Among the young, hip, Woke crowd, faux-nostalgia for the fabulous 1970s is all the rage these days. Well, if it’s the ’70s they want, it’s the ’70s they’ll get. And good and hard, as the saying goes. Seen inflation lately?
April consumer price inflation surged 4.2% over the last 12 months, four times higher than expected. Core inflation, which strips out volatile prices for food and energy, posted its biggest monthly increase since 1981, for a gain of 3% over the last year and the biggest annual increase since 1996.
Because of inflation, the ’70s are nothing to wax nostalgic about. Energy shortages, blocks-long lines at gas stations, soaring prices for homes, groceries, cars, and restaurant meals and everything in between made the decade a miserable one.
Surging prices decimated the stock market by cutting the real value of corporate earnings and capital gains, and pushed market-based interest rates for even credit-worthy borrowers to over 20%. Gold and other commodities prices soared as investors dumped financial assets in favor of hard, tangible goods. Real investment grinded to a halt. Unemployment rose along with prices, an ugly double-whammy.
Even worse, the ’70s were the decade that the big post World War II gains made by average workers came to a sudden and devastating halt.
In the 25 years from 1948 to 1973, productivity soared 98.7%, or 3.9% a year, and hourly compensation largely kept pace: It grew 91.3% during that quarter century, or about 3.7% a year.
But the following 40 years were quite different.
Productivity (the fuel for higher living standards and better wages) kept rising, but the 74.4% gain through 2013 turns out to be a meager 1.9% annual rate. Hourly pay lagged severely, growing just 9.2%, a near-nonexistent 0.2% yearly increase.
We mention this because that abrupt reversal in the expansion of U.S. standards of living was almost entirely due to inflation. And it set the stage for today’s angry inequality debates.
That ’70s inflation was no accident: It came about due to a series of huge policy mistakes by politicians who followed the then-standard leftist, Keynesian thinking that promoted economic “stimulus” through more government spending and promiscuous money-printing by the Federal Reserve.
And, just like that, inflation was on.
The Biden administration seems to be in denial over current inflation. The headline on a recent Washington Post opinion piece by columnist Henry Olsen hit the nail squarely on the head: “Biden officials are playing down the risk of inflation. Don’t believe them.”
This might seem strange, since unemployment remains above 6%, with more than 8 million fewer jobs in the United States than there were before the pandemic. Inflation, however, is a monetary phenomenon, not an employment-based one. The fact is that the economy is awash in money thanks to the trillions of dollars in pandemic-related relief in the past year.
Starting in 1973, what economist Tyler Cowen dubbed “the great stagnation” took hold. Amid roaring inflation, those with skills, education or advanced training were able to keep up or even boost their living standards. But for those with low skills, little schooling, or who worked in hard-hit manufacturing, inflation destroyed jobs and eroded purchasing power. Millions of once solidly middle-class workers fell behind.
Inflation isn’t a subtle thief. A statistician’s tool called the Rule of 72 shows why. At an average of just under 2% inflation (the CPI’s average for the last five years), it would take nearly 37 years for prices to double. That’s a good long time, more than a generation.
But at April’s 4.2% yearly rate, it takes just 17 years. And if inflation hits 6% or higher, as some economists now forecast, prices will double in just 12 years.
Ask yourself this question: Will my income grow that fast? Will my pay double in 12 years, or even 17 years? If not, your standard of living will inevitably decline, and you’ll soon be asking yourself a very different question: What do I now have that I can live without?
It isn’t pretty, as those who lived through the 1970s can tell you. We’ve written about this before.
But inflation is a choice, not an act of nature. It’s shocking how fast poor policies can create horrible results. Biden has been in office not even four months and he’s already wrecking the economy.
This year’s planned $6 trillion in federal “stimulus,” not to mention the Fed’s $120 billion monthly buying spree of government debt using Monopoly Money, have re-lit the economy’s inflation fires.
Americans may have to re-learn the bitter lessons of the 1970s, particularly about inflation. Once embedded in expectations, inflation’s flames are very difficult to squelch.
Biden, who began his political career in the 1970s, should know all this. Yet, he’s making ’70s-style mistakes: Spending trillions as the economy boomed its way out of its COVID-induced slump; re-regulating the economy to slow global warming; and encouraging the Fed to keep printing money, which will come back to haunt us.
So enjoy your ’70s nostalgia while it lasts. The failure of Bidenomics will be one more bitter lesson for Americans to learn from that awful decade. And it’ll be one more reason for them to understand why, indeed, elections have consequences.
— Written by the I&I Editorial Board