Modern history

Challenges Ahead

The changes brought by the digital technology of Bill Gates and the war on terror following September 11 had become firmly embedded in the United States and throughout an interconnected, globalized world. In 2008 a new concern emerged with the arrival of the worldwide Great Recession. At the same time, many Americans rallied behind the presidential candidacy of Barack Obama with renewed hope. Obama’s election reflected sweeping demographic changes in the United States and brought reform, but Obama’s victory did not eliminate the deep political and cultural divisions in the nation or eradicate pervasive economic and social inequality.

The Great Recession

In 2008 the boom times of the early years of the twenty-first century came to a sudden halt. The stock market’s Dow Jones average, which had hit a high of 14,000, fell 6,000 points, the steepest percentage drop since 1931. Americans who had invested their money in the stock market lost trillions of dollars. The stock market crash plunged investment firms into crisis. Lehman Brothers, a financial services firm founded in 1850, lost more than $2 billion and went bankrupt. The gross domestic product fell by about 6 percent, a loss too great for the economy to absorb quickly. Americans lost their jobs as consumer spending decreased, and many forfeited their homes when they could no longer afford to pay their mortgages. Unemployment jumped from 4.9 percent in January 2008 to 7.6 percent a year later. Confronted by this spiraling disaster, President Bush approved a $700 billion bailout plan to rescue the nation’s largest banks and brokerage houses.

The causes of the Great Recession were many and had developed over a long period. Since the Reagan presidency, the federal government had relaxed regulation of the financial industry. The Clinton administration supported repeal of the Glass-Steagall Act (see chapter 22). This measure, enacted during the New Deal, had separated commercial and investment banking to protect small business people and American families and to avoid the intense financial speculation that preceded the stock market crash of 1929 and the Great Depression. The Federal Reserve Bank encouraged excessive borrowing through keeping interest rates very low and relaxed its oversight of Wall Street practices that placed ordinary investors’ money at risk. Investment houses developed elaborate computer models that produced new and risky kinds of financial instruments, which went unregulated and whose complex nature few people understood. Insurance companies such as American International Group marketed so-called credit default swaps as protection for risky securities, exacerbating the financial crisis. In addition, some financial managers engaged in corrupt practices. One of the most notorious, securities broker Bernard Madoff, swindled investors out of billions of dollars through phony securities dealings.

Consumers also shared some of the blame. Many took advantage of the easy mortgage policies that had been devised to allow buyers to purchase homes beyond their means. Known as subprime mortgages, these loans appealed to borrowers with low incomes or poor credit ratings, especially minorities, who historically had had difficulty obtaining mortgages and personal loans. On the surface, subprime mortgages appeared to make possible the American dream of home ownership. However, when the housing market collapsed, they turned into the nightmare of home foreclosure as many homeowners ended up owing banks and mortgage companies much more than their homes were worth. Investment banks, which had bundled risky mortgages together for speculative purposes, made the situation even worse. Enticed by the easy availability of credit, consumers also went heavily into personal debt to finance purchases of new technology-driven goods, such as personal computers, smartphones, and larger and larger digital televisions.

The economy might have experienced a less severe downturn if there had been stricter regulation of the securities industry and greater economic equality to bolster consumer spending. But this was not the case. Wealth remained concentrated in relatively few hands. In 2007 the top 1 percent of households owned 34.6 percent of all privately held wealth, and the next 19 percent held 50.5 percent. Thus 80 percent of Americans owned only 15 percent of the wealth, and the gap between rich and poor widened further. The poverty rate stood at around 13 percent (and as high as 20 percent for those under eighteen years of age). This maldistribution of wealth made it extremely difficult to support an economy that required ever-expanding purchasing power and produced steadily rising personal debt (Figure 29.2).

In the age of globalization, the Great Recession spread rapidly throughout the world. Great Britain’s banking system teetered on the edge of collapse. Some of the other nations in the European Union (EU)—most notably Greece and Spain, which were the most heavily in debt—verged on bankruptcy and had to be rescued by stronger EU nations. Ireland, whose economy had leaped in the early years of the twenty-first century, abruptly fell on hard times. In providing financial assistance to its member states, the EU required countries such as Greece to slash spending for government services and to lower minimum wages. Even in China, where the economy had boomed as a result of globalization, businesses shut down and unemployment rose as consumer demand for its products declined in the wake of worldwide recession.

FIGURE 29.2 Wealth Inequality (Capital Income), 2011

The decline of American manufacturing and the expansion of the low-wage service sector, combined with the rise of high-tech industries and unregulated investment banking, led to growing disparities of wealth in the early twenty- first century. Disparities exist even within the top 20 percentile, as the top 1 percent controlled more than half of all capital income in 2011.

The Rise of Barack Obama

In the midst of the Great Recession, the United States held the 2008 presidential election. The Republican candidate, John McCain, was a Vietnam War hero and a longtime senator from Arizona. His Democratic opponent was Barack Obama, who was a young boy during the Vietnam War and had served a mere four years in the Senate from Illinois. For their vice presidential running mates, McCain chose Sarah Palin, the first-term governor of Alaska, and Obama selected Joseph Biden, the senior senator from Delaware. Whoever won would represent a break with tradition. If McCain triumphed, for the first time a woman would serve as vice president. An Obama victory would place an African American in the White House for the first time in history.

In the end, Obama overcame lingering racial prejudices in the country by speaking eloquently about his background as an interracial child, the son of an immigrant from Kenya and the grandson of a World War II veteran from Kansas. He also refuted charges that he was a Muslim (he is a Christian), that he was not born in the United States (he was born in Hawaii), and that he associated with terrorists (in the 1990s, he had participated in a few Chicago civic engagements with a past 1960s radical). The former community organizer succeeded in building a nationwide, grassroots political movement through digital technology. He raised an enormous amount of campaign money from ordinary donors through the Internet and used Web sites and text messaging to mobilize his supporters. Obama won the presidential election most of all because the public blamed the Bush administration for the recession, and Obama offered hope—“Yes we can” was his campaign slogan—for economic recovery. Obama captured 53 percent of the popular vote, obtaining a majority of votes from African Americans, Latinos, women, and the young, who turned out in record numbers, and a comfortable 365 electoral votes. The Democrats also scored big victories in the House and Senate.

Yet the election of President Obama did not erase the impact of generations of racism from the United States or usher in what some have called a “postracial” America. From 1975 to 2002, the number of black elected officials in the United States increased from around 3,500 to more than 9,000. African Americans had also made significant economic progress as a result of antidiscrimination laws and affirmative action, expanding the size of the black middle class. However, the racial gap in wealth, education, and rates of incarceration remained wide. In 2006 the median income for blacks was $32,132, compared with $50,673 for whites. About 75 percent of whites owned their home, compared with slightly less than 50 percent for blacks, a reflection of the continued disparity in wealth between the races. By 2008 approximately 24 percent of African Americans (compared with 8 percent of whites) lived in poverty, nearly double the national poverty rate of12.7 percent. The percentage of whites who received a bachelor’s degree was almost double that for blacks. More than 28 percent of black men were expected to be imprisoned during their lifetime, compared with 4 percent for whites. More than half the prison population in the United States is black and another quarter Latino, far out of proportion with their percentages among the total U.S. population.

Despite the persistence of racism, President Obama achieved notable victories during his first term in office. He continued the Bush administration’s bailout of collapsing banks and investment firms and expanded it to include American automobile companies, which within three years bounced back, became profitable again, and began paying back the government for the bailout. The president supported passage of an economic stimulus plan that provided federal funds to state and local governments to create jobs and keep their employees, including teachers, on the public payroll. Congress also extended the period of unemployment insurance benefits. More controversially, President Obama pushed Congress to pass a health care reform measure, which mandated that all Americans had to obtain health insurance and that no one could be denied coverage for a preexisting condition. He also signed into law repeal of the “don’t ask, don’t tell” policy, which discriminated against gays in the military. Although the Supreme Court in 2003 had declared unconstitutional a Texas law making homosexual acts a crime, the issue of same-sex marriage remained unresolved. Initially Obama supported civil unions rather than gay marriage, but in 2012 he declared his support for same-sex marriage.

The Election of Barack Obama On the evening of November 4, 2008, after Barack Obama won the 2008 presidential election, he gave his victory speech at Grant Park in his home city of Chicago, Illinois, before a crowd of approximately 240,000 people. The first African American to be elected president, Obama echoed the words in speeches by Martin Luther King Jr. and Abraham Lincoln. ap Photo/David Guttenfelder

In foreign affairs, the president appointed Hillary Clinton, the former First Lady and a senator from New York, as secretary of state. The U.S. military increased combat troop withdrawals from Iraq and turned over security for the country to the newly elected Iraqi government. At the same time, the Obama administration stepped up the war in Afghanistan by increasing U.S. troop levels, which led to a rise in casualties. Still, the president pledged withdrawal of combat soldiers by 2014. His most dramatic success came in 2011, when U.S. special forces killed Osama bin Laden in his hideout in Pakistan. The Obama administration also persuaded the Senate to approve the renewal of a nuclear disarmament treaty with Russia.

President Obama continued to encounter vigorous political opposition. Most Republican lawmakers refused to support his economic stimulus and health care reform bills. A group of Republican conservatives formed the Tea Party movement, which they named after colonial Americans who sought to topple British rule. Its followers attacked the president as a “socialist” for what they perceived as an effort to expand federal control over the economy and diminish individual liberty with passage of the health care act. The Fox News media empire, owned by Rupert Murdoch, backed this movement and its leaders, such as Sarah Palin and talk-show host Glenn Beck.

Obama encountered growing political difficulties because the economy remained stagnant. The president did save the financial system from collapse, and the stock market had rebounded by 2012, but unemployment remained over 8 percent (a drop from its high of 10.2 percent). As millions of people remained out of work, a resurgent Wall Street rewarded its managers and employees with big financial bonuses. Large corporations earned millions of dollars in profits but did not create new jobs. The 2010 midterm elections illustrated the growing dissatisfaction of American voters, as Republicans regained control of the House and the Democratic majority in the Senate narrowed. The Tea Party flexed its electoral muscle in successfully campaigning for Republican congressional and gubernatorial candidates who supported its positions. Exit polls showed that 41 percent of the voters endorsed the Tea Party movement. Governor Scott Walker of Wisconsin, backed by the Tea Party, took aim at public employee unions in his state and signed into law a measure limiting collective bargaining. (In 2012 his opponents failed to win a recall election to remove him from office.)

Dissent also came from the left. In 2011 protesters in cities around the nation launched the Occupy Wall Street movement, which attacked corporate greed, economic inequality, and the inability of the federal government to relieve the widespread suffering. Many in the movement were inspired to act by massive cuts in education spending, crippling state budget deficits and declining tax revenues that slashed social services, decaying infrastructure, and crushing student loan debts. These and other Americans continued to be concerned about environmental issues, including dependence on foreign oil, global warming, and air and water pollution.

MAP 29.2

The Middle East, 2000-2013 Since 2000, the Middle East has been marked by both terrorism and democratic uprisings. After 9/11 the United States tried to transform Iraq and Afghanistan by military might, which led to prolonged wars. Yet popular rebellions in 2011, led by young people and fueled by new technology, created hope that change was possible. However, as of 2013 the most brutal government repression of the uprisings continued in Syria, including the alleged use of chemical weapons against rebel forces.

With unemployment remaining high, economic growth moving at a slow pace, and a number of European economies still in recession and unable to pay mounting debts, the economy loomed as the top issue in the 2012 presidential election. The Republican nominee, Mitt Romney, the former governor of Massachusetts, appealed to conservative voters by opposing Obama’s economic programs, including health care reform, and by embracing the social agenda of the Christian Right. Although admitting that much remained to be done, Obama defended his record on creating new jobs, reducing unemployment, and rescuing the automobile industry. He also criticized economic inequality in the country and promised to raise taxes on the rich. Despite the slower-than-expected economic recovery, Barack Obama won reelection by holding together his coalition of African American, Latino, female, young, and lower-income voters.

An Unfinished Agenda

The United States will continue to face serious tests to its international leadership in the twenty-first century. Terrorism remains a potent threat. Iraq has yet to prove that it can survive as a stable nation in the absence of a strong American military presence, and the outcome of the war against al-Qaeda and the Taliban in Afghanistan remains questionable. Despite Osama bin Laden’s death, al-Qaeda in Yemen still poses a serious danger, and U.S.-trained Afghan forces must demonstrate that they can maintain control once the U.S. military withdraws. If Iran succeeds in developing nuclear weapons, it will present an even greater threat, as will the continuing stalemate between the Israeli government and the Palestinians in reaching agreement over issues of peace and land that have been unresolved since 1967.

In 2011 great changes swept across the Middle East, as young people, armed mainly with cell phones and connected through social media networks, peacefully toppled proWestern but despotic governments in Egypt and Tunisia. In Libya, armed rebels succeeded in overthrowing the government of the dictator Muammar al-Qaddafi. Elsewhere, a hostile North Korea has developed nuclear weapons. Prolonged instability in the Middle East, the Persian Gulf, and Asia is harmful to U.S. security interests and to achieving lasting peace in these regions (Map 29.2).

Whatever happens in the war on terror, the United States still faces challenges of globalization. China, a nation of 1.3 billion people, is contesting American economic supremacy. As China flourishes economically, American workers have lost jobs, and the Chinese have amassed a nearly $200 billion trade surplus with the United States. China also owns a substantial portion of America’s national debt, a situation that further alters the balance of economic power between the two nations. In addition, the growth of manufacturing and the market economy in China has resulted in the rising consumption of oil and gasoline, thereby adding to soaring fuel prices in the United States.

Along with the United States and China, the rest of the world faces the problem of climate change and ultimately the survival of the planet. Global warming during the twentieth century resulted mainly from emissions of greenhouse gases into the atmosphere and the erosion of the ozone layer. As temperatures climb, they cause a rise in the sea level, the melting of glaciers, extreme fluctuations of weather, and famines. Powerful hurricanes such as Katrina have been attributed to rising temperatures in the Atlantic Ocean and Caribbean. Disruptions in industrial production caused by storms and the subsequent expense of rebuilding have a negative impact on the U.S. and world economies.

As the twenty-first century unfolds, immigration will continue to arouse considerable political controversy. Immigration restrictionists, particularly in Arizona and California, support such policies as building a fence along the U.S.-Mexican border and strengthening the administration of immigration laws. Supporters of immigration reform favor amnesty for illegal residents who have lived in this country for a designated period and have jobs, opening up a path to citizenship. At the heart of this issue is the question that has always existed during periods of intense foreign immigration, especially from non-English-speaking nations: Do the nation’s vitality and character still depend on welcoming a new generation of foreigners to make their living and their home in the United States? Whatever the answer, by the end of the twenty-first century the population of the United States will look much different. The percentage of Latinos and Asian Americans will increase, while that of whites and blacks will decline. In 2012 the U.S. Census Bureau reported that nonwhite babies made up the majority of births for the first time. If present trends continue, the country’s racial and ethnic composition will become much more mixed through intermarriage. In 2010 the Census Bureau reported that one of seven new marriages, or 14.6 percent, was interracial or interethnic. In 1961, when Barack Obama was born, the figure for interracial marriages was less than one in a thousand.

And, as for the institution of marriage, there have been both setbacks and advances for proponents of same-sex marriage. In 2012 voters approved state referenda that rejected same-sex marriage, but in 2013 the U.S. Supreme Court ruled in Windsor v. United States that the Defense of Marriage Act (see page 763) is unconstitutional. This landmark ruling allows same-sex married couples to receive the same federal benefits as heterosexual married couples, regardless of whether the state in which they live recognizes same-sex marriage.


• What were the causes and consequences of the Great Recession?

• What effects did the election and presidency of Barack Obama have on American politics and society?

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