You Think the Economy Sucks Today?

Zelda sent me this very informative and eye opening article today. Good reading. Unfortunately, the links didn’t transfer when I did the cut and paste, so you’ll have to go the Atlanta Journal’s website if you want to follow those.

Today’s crunch feels like ’70s

By Michael E. Kanell
The Atlanta Journal-Constitution
Published on: 07/13/08

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.

Now, U.S. troops are fighting in Iraq and Afghanistan, there is renewed talk about a U.S. conflict with Iran, and oil prices are at it again. Crude has doubled in the past year, and the economy again is struggling.

“Oil was at the scene of the crime in both cases,” said Jared Bernstein, senior economist at the liberal Economics Policy Institute in Washington. “If you have a police lineup, you really want to have oil in it.”

And it’s not just oil —- global demand has shoved prices higher on a range of commodities from rice to steel.

But inflation this time has some brand-new accomplices: the housing crash; the subprime meltdown that followed; and the crunch in credit that the meltdown triggered.

“This is a very different world,” Bernstein said.

For starters, the sources of inflation are different. During the 1970s, workers —- often through powerful unions —- insisted on raises that matched higher consumer prices.

Those higher payroll costs were then added to the prices businesses charged, which were then used by workers to demand higher pay.

“You can’t have a wage-price spiral without wage pressures, and we ain’t got wage pressures,” Bernstein said. “That is a huge difference.”

It’s not just that business costs don’t rise as much. Companies are also less likely to pass them along.

Many are so afraid of losing customers, they don’t dare raise prices as much as their costs. Instead, they slash their own costs or accept a smaller profit margin —- and potential inflation never gets to consumers.

What worries some economists is that, eventually, companies must pass along costs. Other economists argue that the official inflation numbers are wildly understating the pain consumers already feel.

“The part that concerns me the most is that the government numbers do not actually represent what’s going on,” said Miralles of Atlanta Wealth Consultants. “I just don’t buy it.”

If the plot of the rerun does mimic the original, then the pain is only getting started.

Led by then-Chairman Paul Volcker, the Federal Reserve decided that inflation was so dangerous it had to be stopped —- even if that meant choking off growth. So in 1979, interest rates were raised dramatically.

The economy spun into back-to-back recessions starting in January 1980.

As the economy stalled, the inflation rate leapt to a high of 14.6 percent. After the second recession, unemployment climbed to a peak of 10.8 percent.

But the Fed won its war: Inflation was dormant for the next two decades.

Even now, inflation —- at least the official measure of 4 percent —- seems modest enough to let the Fed keep rates low.

In the past two years, the Fed has cut the benchmark rate from 5.25 percent to 2 percent.

Any inflation-fighting would mean moving them upward again, which would likely slow the economy more.

At least some inflation may be coming from a “bubble” —- speculation that could pop if demand slackens.

“If oil is a bubble, and there’s a good chance it is, then its bursting would lessen the inflationary threat a lot,” said Doug Henwood, author of the book “Wall Street: How It Works and for Whom” and editor of the economics newsletter Left Business Observer.

Waiting for the scenario to play out, consumers and companies alike must do their best to plan, hoping to protect and nurture their assets.

“There are quite a few parallels to the ’70s, and that is a concern,” said Frank Butterfield, principal with Atlanta-based wealth managers Homrich & Berg. “The ’70s were a bad time for financial assets. Stocks did poorly, bonds did poorly. That could happen again.”

To navigate long term, Butterfield suggests diversifying portfolios, buying inflation-protected securities, using hedge funds and “rebalancing” investments as you go.

The economic trouble so far has been manageable, he said. “Things were worse in the ’70s than they are now.”

Most experts say the U.S. economy seems stronger than it was in the shaky ’70s, more flexible and —- most important during an energy crisis —- more efficient.

The economy is about half as dependent on oil as it was at the time of the first oil shock in 1973, said Robert Whaples, chairman of the economics department at Wake Forest University.

“The ’70s were a period of pretty slow productivity growth,” he said. “There are important parallels between the two periods, but I don’t think we will get double-digit unemployment or double-digit inflation rate.”

Some things do return. The Eagles, after all, are playing summer concerts and promoting their latest album. But no amount of hindsight can truly tell the future.

As the Eagles themselves put it: “Who is gonna make it? We’ll find out —- in the long run.”

That was 1979.


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.


Now: 28 percent

Then: 29 percent


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.


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.


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.


Now: 2.58, average, 2000-07

Then: 1.73 percent, average 1971-80

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

6 thoughts on “You Think the Economy Sucks Today?

  1. i would be scared if we weren’t used to living on the cheap. i remember, as a child, waiting in a long line of cars, my dad cursing, at the gas station.

    If more companies would keep their factories here in the US, our economy wouldn’t be in this mess. (Thanks Bill Clinton. 😦 ) i read an article last week about companies sending copy editing jobs to India. India’s economy is growing by leaps and bounds. Our dollar is the new peso.

    Hey Chica,
    I had to laugh at the ‘living on the cheap’ comment – story of my life too. Yeah, I remember the lines too. Though the economy is a funny animal, and is dependent on many factors – in terms of our dollar, the good news is that it seems to be coming back. If it does…the price of gas as well as other things will drop. I read yesterday that the price of oil dropped $16 a barrel in the last week. I’m hoping the trend continues. 🙂


  2. I can’t believe the high price of food these days, exp. fruits and vegetables. I was at Costco last night and my usual salad was almost twice as expensive, and all of the normal frozen stuff I buy from there were about $3 more per bag. Yikes, it was the first time in my life I wouldn’t buy more produce because of the cost. I’m just so scared for our economy here, esp. in Michigan.

    Hey Girl,
    Yeah the cost of oil is definitely affecting the cost of food. And the other thing too is that depending on where you live lots of produce is imported from South American, rather than local, which can jack the price as well. One of the reasons I’m always growing stuff in the garden. I’m not paying $2.99 a pound for tomatoes, I’m just pulling them off the vine when needed. I know it may sound silly but one of the reasons I garden veggies is because it saves me quite a bit of money – produce can easily be half my weekly grocery bill because I eat a lot of it.

    And yeah, for some reason Michigan always seems to have more economic woes than many other states. Most of my relatives have left there for that reason. I don’t really understand why though. It would be interesting if somebody did a comparitive study and came up with some answers. But instead they are studying the habits of fruit flies and grapefruit trees. Go figure.



  3. And just like back in the 70’s, the idiot politicians are trying to bring back the 55 mph speed limit. Bastards!!!

    Hey darlin’
    You got that right. The thing that always floors me about these jokers is that they are telling us to conserve and use less and drive slower – but they don’t even have to balance their budget, they don’t pay payroll taxes, get free healthcare, travel around on private jets, get a lifetime pension even if they only serve one term and no matter where the economy is at, they vote themselves raises every year. Public Servant, eh? Nice work if you can get it.


  4. I think a major factor in a developing recession is a collective decrease in the actual demand (buying a thing) compared to the effective demand (having the $$$ to buy a thing). Simply put, someone who is worried about his future may put off buying a new car until his perceived economic position improves. When this occurs across the nation, the economy slumps. I think we’re seeing this happening now.

    Hey JOS,
    You’re right – perception is reality and people really buy into it. For example there is a certain criteria that makes a recession – it’s a certain percentage drop for two quarters in a row, which by the way has yet to happen. Yet for what a couple years now, the media have been slinging around the word recession and people believe it. Especially when there is a conservative in the White house. Now..if there were a liberal in the White House, they’d be down playing things and call it a slow down or something much more palatible, eh?


  5. Well, everybody in town filled up on Saturday: the going rate for low-suds unleaded plummeted from $3.80 to $3.60, and some hardy station owners had actually breached the $3.50 threshold.

    Of the stuff I buy regularly at the supermarket, only two things have risen a whole lot: pork chops and corn on the cob. And the ongoing Cola Price Wars have subsided a bit, but only a bit.

    Wow CG, I’d give up chocolate for a week if I could get gas at $3.50 a gallon. Our best price out here is around $4.40. Ah, you gotta love California – the first communist state in the Union.


  6. Good article. Great comparisons too.

    “and the clothes were ugly too” Oh, that cracks me up. 😀

    Hey Mrs. V!
    Yeah, I found it very enlightening. And those clothes were butt ugly – no question about it. 😉


What do you think?

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.