What happened in the 1970's in the US that led to middle class incomes flatlining ever since?

The U.S. and Western Europe began to withdraw from huge government funded capital development programs such as the interstate highway system, energy and water resource development and expansion of welfare. At the end of the post-war boom the growth began to slow and military spending kept growing. The Vietnam war and the extremely rapid pace of implementation of new military hardware had hardly let up at all since World-War II and was now becoming a major drain on the economy as ever more money was being spent to the detriment of the U.S. dollar which had become the worlds reserve Currency.

The post-war boom was also fueled by political cohesion and patriotism in the post war period this was evident in the extremely high tax rate of the era, these fell over time as the fervor of rebuilding countries drew to a close. This happened at the same time that the losing powers of WWII began to get back to stride and began their own booms. These eventually flooded the former allied countries with high quality cheap goods driven by under valued currencies exchange rate with the overvalued strong reserve currencies. This being comparable to the rise of the Chinese economy today.

So at the same time monetary policies and tax collection became more liberalized (as in classical liberalism) the return of old economic players began to flood the market with cheap currency. The paying down or zero expansion of debt in the 60's by the former allies sent their currencies value even higher and pushed them closer to a deflationary crises.

The United States and Britain began to take on large amounts of debt to pay for expensive wars and military programs as tax bases began to shrink, due to the lack of will to maintain the high post war rates. To combat the deflation of their currencies and to pay for the high costs of the cold war they began to massively inflate their currency supplies. This was then further countered by the developing economies doing the like. Eventually by the mid 70's the value of the dollar was desperately falling within the U.S. all while the reserve and exchange rate remained the same due to the U.S. currency being intrinsically tied to gold which was floating on all the other fiat currencies. It came to a breaking point and the U.S. had to abandon backing in gold in order to stem the tide of cheap currency.

This led to wild inflation in the U.S. as reserve value fell, and a temporary reprieve from the foreign currency issue by pushing all of the currency manipulation back onto the developing markets where they then bottomed out, this effectively crashed their markets.

In the U.S. this brought on the ire of the American public which quickly demanded and achieved policies to slow inflation and the U.S. seemed to achieve stability for a time.

Now in the late 70's just as the dust began to settle, the Iranian revolution and the formation of OPEC caused a Energy prices to soar, this had the effect, of putting the default world reserve currency back under pressure and the inflation targets of the 70's began to become a nightmare as once again the value of other world currencies fell on the dollar. This had the immediate effect of pushing the U.S. into recession, and the developing economies began once again to speed up.

At this point Ronald Reagan stepped in sold the American public on the most ridiculous possible answer to the crises, Ignore inflation print money barrow against all our equity and expand the military, The plan amounted to going for broke and betting America would outgrow the crises in the 80's. In truth the U.S. barely made it through and was bailed out by a collapse of the Soviet Union's position by the end of the decade. The opening of the Eastern block markets and a the lack of new competitors allowed the resurgence in the 90's.

/r/AskHistorians Thread