The month that killed the middle class: How October 1973 slammed America

From the Arab oil embargo to the auto workers strike, one month more than 40 years ago changed this nation forever

Published March 7, 2015 2:30PM (EST)

  (AP/Henry Griffin)
(AP/Henry Griffin)

Early in 1974, Don Cooper, an autoworker at an Oldsmobile plant in Lansing, Michigan, was demoted from his coveted job in the crankshaft department to the final assembly line, where he had started out as a rookie nine years earlier. Cooper hadn’t done anything wrong. Rather, he was a victim of events 6,000 miles away.

The previous October, Egypt had invaded Israel. When the United States provided military aid to the Jewish state, Saudi Arabia retaliated by cutting off oil exports to Western nations. The Arab Oil Embargo raised the price of gasoline from 36 to 53 cents a gallon -- when drivers could get it. To prevent hours-long lines, filling stations sold to cars with odd-numbered license plates on Mondays, Wednesdays and Fridays, even plates on Tuesdays, Thursdays and Saturdays.

Oldsmobile, known for burly, dynamic cars powered by its eight-cylinder Rocket engine, was offering its usual stable of bad-ass American iron: a Cutlass with a 270-horsepower engine; a 98 that measured 19 feet 4 inches from chrome bumper to chrome bumper. But suddenly, customers weren’t buying those gas guzzlers. And when cars weren’t selling, Oldsmobile didn’t need as many crankshafts. So thanks to the latest Arab-Israeli War, Cooper was back on the line.

“That was a rude awakening to go back to final assembly,” Cooper recalled. “I was back on the frame line. I had to ground a radio strap to a firewall, and tighten a brass nut on an air conditioning unit. It was torture to go back.”

October 1973 was a rude awakening for the entire United States. It was a watershed month for the American middle class. The Arab Oil Embargo would lead to the downfall of the American auto industry, whose generous wages and benefits set the standard for the entire economy. It was also the month of the Saturday Night Massacre, which made inevitable the downfall of Richard Nixon. The Watergate scandal resulted in changes to the American political system that put more power into the hands of lobbyists, political action committees and wealthy, self-funded candidates. Cooper didn’t know it at the time -- nobody knew it -- but the moment he started grounding those radio straps and tightening those nuts was the moment the upward fortunes of the American worker hit a wall. From the 1947 to 1973, the golden postwar quarter-century, hourly earnings grew at an average of 2.2 percent a year. Since 1973, they’ve been stagnant, barely keeping up with inflation, even as productivity has boomed.

For the first generation after World War II, American life was defined by one word: “more.” Not just bigger cars and bigger houses, but two cars and two houses. The nation’s standard of living increased dramatically -- on a pace to double every 33 years -- with much of it generated by the auto industry. In 1949, America’s automobile fleet stood at 45 million. By 1972, it was 116 million -- more cars than we could fill up from our own wells. The alpine graph of American prosperity had reached a plateau, and cutting off our supply of foreign oil was all it took to push it downhill.

As the auto industry was a bellwether for the American economy, autoworkers were a bellwether for American labor. In 1970, Cooper, had taken part in the United Auto Workers’ last great nationwide strike. More than 400,000 workers walked out and stayed out for 67 days, until GM gave them everything they wanted: a 19.5 percent wage hike over three years, plus a one-cent an hour raise for every 0.3 percent increase in the consumer price index, and the right to retire after 30 years, at age 58, with a full pension. As he walked the picket line, Cooper was jeered by passing drivers, but as he saw it, he was striking for every worker.

“We used to get stoned in the newspapers every time we’d get something in our contract,” said Cooper, whose father was vice president of his UAW local. “‘Well, the autoworkers drove the price up because they got a raise.’ But then everybody else started getting raises, too.”

In 1973, after a brief strike against Chrysler, the UAW won even more generous perks: a dental plan, a longer holiday break between Christmas and New Year’s and the opportunity to retire on a full pension after 30 years of service at any age. Cooper, who had hired in three months after his high school graduation, as General Motors was ramping up for its bounty of Vietnam War contracts, could now retire at 48.

The day that strike was settled -- Sept. 23, 1973 -- was the day the American middle class peaked. Cooper knew even then that the labor movement had finally achieved all its goals.

“The union got to a point where we ran out of things to negotiate for,” he said. “What more could we ask for? We had a good wage, we had good health care, we had good pension. Everything was there.”

Less than two weeks later, it all began to unravel. On Oct. 6, the Jewish holiday of Yom Kippur, Egypt and Syria attacked Israel in an attempt to regain territory lost in the Six-Day War of 1967. As Israeli forces retreated, Golda Meir begged the United States for help. Reluctantly, Nixon sent ammunition, helping Israel repel the Arab attack -- and inspiring King Faisal to declare a retaliatory embargo.

The effect on the American economy was twofold: First, the embargo contributed to a recession in which the gross national product fell 2.1 percent, unemployment reached 10 percent, and inflation hit 12 percent. Not even the UAW contract could keep up with those prices. Second, as Don Cooper was learning during his tortuous return to the assembly line, Americans stopped buying American cars. The percentage of disposable income spent on new cars dropped from 4.8 percent to 3.8 percent -- the lowest since the Korean War -- and a lot of the purchases were fuel-efficient Fiats, Hondas and VW Beetles, which were less expensive to fill up than those street yachts the Lincoln Continental and the Chrysler New Yorker. The Big Three found themselves in a bind, which they soon figured out how to make worse. GM, Ford and Chrysler didn’t want to build small cars, because only ginormous cars provided the profits necessary to pay the wages and benefits they had just lavished on their workers.

“We don’t believe the market is large enough for our own subcompact,” soon-to-be retired Chrysler chairman Lynn Townsend said in 1974. “The Valiant and Dart are the cars people want to buy.”

Forced into the subcompact business by the marketplace, and by the first Corporate Average Fuel Economy standards, which mandated a fleet-wide average of 27.5 miles per gallon by 1975, Detroit engineers passive-aggressively designed some of the crappiest cars ever to explode or crack a head gasket on an American roadway: the Plymouth Horizon, the AMC Pacer, the Chevy Chevette, the Ford Escort. These epically damaged the American automakers’ reputations because they were starter cars, purchased for young people by parents who weren’t over World War II enough to buy Japanese. The classic pattern was for drivers to climb the Chevy-Pontiac-Oldsmobile-Buick-Cadillac brand ladder as they became older and more prosperous. But after the floors of their Chevettes rusted out, Baby Boomers bought Corollas with their own money. In 1970, GM produced 45 percent of all vehicles sold in the U.S., while foreign manufacturers produced 7 percent. Now, foreign auto companies produce half, while GM makes a fifth.

The collapse of the domestic auto industry had serious political consequences for the labor movement -- and serious economic consequences for the middle class. Harry Truman, Adlai Stevenson, John F. Kennedy and Lyndon Johnson all kicked off their presidential campaigns at Detroit’s Labor Day Parade, in recognition of the UAW’s status as labor’s flagship union. By 2012, the UAW was so depeopled it could not prevent the Michigan legislature from passing a right-to-work law. Republicans candidly admitted the bill would have stood no chance when the UAW had 1.5 million members -- three times its current strength. Factory closings cost unions their political clout, giving Republicans an opportunity to finish them off.

October 1973’s second blow to the middle class occurred on the 20th, when President Nixon refused Watergate Special Prosecutor Archibald Cox’s demand for the Oval Office tapes. When Cox wouldn’t back down, Nixon ordered Attorney General Elliot Richardson to fire him. Richardson resigned. So did Deputy Attorney General William Ruckelshaus, leaving Solicitor General Robert Bork to fire Cox. The so-called Saturday Night Massacre was an act of presidential lawlessness that marked the beginning of the end of Nixon’s presidency.

“Until last night,” the Washington Post reported on Oct. 21, “Congress had appeared extremely reluctant to even consider the impeachment step seriously.”

After that night, even Republicans began calling for Nixon’s removal from office. “The House of Representatives should consider to begin impeachment proceedings,” said Sen. Edward Brooke of Massachusetts. The next week, Rep. Jerome Waldie, a California Democrat, introduced a resolution calling Nixon’s “obstruction of justice” grounds for impeachment.

A politician who called his ideal voter a 47-year-old machinist’s wife outside Dayton, Nixon was a working man’s president. According to Herbert Stein, a member of his Council of Economic Advisers, Nixon was “allergic to unemployment.” In announcing his 1971 budget, he called himself a Keynesian. The following year, he proved it, ordering his Cabinet to increase spending to reduce unemployment. Nixon’s solution to inflation was wage and price controls -- “a radical departure from conservative, free market philosophy” -- not the job-killing interest rate hikes later imposed by Jimmy Carter and Ronald Reagan. Part of it was a political strategy, to lure white working-class voters away from the Democrats, but part of it was his own hardscrabble upbringing on a California lemon ranch.

But the changes Watergate wrought on the American political system have been more enduring than the dismissal of a labor-friendly president with only two-and-a-half years left in office. The Watergate Babies -- young Democrats elected to the House in the wake of Nixon’s resignation -- took advantage of their numbers and of popular revulsion against The Way Things Are Done in Washington to break the power of long-serving committee chairmen who had controlled the flow of congressional legislation. The House became more democratic, but the nation didn’t. Money replaced seniority as the most important factor in moving a bill. Lobbyists and political action committees began showing up in greater numbers to make sure members cast the correct votes, rewarding those who did, punishing those who didn’t. The cost of campaigns increased.

“From an institution dominated by 20 or so powerful leaders, Congress has evolved into a collection of 535 independent political entrepreneurs with their individual interests uppermost -- i.e., to get re-elected,” wrote Fareed Zakaria in his book "The Future of Freedom." “Among the most consequential reforms of the 1970s was the move toward open committee meetings and recorded votes. Committee chairs used to run meetings at which legislation was ‘marked up’ behind closed doors. Only members and a handful of senior staff were present. By 1973 not only were the meetings open to anyone, but every vote was formally recorded. Before this, in voting on amendments members would walk down aisles for the ayes and nays. The final count would be recorded but not the stand of each individual member. Now each member has to vote publicly on every amendment. The purpose of these changes was to make Congress more open and responsive. And so it has become -- to money, lobbyists and special interests."

“Most Americans have neither the time, the interest, nor the inclination to monitor Congress on a day-to-day basis. But lobbyists and activists do, and they use the information and access to ensure that the groups they represent are well taken care of in the federal budget and the legal code.”

Since 1976, the first election following the Watergate Babies’ arrival, the price of getting elected to Congress has quadrupled, to $1.4 million. In such an environment, wealthy candidates have a huge advantage.

Chicago Mayor Richard J. Daley  was the cartoonists’ model of the pot-bellied, streetwise, inarticulate back-room ward boss overthrown by the telegenic young New Politicians of the 1970s. But he believed his Machine was a vehicle for upward mobility: “The party permits ordinary people to get ahead,” he once said. “Without the party, I couldn’t be mayor. The rich guys can get elected on their money, but somebody like me, an ordinary person, needs the party.”

In telling the story of a Pennsylvania steel mill foreman elected to Congress in 1974, the Washington Post wrote, “it wasn’t nearly so unusual for a person with few assets besides a home to win and serve in Congress. But from 1984 to 2009, the median net worth of a House member increased from $280,000 to $725,000, in inflation-adjusted dollars,” while the median net worth of the average citizen remained stuck at around $20,000.

Politicians so far removed from the financial struggles of the middle class are less likely to govern with its interests in mind. The current holder of Richard J. Daley’s job is Rahm Emanuel, who earned $18 million as an investment banker. (In 2011, I dubbed him Mayor 1%, an epithet since adopted by his enemies.) The newly inaugurated governor of Illinois is Bruce Rauner, a venture capitalist who is trying to prevent public-sector unions from collecting dues, and has proposed cutting pensions for state employees. This is the cynical end game of economic libertarians’ war on labor: After reducing private sector unions to a fraction of their old membership, they direct the resentment of the newly impoverished working class at public-sector employees getting a “sweet deal” at the expense of struggling taxpayers no longer earning that kind of money.

By Edward McClelland

Edward McClelland is the author of "Nothin' But Blue Skies: The Heyday, Hard Times and Hopes of America's Industrial Heartland." Follow him on Twitter at @tedmcclelland.

MORE FROM Edward McClelland