By 1970, NASA was looking for a continued reason to exist. President Kennedy's goal of reaching the Moon by 1970 had been reached; twelve men (only one of them a scientist) had walked on the moon in six separate landings. As far as the US Government was concerned, the Moon program (which had after all been largely a political stunt to top the Russians) had accomplished its purpose. Congress slashed funding for NASA, Apollo 17 became the last Moon mission. Three already-scheduled missions--Apollo 18, 19 and 20--were cancelled.
Skylab's backup, on display at the Smithsonian Air and Space Museum
Some of the reasons for Apollo's cancellation were budgetary--the Vietnam War was heating up, the War on Poverty was expanding, and America needed the money elsewhere. Some of the reasons were geopolitical--the Apollo 13 accident demonstrated the risk of space travel, and while the US had beaten the Russians to the moon and had won global prestige, a fatal accident now could wreck the US's reputation as a technological superpower, and wasn't worth the risk.
To try and save itself, NASA drew up plans for a smaller cheaper space program, focused entirely in Earth orbit, that would be done using the already-built rockets and space hardware that had been planned for the cancelled Apollo missions. Called the "Apollo Applications Project", this would convert an empty Saturn V upper stage into a small manned space station that could be crewed and resupplied by existing Apollo Command Modules. The space station could be used for weather research, earth study, and testing the effects of long-term space travel. It was to be called "Skylab". Congress wasn't interested.
It was the Air Force that saved NASA. The Air Force was already working on a top secret project called the Manned Orbiting Laboratory (MOL) that would use the upper stage from a Titan II rocket and a modified Gemini space capsule as an orbiting spy station, allowing two Air Force astronauts to carry out 30-day surveillance missions on the USSR using cameras, infrared sensors and radar. The Air Force had already test-flown a mockup MOL on a Titan III rocket and was planning a manned mission for February 1972.
The NASA Skylab plans offered a much larger platform with more sophisticated equipment, so it was perhaps inevitable that the MOL and Skylab would be combined, and Skylab was given the go-ahead. By 1971, though, the Air Force decided that its spy cameras and surveillance equipment would be more flexible if deployed on unmanned satellites that could operate permanently in polar orbits. The MOL program was cancelled, and most of its spy astronauts were folded into NASA (many of them later flew on Space Shuttles, including Bob Crippen and Richard Truly, who flew the first manned Shuttle mission in 1981). Skylab continued, now without its military funding.
Skylab was launched on May 14, 1973. During the launch, however, a protective cover had been accidentally ripped off; Skylab lost a protective thermal shield, one of its primary solar panels was completely torn off, and the other panel was jammed. So when the first Skylab crew was launched on May 25, they faced the task of repairing Skylab and making it habitable. The crew, commanded by former Apollo 12 commander Pete Conrad, installed a makeshift thermal screen to stabilize the temperature, then freed the remaining jammed solar panel and restored power. The next crew, commanded by fellow Apollo 12 veteran Alan Bean, launched on July 28 and carried out a number of scientific observations of the sun and earth, as well as a number of medical tests. The third crew, launched on November 16 and commanded by Jerry Carr, was given such a heavy work schedule by Ground Control that they went on strike. The incident was smoothed over by NASA, but none of those crew members ever flew in space again. They returned to Earth on February 8, 1974. Skylab remained behind, now empty in its parking orbit.
With the success of the Skylab missions, NASA once again made big plans for itself. Skylab was to be turned into a much larger permanently-manned Space Station, which would be resupplied by the planned new Space Shuttle. The Space Station would be used as a stepping-stone to explore Mars. But once again, politics stepped in. In 1972, President Nixon announced that the Space Shuttle would be funded, but the Space Station would not (in effect leaving the Space Shuttle without any clear mission or destination--a handicap that would follow it for the next four decades). It was intended that the first Shuttle missions, planned for the mid 70's, would be used to resupply Skylab, and install an external booster rocket to push the station to a higher orbit, giving the station another five years of life. Instead, delays in the Shuttle program meant that by 1979, the Skylab's orbit was decaying to a dangerous point, and no US space vessel was available to reach it. It became clear that Skylab would fall. And that presented a problem . . .
Most earth-orbiting satellites, at the end of their lifespans, enter Earth atmosphere and are heated up by the friction and vaporize before they reach the ground. But Skylab, at 77 tons, was much larger than anything that had ever been put into orbit before. Many of its internal pieces were dense and heavy, and would very likely survive re-entry. This presented NASA with a grave problem--if the abandoned station happened to re-enter over a populated area and hit a large city, the damage and loss of life could be extensive. NASA was unable to predict just where Skylab would impact--though it calculated the chances of hitting an inhabited area at "just 1 in 152".
There was political fallout too. By 1979, the US had suffered through the Watergate crisis that had shaken the nation's confidence in government, economic chaos and stagflation had dragged out for years, and the oil crisis produced gas lines and skyrocketing prices. Jimmy Carter had been elected in 1976 on the promise of fixing things, but problems worsened, and now many viewed (and satirized) Skylab as yet another symptom of a dysfunctional America. Tongue-in-cheek "Skylab Parties" were held in many cities, in which people wore hard-hats and drank beer. "Skylab umbrellas" became best-sellers; t-shirts were sold that sported large bulls-eyes.
Other concerns were more serious; already in January 1978, a Soviet uranium-powered satellite had re-entered over a remote portion of Canada, spreading radioactive debris across dozens of square miles. Although Skylab did not have any radioactive equipment, many nations around the world condemned the US for its inability to control the space station's impact. The Belgian government made plans to activate air-raid sirens to warn their population to take shelter if it was determined that Skylab wreckage was heading their way. The US itself secretly readied a series of teams to give help to any city that was hit by impact debris.
On July 11, 1979, NASA fired Skylab's orbital rocket engines for the last time, slowing it down for an intentional de-orbit and re-entry. They hoped it would crash harmlessly into the Indian Ocean. Instead, it scattered wreckage over a large area of the sparsely-inhabited Australian Outback. No one was injured. Enterprising Australians flooded the area and recovered thousands of bits of wreckage, ranging from tiny shards of metal to large oxygen tanks and film vaults weighing hundreds of pounds. Many of the larger pieces are now on display in Australian museums, and smaller pieces of Skylab can still be found for sale today on the Internet.