Economic lessons of the 1970's

I'm not sure I agree Sally, as there are just as many dissimilar items, as there are similar. For one, a very big one, there was the oil embargo by OPEC in 1973, and while OPEC still manipulates the market, there is no shortage of oil, and despite rising prices, it hasn't affected the behavior of the average person in the USA.

Secondly, and another big difference-- Nixon pulled us off the gold standard, I believe this also happened in 73 though I could be wrong. This allowed fiat money, and the way was paved for explosive growth, though it didn't occur (for several reasons) until 1980 when Reagan assumed command.

In addition, the tax cuts Bush has enacted, are VERY SMALL compared to those Ronald Reagan put in place. When Reagan entered office, the top tax bracket was somewhere around 72%, if you can imagine that.

Bush's tax cuts by comparison, moved the effective tax rates no more than 2-3%, yet in BOTH INSTANCES, revenue to the Treasury, JUMPED DRAMATICALLY.

I think I could go on and on and on-- but the things I've mentioned already, I believe demonstrate a very wide chasm of difference between then, and now.

By the way, I certainly don't remember turning down a connection, EVER *chuckle* but I've accepted this time.

Thanks for responding jJack,
I like discussing the economy with an informed citizen. I fail to see where you see, though, some sort of jump to the treasury during the Reagon or the Bush administration. In both cases the national deficit increased dramatically. The only out for both administrations, as well as the Carter administration, was borrowing from the Social Security account.
Clinton, a democrat, which I most definitley am not, brought about the most change to our National economy, by realizing the only way to stop the large building of deficit was to stop spending so much of our money on Federal agencies. He slashed them. He also worked hard to break up the huge monopolies of the day, thereby increasing competition within the market place. He, by the way was the first President to begin selling us out to NAFTA.
I am not an isolationist, mind you, but I am an American that believes in American values.
Personally, I think we lost that somewhere along the way.

One of the great lessons of those times? There were significant trends up and down to make money in...they were a time of tremendous opportunity!

Michael,
Yes, there certainly were. This is another similarity, though, that if you had money it was easier to make money. I was working as a cashier at Merrill Lynch when Reagonomics began taking effect. Money market accounts were earning 21% compounded daily.
On the other hand if you were not wealthy, like my mother, it took two jobs, just like today, in order to pay the bills. She was working at Webbers bread factory making 1.60 an hour and having to drive from Canoga Park, California to Pico Rivera, a full 60 miles away, because jobs were few.

1)Imports were rising
--Our trade deficit has dropped from 7% of GDP I believe a year and a half ago to 5.5% of GDP now.
2)Inflation was rampant
Core CPI isn't very high, which is really the most important. Headline inflation is high because of high food (thanks ethanol) and oil prices (thanks--well a whole buch of people). In comaprison to inflation in the late 70s and early 80s--well, there's no comparison.
Unemployment was rising
--Unemployment is at 4.7%, which is below the historical average. It's slightly up from 4.5%, but it's not rising pecipitously by any measure.
Energy prices were rising
--True, but today it's mostly because of terrorism fears and actual worldwide supply constraints. That's pretty bad news IMO.
Interest rates were rising:
Yes, they're rising from an almost absurdly low figure. They were so low that they encouraged such bad lending practices like we saw for the last 5-10 years.
Tax cuts were implemented
--The efects of tax cuts on the economy are probably grossly overstated.
Government expenditures were rising
The Stock market was faltering
-- have you seen the stock market lately? It's up 11% in the last year, 77% in the last 5 years. During that time, the P/E (price to earnings) ratio has decreased signficantly.
Shortages of energy were occurring
--Not exactly shortages, but the supply is tight by any standard. It doesn't help that more countries are nationalizing their oil companies and don't know how to run them. Also, increased consumption in developing countries, especially China and India, are having huge effects.

All good points, Daniel.

The GDP dropping could be due to the devalued U.S. dollar.

Core CPI deos not reflect energy or food. Something every American uses every single day. How convienent it isn't included. What do you think of the raise our Senior citizens are recieving. The increase won't cover the rise in prices for gasoline, which by the way is almost back to 3.00 a gallon, or the food these individuals must buy, let alone the increase in premiums for Health Insurance.
You call it Headline inflation, I call it reality. Factor in tuition and it is a lot higher then the Fed would allow us to believe.

Unemplyment figures have not factored in all of the people that have recently lost their jobs in the construction industry,(a huge hit to illegal immigrants that are not able to file for unemployment) or the lending industry, since several of these firms are still paying severence. Not to mention the boys overseas that may be returning home from Iraq, soon. Just think of all of the National guard that have lost their businesses due to extended tours of duty.

The energy shortages I am referring to are from utility companies which have not spent much in the way of new power plants. Look at California, trying to sue Arizona for a connection to the nuclear power plant. Look at the brown outs this summer in places like St. Louis and Chicago. Here in Arizona, our gas company, Soutwest, as well as Tucson electric power are trying to get thier caps that have been in place for the past ten years lifted.

You are correct about the Interest rates being absurdley low. Once the economy started to cook, it didn't take the Fed long to raise interest rates and cash in on the boom. Don't you think seventeen raises in rates within one year was rather excessive?
Let's talk about rates for a minute. How many people are actually recieving these low rates when it comes to credit? Only the well off with excellent credit. We aren't talking about the majority of the American public.

The stock market is still up, but wait until the true effects of a 600,000,000.00 loss really sinks in for the investors that were led into AAA rated secutities that had all of the sub-prime loans wrapped up in them. It is a good thing we have the Fed and that they could poor 39 billion back into the banks to keep the Corporate paper liquid. I still don't think we have seen the end of this one.

Thanks for the comments and the discussion on these issues. I do believe we have not yet entered into the period which followed the policies of the 1970's. The recession, as I mentioned in my article didn't actually occur until the early '80's.

As someone who experienced the 1970s. The actual inflationary period occurred around 1975 and lasted until 1980. It improved for a couple of years and then a serious recession around 1983 began. The early 1970s were very good. Employees had all of the power. Companies were scrambling to fill jobs. By the mid 1980s companies were freezing raises and promotions and it was an employers market, much like today. Your article was a good one but really it wasn't until after the Viet Nam war that all the mess occurred. The gas wars and the inflationary period led to the recession of the 1980s. By the mid 1990s things improved greatly.

I agree, Joe. The end of the Vietnam war and all of the returning military really pushed everything over the edge.

I'm very concerned about our current state of affairs. It is an investors market but the average person is making do with less.

Sally:
1) Yes, part of the reason why our trade deficit is decreasing is because of a weakend dollar, but there are a lot of other factor in that as well. Foreign demand for goods is skyrocketing due to a booming world economy, U.S consumer spending growth has declined to a more stable rate, etc. The decline in the trade deficit is even more impressive if you take into account the price of oil, which is a major U.S import.

2) To the average consumer, the headline CPI is the most important, but to the overall economy, the core CPI is the most important. The food and energy part can seep into the core CPI, but that hasn't happened yet. Food and energy aren't included in the core CPI because they are so volitile--oil, for example, went from $75 to $60 and now up to $90 in about 2 years. Food prices are equally, if not more volitile.

3) True, there are several sources that may increase unemployment, including the ones you just mentioned. The troops returning from Iraq, however, are comparitively small. There are ~150,000 troops in Iraq--for the last several years, the economy added over 100,000 jobs per month.

4) Yes, the lowest interest rates are given to those with the best credit ratings, but people with bad credit ratings were given a comparitively better interst rate than the people with good credit ratings--let me explain. Not only have interest rates in general gone up, but the spreads have increased--the difference between those with good credit ratings and bad credit ratings. Banks were undervalueing risk, and they're now paying for it.

All good points, Daniel. Let's hope we don't see another recession. Then again, sometimes corrections are good for the economy. I guess we will just have to wait and see.

sally, one must remember where that budget cutting came from while other budgets were rising. Clinton continued Bush I's demobiliaztion after Desert Storm I, it needed to be done but that was the only real cutting he did. Luckily for the country, we had divided government, the Repubs still preached (and somewhat practiced) less government and Clinton realized he had to get along to go along. Except for the dot.com bust, most of clinton's administration had it pretty good until the last few years of his last term...

I believe that Bill Clinton cut taxes for a reason. His bill to the Congress that led to welfare reform was superb. Bush's tax cuts worked for a couple of years but we need more money to do everything we are trying to do. Of course, someone's pet peeve project could be eliminated but it is a pittance compared to the expenditures for the war.

I was less than a teen during the 70's. Now as an adult, could someone who was there during that time making money tell me lessons learned? Where was the money to be made during bear market?

Elizabeth,
Then, as now, people with money were the ones making money. Prices for goods had skyrocketed, as they are now, and utility companies were raking it in. People with enough money to invest were making a fortune with the high interest rates. The only difference with this economy is the interest rates are not high. In reality this means our looming recession will hit more people then it did in the 70's.
Just look at Gold. It used to be that when the dollar declined the value of Gold rose. This is not happening now.
Like I stated in the article, it would be a good idea to tighten our belts.

Thank you for the interesting comments, Paulette. I don't agree about Hillary, though. I think Mrs. Clinton is just another consumate politician. She has been touted as the candidate for the poor working women. Most educated, proffessional women prefer Mr. Obama for President. I like Obama and the way he addresses issues for the working class and the poor. For instance, he wants a form of universal health care, but he wouldn't require everyone to subscribe. His bill would cost billions of dollars less to the taxpayer and would include anyone that couldn't afford health care on their own, at the same time he would require employers that can afford it to insure their employees. This seems like something that would work because it would retain the privitization of the health care industry and insure that most people, other then the uber rich, could obtain health insurance.

Paulette,
It is heartening to see an informed voter.
The only real difference in thier plans is that Clinton would require everyone to obtain Health care insurance and the cost of her plan is well over 100 billion dollars, which she plans to pay for by increasing taxes.
Obamas plan would cost just under 70 billion. He would not require everyone to obtain health insurance and a lot of the cost would be met with employer participation.
Otherwise you are right. Both are a form of Universal health care.

Sally - Nice article! However, the recession/depression will be much worse this time because we've outsourcing our industrial base. Debt is much higher also, and our savings rate has fallen below 0%. Looks like the debt party is over for a long time! Now we're looking at a sharp and permanent reduction in our standard of living.............

You are sooo right on with the standard of living thing, Denver. If oil continues to rise and the dollar continues to fall I can see OPEC changing over to the Euro. That will surely take us down a long dark road, economically speaking.

On a mission, can't talk now, Trying to give fifty points (at least) to all my connections for Christmas, or whatever:

Ten unsolicited points from the world's worst connection. Merry whatever you celebrate!

Great article. I had no idea it was like looking at a mirror.