JentooUS History

AP® United States History · Unit 8 · Topic 8.14

Watergate, Stagflation, and the 1970s

The 1970s delivered two shocks at once: a president caught abusing power and an economy that broke the rules, stalling with both high inflation and high unemployment. Together they left Americans doubting their leaders and their prosperity.

Watch it drawn4 questionsPractice

Watergate started small: in June 1972, burglars connected to Nixon's reelection campaign were caught breaking into Democratic National Committee headquarters. The real scandal was the cover-up. Investigative reporting, a Senate committee, and a special prosecutor slowly exposed that Nixon had tried to obstruct the investigation. The decisive break came when investigators learned Nixon had secretly taped his own Oval Office conversations. When the Supreme Court forced him to release the tapes in 1974, they proved he had ordered the cover-up. Facing certain impeachment and removal, Nixon resigned in August 1974, the first president ever to do so.

At the same time, the economy was breaking its own rules. Postwar economists believed in a tradeoff: when unemployment was low, inflation rose, and when unemployment was high, inflation fell. The 1970s produced both at once, a combination called stagflation. Oil embargoes from OPEC spiked energy prices, raising costs across the economy even as growth slowed and jobs disappeared. Rising prices and rising joblessness fed each other, and the usual tools, like raising interest rates to fight inflation, only worsened unemployment, and vice versa.

Watergate and stagflation reinforced each other's lesson: institutions that once seemed stable and competent were failing. A president lied to the nation and had to be forced from office. Economists and policymakers had no quick fix for an economy stuck in neither growth nor recession but both. By the end of the decade, this double loss of confidence in government and the economy created the opening for a new conservative politics in 1980, built on promises to shrink government and restore both moral and economic order.

Key terms

Stagflation
The simultaneous occurrence of high inflation and high unemployment, which standard economic theory said should not happen together.
OPEC oil embargo
A 1973 halt in oil shipments by Arab oil-producing nations that quadrupled oil prices and worsened the American economic crisis.
Watergate
The scandal in which Nixon's administration broke into Democratic headquarters and then covered it up, leading to his resignation in 1974.
Executive privilege
The claim that a president can withhold information from Congress or courts, which Nixon invoked unsuccessfully to keep the tapes secret.
Crisis of confidence
The widespread loss of public trust in government and economic institutions during the 1970s.

Watch it explained

  1. How it worksWalk me through Watergate from the break-in to the tapes to the resignation as a flow of events.
  2. How it worksHow can inflation and unemployment rise together when the textbook says they trade off?
  3. Worked exampleShow me inflation and unemployment from 1970 to 1980 climbing on the same chart.
  4. Ties togetherHow does the loss of trust in the 1970s open the door for the conservative turn of 1980?

Check yourself

Your turn1 of 2
By the mid-1970s, the American economy experienced simultaneously high inflation and high unemployment, a combination called stagflation that traditional economic theory of the time held should not occur together, since inflation was thought to rise when unemployment fell and vice versa. What did the persistence of stagflation most directly challenge?

End of topic.

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