One of the reasons that there wasn't much in the way of development of larger telescopes in the late 1970s and 1980s was the development of the CCD. Prior to the CCD, astronomers used photographic plates to take their images, and photographic plates have horrendous efficiencies. A typical photographic plate will only register a few percent of the incident photons. A CCD, however, has an efficiency very close to 100% (except at really low wavelengths). Almost immediately after its invention, new instruments with CCDs were built to be put on existing telescopes. [1] Because the efficiency was a factor of ~30 larger, it was as though you had quintupled the diameter of your telescope. There wasn't much of a reason, then, to invest in huge new telescopes when you could effectively have a huge new telescope just by building a CCD detector.

Also, as a graduate student at Ohio State I would be remiss if I neglected to mention that the Large Binocular Telescope was originally planned to be built at the same time as Keck. It was originally conceived to be larger and with OSU providing a large fraction of the funding. OSU's president, Gordon Gee, cut funding for the project in the early 90's, however, which threw the project into disarray. Most of the faculty in the Ohio State astronomy department resigned in protest which is why Ohio State has had a department with relatively young faculty. Due to problems funding the project and technical difficulties (putting two very large mirrors on a common mount turned out to be harder than anticipated), the telescope had to be scaled back and it only saw first light in 2005.

[1] As an aside, astronomy has been one of the major drivers of improvements in CCD technology. CCDs in consumer devices are generally used in photon-rich environments and the users can tolerate a lot of noise in their images. Astronomers, however, demand very low noise and use their CCDs in photon-poor environments, and the production of these kinds of devices has required major improvements in CCD technology.