 1924 and received a Ph.D. in physics. Upon graduating he pursued a career with the Department of Agriculture. In 1940 Deming took charge of the census bureau's new program to use statistical methods to sample the population, but it was his experiences in the late 1940s and early 1950s that would eventually change his life, and the economic direction of two countries.
During World War II Deming, like many other Americans, put his skills to work in the war effort. Deming taught statistical control methods to engineers, inspectors, and other people engaged in war production. In 1947 Deming worked in Japan even as Gen. Douglas MacArthur and the Supreme Command Allied Powers (SCAP) decided Japan's fate. American policy during the occupation of Japan was to transform Japan into a democratic and capitalistic nation that could be an ally instead of an enemy. To this end American policymakers decided to restore Japan, and in the process, to transform the nation. Deming was part of this process. Deming and a group of young academics and engineers were separately given the task of making Japan's industries once again functional. Deming and the...
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Gates, William Henry 1955-
William Henry Gates is a study in contrasts. He has shaped one of the most successful American companies of the last few years, but in many ways he seems atypical of the successful businessman of the 1980s. In an era when pinstriped suits and power ties were signs of success, Gates has often been characterized as a nerd, and at times he seems to epitomize the stereotype of the computer nerd with great technical skills but little in the way of social skills.
An Early Start,
Gates, the son of a successful Seattle lawyer, dropped out of Harvard University after his junior year to form Microsoft with Paul Allen and Rie Wieland. Gates and Allen grew up together in Seattle, and both shared an interest in computers. While still in high school, Gates and Allen formed a small programming company called Traf-O-Data that analyzed traffic patterns. They met with some success, and the software company TRW offered Gates and Allen $20,000 a year to work in software development. Gates took a year off from high school to pursue the work and then, at the age of seventeen, he entered Harvard...
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Hunt, (Nelson) Bunker 1926- and Hunt, (William) Herbert 1929-
One of the most spectacular and unsuccessful financial schemes of the early 1980s was the attempt of brothers Nelson Bunker Hunt and William Herbert Hunt to corner the world market for silver. Although the brothers failed to corner the silver market, they did manage to wreak havoc in the international market for precious metals and to lose much of one of the largest fortunes in the world.
Nelson Bunker Hunt and William Herbert Hunt were born to one of the wealthiest families in America. Their father, Haroldson Lafayette (known as H. L. or Arizona Slim) Hunt, accumulated a fortune in the Texas oil business during the 1920s and 1930s and then invested his oil profits into a range of enterprises that made his family one of the richest families in America. When H. L. Hunt died in 1974, he left behind a family that was ranked highly among the wealthiest families in the world. Bunker and Herbert Hunt were also shaped by their father's outspoken conservative political views and by his unorthodox private life. The Hunt family was a large one: H. L. Hunt had fathered fourteen children by three women, including six with his legal wife, four in a bigamous marriage, and four more with his mistress. Bunker and Herbert were full brothers, the second and third sons born to H....
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Lewis, Reginald F. 1942-1993
Reginald F. Lewis grew up in a middle-class neighborhood in Baltimore, Maryland. He had five brothers and sisters, and his mother and father divorced when he was young. As a result of the divorce, Lewis and his mother lived with his grandparents for a period. Lewis's mother was a postal worker who eventually remarried an elementary school teacher. Growing up, Lewis had a paper route and, following his grandfather's advice, saved most of the money. At Dunbar High School Lewis was the captain of the baseball, football, and basketball teams. Lewis went on to play quarterback his first year at Virginia State University. After a shoulder injury ended his football career, Lewis became even more dedicated to his studies. He described economics as "love at first sight." From college Lewis went to Harvard Law School and specialized in securities. Lewis wrote his third-year paper on takeovers. After law school Lewis joined Rifkind Wharton and Garrison but left to become a partner in Murphy, Thorp and Lewis, the first African American law firm on Wall Street. In 1973 Lewis started his own company, Lewis and Clarkson, and specialized in venture capital.
In 1987 Lewis stunned Wall Street by completing the largest offshore leveraged buyout in business history. Lewis was an...
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Milken, Michael 1946-
JUNK BOND KING
Michael Milken rivaled Ivan Boesky as the predominant symbol of 1980s-style capitalism, a fitting comparison since the two men worked together and eventually fell together. Milken, like Boesky, was an outsider on Wall Street, a business arena that has been traditionally dominated by upper-crust Ivy League-educated men from a WASP background. What Milken brought to finance was a creative understanding of how to raise money and a single-minded obsession with doing just that.
Michael Milken came from a middle-class Jewish family living in the San Fernando Valley of Los Angeles. He attended the University of California at Berkeley and graduated in 1968 majoring in business administration, a continuation of his childhood fascination with financial issues. After receiving an MBA from the Wharton School of Business, Milken went to work for Drexel Burnham Lambert. Drexel, if not the largest Wall Street firm, was respected. Through its various incarnations the company could trace its lineage back to J. P. Morgan. Milken was smart, energetic, and often described as arrogant. Despite his success Milken was oblivious to the normal signs of Wall Street success—he paid little attention to his clothes or the type of car he drove, and he wore a bad toupee. Milken often hired people whom he...
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Perot, H. Ross 1930-
H. Ross Perot gained quite a bit of notoriety in the 1980s and personified the some-times conflicting trends of the decade. On one hand, Perot was a self-made billionaire who proved that the capitalist system worked; on the other hand, Perot gave voice to the feelings of many Americans who were dissatisfied with the national direction. Perot became famous for his can-do attitude.
H. Ross Perot was a billionaire by the age of thirty-eight. After serving in the U.S. Navy and working for IBM, he founded Electronic Data Systems Corporation (EDS). Perot ran the company like a combination of the FBI and the marines. EDS employees followed their charismatic boss, and if their loyalty wavered Perot reinforced it legally. EDS employees could not quit without losing their highly valuable stock awards, nor could they go to work for a competitor without violating noncompetition agreements. EDS fit Perot's background as a graduate of the U.S. Naval Academy. In an industry noted for its casual dress codes (with the exception of IBM), EDS was one of the few start-up computer companies that required employees to wear suits. Perot built a reputation as a maverick. In 1969 he televised town-hall meetings in support of Richard Nixon's Silent Majority. Later that same year he alienated the...
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Stockman, David A. 1946-
Since Ronald Reagan left office in 1989, it has become popular to characterize Reagan as not understanding the intricacies of government or the policies his administration pursued. David A. Stockman, how-ever, was the man within the Reagan administration who understood the policies. An archconservative, Stockman, as Reagan's director of the Office of Management and Budget, became famous for his encyclopedic knowledge of the federal budget and his zeal for cutting it.
David Stockman was born in Texas, but when he was five weeks of age his family moved to southwestern Michigan, the location of his family's farm. Young David Stockman developed an early pen-chant for books, a fascination that he carried into his adult years. According to one biographer, David's wife, Jennifer, readily admits Stockman is much more fascinated by ideas than by his fellow human beings. Human behavior, motivations, and emotions do not interest him except to the extent that they have a direct effect on political issues. In college Stockman studied theology and philosophy and found himself radicalized by the Vietnam War. Stockman spent his college years as a liberal. After college Stockman rediscovered the conservative ideology with which he grew up. Pursuing a family passion, Stockman entered...
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Trump, Donald 1946-
REAL ESTATE BARON
In a decade in which businessmen received a great deal of publicity and public adulation, perhaps no businessman received more than Donald Trump. At one point Trump was regularly called "The Donald/' reaching the point where he was the easy target for humorists such as Gary Trudeau of the "Doonesbury" comic strip to lampoon.
His Father's Son.
Donald Trump was the third child of Fred Trump, a Brooklyn housing developer. A bright and energetic child, Trump bordered on being a brat. Following the seventh grade, Trump was sent by his father to the New York Military Academy to straighten out. While attending the academy, Donald spent his spare time at construction sites and renovating old houses. After college Trump did graduate work at the Wharton School of Business and subsequently went to work in his father's business. Donald immediately began to encourage his father to be less conservative in his business practices. Eventually Trump, bypassing his older brother, became the president of his father's company. Fred Trump had concentrated on building houses and apartments, but Donald Trump wanted to make his name by making a mark on the Manhattan skyline.
In 1973 Donald Trump convinced his father to enter the Manhattan real estate...
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Walton, Sam 1918-1992
During the 1980s Sam Walton became America's richest man, combining innovation, business savvy, and a down-home style to achieve his success. Walton built his chain of discount stores into the largest in the country, surpassing even K-Mart, while promoting them with small-town values.
Walton grew up during the Great Depression of the 1930s. Despite the dismal climate of the Depression, Walton enjoyed success in his hometown of Columbia, Missouri, as an adolescent. In 1936 The Crescent, the Hickman High School annual, proclaimed him to be the Most Versatile Boy. In fall 1936 Walton began studying business administration at the University of Missouri. Working his way through college, Walton began to demonstrate his entrepreneurial skills. Upon graduating from college in 1940, Walton entered the army reserves as a second lieutenant. While in the reserves Walton decided on retail as his career and took his first job with J. C. Penney for eighty-five dollars per month. Sam received crucial training while working at J. C. Penney, some of it from the company's founder, John Cash Penney, before entering the military full-time to serve in World War II. Because of a nerve problem Sam was rejected for overseas duty.
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People in the News
During the recession of the early 1980s Sen. Howard Baker from Tennessee threatened to take away the Federal Reserve Board's monetary powers and place the power in the hands of Congress. Baker and other Republicans in Congress were unhappy with the FRB's tight money policies.
James Baker III was a wealthy Texas lawyer who was known for representing oil companies. He entered politics and managed George Bush's 1980 presidential bid. When Bush became vice president, Baker became a key figure in the Reagan administration, serving first as chief of staff and later as secretary of the treasury (switching places with Donald Regan).
As a young Washington economist, Lauri Bassi discovered that during the 1980s women's share of poverty was rising along with women's share of employment because divorce was forcing women into low-paying jobs.
President Jimmy Carter appointed Paul Volcker as chairman of the Federal Reserve Board in 1979, a position he held until replaced by Alan Greenspan in 1987. Volcker had been an undersecretary for monetary affairs in the Nixon administration and was chairman of the New York Federal Reserve Bank when Carter made the appointment. Volcker described himself as a pragmatic monetarist and made his chief concern the lessening of inflation.
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I(orwith) W(ilbur) Abel, 78, steelworker and former president of the United Steelworkers of America (1965-1977), 10 August 1987.
Chester Bliss Bowles, 85, advertising executive who also served in a variety of high-ranking positions in the federal government in the administrations of Franklin D. Roosevelt, Harry S Truman, and John F. Kennedy, as well as a member of the U.S. House of Representatives, 25 May 1986.
William Anthony "Tony" Boyle 83, labor leader who headed the United Mine Workers (1963-1972) and was later convicted for his involvement in the murders of democratic challenger Joseph A. Yablonski and his family, 31 May 1985.
August Anheuser Busch Jr., 90, businessman who served as chairman (1946-1975) of the business, the Anheuser-Busch Company, founded by his grandfather and helped to build it into the largest beer brewery in the world, 29 September 1989.
James Casey, 95, cofounder of the American Messenger Company, which later became United Parcel Service, 6 June 1983.
David Dubinsky, 90, labor leader who headed the Inter-national Ladies Garment Workers Union from 1932 until 1966 and helped to form the Committee for Industrial Organization (later the Congress of Industrial Organizations) in 1935. Dubinsky was also a American Federation of Labor leader...
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Barry Bluestone and Bennett Harrison, The Deindustrialization of America: Plant Closings, Community Abandonment'; and the Dismantling of Basic Industry (New York: Basic Books, 1982);
Samuel Bowles, David M. Gordon, and Thomas E. Weisskopf, Beyond the Waste Land (Garden City, N.Y.:Doubleday, 1983);
W. Edward Deming, Out of the Crisis (Cambridge: Massachusetts Institute of Technology Press, 1982);
Michael L. Dertouzos, Richard K. Lester, and Robert M. Solow, Made in America: Regaining the Productive Edge (New York: Harper & Row Perennial Library, 1989);
Benjamin M. Friedman, Day of Reckoning: The Consequences of American Economic Policy Under Reagan and After (New York: Random House, 1988);
Alice Hanson Jones, The Wealth of the Nation To Be (New York: Columbia University Press, 1980);
Paul M. Kennedy, The Rise and Fall of the Great Powers: Economic Change and Military Conflict from 1500 to 2000 (New York: Random House, 1987);
Katherine S. Newman, Falling From Grace: The Experience of Downward Mobility in the American Middle Class (New York: Free Press, 1988);
Michael Novak, The Spirit of Democratic Capitalism (New York: Simon & Schuster, 1982);
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Important Events in Business and the Economy, 1980–1989
- Clothing manufacturer Calvin Klein features Brooke Shields in ads, launching a designer jeans fad.
- Low-fare People Express Airline, founded by Donald Barr, begins no-frills service in the Northeast.
- United Steelworkers and big steel manufacturers attempt to revitalize the steel industry by creating labor-management participation teams in imitation of Japanese practices.
- AT&T begins a telephone 900 service.
- AT&T is convicted of antitrust violations and fined $1.8 billion.
- The prime interest rate averages 15.26 percent.
- Inflation averages 12.5 percent, the highest in thirty-three years despite high interest rates to contract the money supply.
- Unemployment averages 7.1 percent.
- Japanese investors operate some 225 U.S. manufacturing firms.
- On January 1, the average car costs $7,574.
- On February 8, President Jimmy Carter announces a $13 million cut in federal spending in hopes of curbing inflation.
- In March, brothers Nelson Bunker Hunt and William Herbert Hunt fail to corner the silver market as the value of silver drops.
- In March, the Dow-Jones Industrial Average reaches 1,000.
- In June, the...
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