Talk of “economic pain” reappeared in public discussions. The sectors that had expanded the most in the previous decade contracted rapidly. The computer industry slashed more than 40 percent of its jobs during the first two years of the Bush presidency. Thanks to the Internet, jobs as computer programmers and other highly skilled technology positions could be shifted to India, which had a large number of well-educated persons willing to work for far less than their American counterparts. Employment in the media, advertising, and telecommunications industries also fell.

The difficulties of these sectors received much publicity. But in fact, 90 percent of the jobs lost during the recession of 2001-2002 were in manufacturing. Despite the renewed spirit of patriotism, deindustrialization continued. Textile firms closed southern plants and shifted production to cheap-labor factories in China and India. Maytag, a manufacturer of washing machines, refrigerators, and other home appliances, announced plans to close its factory in Galesburg, Illinois, where wages averaged fifteen dollars per hour, to open a new one in Mexico, where workers earned less than one-seventh that amount.

Even after economic recovery began, the problems of traditional industries continued. Employment in steel—520,000 in 1970—had dropped to 120,000 by 2004. Late in 2005, facing declining profits and sales, General Motors, which once had 600,000 employees, announced plans to reduce its American workforce to 86,000. Major companies also moved to eliminate the remnants of the post-World War II “social contract,” in which industries provided manufacturing workers with both high-paying jobs and the promise that they would be provided for in old age. Many eliminated or sharply reduced pensions and health benefits for retired workers. Between 1988 and 2004, the number of private businesses with pension plans fell by two-thirds.

Rapid job creation during the 1990s had benefited those at the bottom of the economic scale, and especially racial minorities. Now, they suffered the most from the economy’s continued shedding of jobs in the early 2000s. For example, the black and Latino unemployment rates stood at double that for whites. Indeed, Bush became the first president since Herbert Hoover to see the economy lose jobs over the course of a four-year term.

The Bush administration responded to economic difficulties by supporting the Federal Reserve Board’s policy of reducing interest rates and by proposing another round of tax cuts. In 2003, the president signed into law a $320-billion tax reduction, one of the largest in American history. In accordance with supply-side theory, the cuts were again geared to reducing the tax burden on wealthy individuals and corporations. Left to future generations were the questions of how to deal with a rapidly mounting federal deficit (which exceeded $400 billion, a record, in 2004) and how to pay for the obligations of the federal government and the needs of American society.

The economy grew at the healthy rate of 4.2 percent in 2004. But job creation proceeded more slowly than during previous recoveries. Because of the continuing decline in union membership (which fell to 8 percent of private sector employees in 2006), the failure of Congress to raise the minimum wage (which between 1997 and 2006 remained at $5.15 per hour, thereby steadily falling in real value), the continuing shift of higher-paying manufacturing jobs overseas, and the skewing of the tax cuts toward the most wealthy Americans, economic inequality continued to increase. The real income of average American families fell slightly despite the economic recovery. The number of Americans without health insurance continued its upward climb, reaching 16 percent of the population by 2005. Nearly all the benefits of growth went to the top 5 percent of the population.

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