Today's crunch feels like '70s - Democratic Underground

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Sun Jul-13-08 04:17 PM
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Today's crunch feels like '70s

High oil prices, a sluggish economy, persistent inflation, an unpopular president and the Eagles are out on tour.

Sounds like a rerun of the 1970s.

But it is also a snapshot from the summer of 2008 —- even if it does conjure images from the past.

"The similarities are there," said economist Gerald Lynch of Purdue University. "That was a miserable time for the economy. And the clothes were ugly, too."

Wide ties may not be making a comeback, but hints of the era's economics are in the air.

One of the stars of that original '70s show was stagflation, a term invented to describe a mix of rapid inflation and near-stagnant growth. The word has re-entered the economic vocabulary of late.

"As far as I can see, the wheels have fallen off the wagon," said Peter Miralles, president of Atlanta Wealth Consultants. "This is as close to the '70s as we have seen in the past couple of decades."

First, the sluggishness: Gross domestic product the past two quarters has expanded by less than 1 percent. The economy shed 438,000 jobs in the first six months of the year, while the official unemployment rate has climbed to 5.5 percent.

Meanwhile, the official measure of inflation has been running slightly higher than 4 percent per year —- while energy prices have more than doubled.

Yet comparing the current moment to the 1970s can offer some reassurance: Today's numbers pale beside the Hotel California Era.

In 1975, unemployment peaked at 9 percent, fell for a while and then climbed to 7.8 percent in 1980. Inflation hit double digits in 1974 and 1975, slipped back and then roared up, cresting at more than 13 percent in 1979 and 14 percent in 1980. It was a time, too, when the nightly news rattled the American psyche.

The first half of the decade saw the revolution-promoting Weathermen, Watergate, the bitter, bloody end to the Vietnam War and the Arab oil embargo. The second half of the '70s brought the Soviet invasion of Afghanistan and the Iranian Revolution.

"There was a kind of extremism in the air," said Herb London, president of the Hudson Institute, a conservative, Washington-based think tank. "Conditions now are also kind of frightening. But the situation is not as extreme."

Still, today's list of potential villains sounds like a cast from the past.

The most obvious repeat offender is oil. Oil prices quadrupled in the mid-1970s, then soared again after the Iranian Revolution in 1979.

-snip-

GASOLINE

Now: Gas prices have doubled in a little more than three years. They are up a little more than one-third in the past year. Gas is costly but plentiful.

Then: Gas prices tripled during the decade, rising almost 50 percent from 1973 to 1975, and by 80 percent in 1979 and 1980. Shortages forced restrictions on sales.

PRESIDENTIAL APPROVAL

Now: 28 percent

Then: 29 percent

IRAN

Now: Tension between the United States and Iran over nuclear programs and U.S. involvement in Iraq has led to higher oil prices.

Then: Iranian Revolution in 1979 overthrew a U.S. ally, led to a long hostage crisis and sent oil prices skyrocketing.

UNEMPLOYMENT

Now: In the past year and a half, official unemployment has increased 25 percent. It remains historically modest: 5.5 percent.

Then: After the Arab oil embargo, unemployment rose by more than 80 percent.

INFLATION

Now: Consumer prices are up 4.1 percent in the past year, the government says, but critics say the data understates reality.

Then: Consumer costs were up an average of 8.12 percent a year through the decade, peaking at 13.3 percent in 1979.

PRODUCTIVITY GROWTH

Now: 2.58, average, 2000-07

Then: 1.73 percent, average 1971-80

Sources: Bureau of Labor Statistics, Energy Information Administration, Gallup Poll, PollingReport.com.

http://www.ajc.com/services/content/business/stories/2008/07/13/seventies.html?referrer=search_buy&imw=Y