9.4 A Changing Economy

Much of the technology came from earlier government spending. During the Cold War, the Defense Department funded early computers and ARPANET (1969), a network linking research computers that grew into the internet. Personal computers spread to homes and offices in the late 1970s and 1980s, led by companies such as Apple, IBM and Microsoft. In 1989 the British scientist Tim Berners-Lee proposed the World Wide Web, a system of linked pages that made the internet easy to use. By the late 1990s millions of Americans were online.

The next waves came quickly: email and online shopping in the 1990s, search engines, social media in the 2000s and smartphones after 2007. These tools changed how people worked, shopped, learned, found news and formed communities. They also created a digital divide, a gap between Americans who had computers and internet access and those, often poorer or rural, who did not.

Tech companies clustered in places like California's Silicon Valley. Investors poured money into new internet firms in the late 1990s, a 'dot-com' boom that burst in 2000–2001.

Globalization means the growing connection of the world's economies through trade, investment, communication and migration. Faster communication let companies coordinate factories, suppliers and offices around the world, and productivity growth sped up from the mid-1990s to the mid-2000s.

Trade agreements lowered barriers. The North American Free Trade Agreement (NAFTA), which took effect in 1994, phased out most tariffs among the U.S., Canada and Mexico. The World Trade Organization was created in 1995, and China joined it in 2001. Supporters said free trade lowered prices, opened markets for U.S. exports and strengthened allies. Critics, including many labor unions and environmentalists, said it sent jobs to countries with lower wages and weaker rules.

Deindustrialization, the decline of manufacturing jobs, had begun in the 1970s and continued. Automation replaced many workers, and companies moved production overseas, a practice called offshoring or outsourcing. Manufacturing employment fell from a peak of about 19.6 million in 1979 to about 11.5 million in 2010, hitting the Rust Belt of the Midwest and Northeast especially hard.

Growth shifted to the service sector: health care, retail, restaurants, finance, education and technology. Some service jobs paid very well, but many paid less than old union factory jobs and offered fewer benefits. Union membership fell from about 20 percent of wage and salary workers in 1983 to about 12 percent in 2010, weakening workers' bargaining power.

After adjusting for inflation, wages for working-class and middle-class Americans grew very slowly from the 1970s into the 2010s, even as productivity rose. Gains went mostly to the highest earners and to people who owned stocks. The share of national income going to the top 1 percent roughly doubled between 1980 and the 2010s. Causes historians and economists point to include automation, global competition, the decline of unions, tax cuts that favored high incomes and rising rewards for college education.

Many families kept up by adding a second earner or by borrowing. The risks became clear in the 2008 financial crisis, when a housing bubble built on risky 'subprime' mortgages burst. Major banks failed or needed federal rescues, and the Great Recession pushed unemployment to 10 percent in 2009.