The Next 100 Years

f o u rt h c yc l e : f ro m i n d u s t r i a l c i t i e s
to s e rv i c e s u bu r b s
As always, one solution creates the next problem. The Depression was over­
come by increasing demand, by creating jobs and social supports and 
then transferring money to consumers. High tax rates were imposed on the 
wealthy, relatively low interest rates were offered to facilitate home owner­
ship, and consumer credit was introduced for a range of purchases. The 
policies kept the economy humming. 
But by the 1970s, the formula was no longer working. High tax rates 
made the risk of starting businesses prohibitive and favored large, increas­
ingly inefficient corporations. Marginal tax rates—the highest rates paid— 
were in excess of 70 percent for the wealthy and for corporations. By 
penalizing success, this tax policy discouraged investment. Factories aged 
and became obsolete, even as consumption remained high due to ready con­
sumer credit. Without investment, the industrial plant, and the economy as 
a whole, became increasingly less efficient and less competitive globally. 
In the late 1970s the baby boomers entered the period of family forma­
tion, when demand for credit was the highest. All of these factors, coupled 
with an energy crisis, brought the situation to a head. Under President 
Jimmy Carter, the entire economy was teetering. Long- term interest rates 
were in the mid- teens. Inflation was over 10 percent, as was unemployment. 

---

126
t h e n e x t 1 0 0 y e a r s
Carter’s solution was tax cuts for the middle and lower classes, which only 
increased consumption and put further pressure on the system. All of the 
economic stimuli that had worked in the previous fifty years had not only 
stopped working but were making the situation even worse. 
In 1980, Ronald Reagan was elected president. Reagan faced a crisis of 
underinvestment and overconsumption. Reagan’s solution was maintaining 
consumption while simultaneously increasing the amount of investment 
capital. He did so through “supply- side economics”: reducing taxes in order 
to stimulate investment. Reagan did not want to stifle demand, making 
consumers unable to purchase products. His aim was for the upper classes 
and corporations to be able to modernize the economy through investment. 
This represented a radical restructuring of the American economy during 
the 1980s, setting the stage for the boom of the 1990s. 
Reagan’s policies transferred political and economic power away from 
the cities and into the suburbs. Because of the innovations of the FDR– 
Carter era, a massive population shift to the suburbs had transformed 
the country. The interstate highway system and other well- maintained 
roads allowed people access to less developed, less expensive land while 
permitting them to easily commute into the city. These suburbanites grew 
more and more wealthy over the course of the second half of the century, 
and by the 1980s they were primed to benefit from Reagan’s economic 
policies. 
Reagan thus completed the reorientation of the American economy 
away from the principles of the New Deal, which favored urban working 
class consumption over all other considerations, toward the suburban pro­
fessional and entrepreneurial classes. In this, he was seen by some as betray­
ing the heart of American society, the cities, and the soul of American labor, 
unionized workers. Just as FDR, Hayes, and Jackson were vilified, so was 
Reagan vilified as a betrayer of America’s common man. But Reagan had no 
more choice in the end than did Roosevelt or Hayes or Jackson. Reality dic­
tated this evolution. 

---

127
a m e r i c a n p o w e r a n d t h e c r i s i s o f 2 0 3 0