By Richard Heinberg
For the United States and much of the rest of the world, the 1970s were a time of high oil prices, surging inflation, stock market swoons, political upheaval, and geopolitical tension. Add pandemic and climate change to the list, and it also sounds like a fair description of the world today, a half-century later.
Psychoanalyst Theodor Reik once wrote, “It has been said that history repeats itself. This is perhaps not quite correct; it merely rhymes.” So, just how much do the 1970s and the 2020s rhyme?
Many commentators have based “1970s redux” analyses primarily on what was then called “stagflation”—inflation in the context of a stagnant economy. After World War II, the US economic growth rate achieved sustained, unprecedented highs. But then, in the 1970s, growth stalled. That’s partly because energy production also stalled (energy is, after all, the irreducible basis of all economic activity). US oil extraction rates started a long decline, the economic effects of which were greatly amplified by the Arab embargo of 1972 and the 1979 Iranian revolution, which sent oil prices soaring. Inflation surged. Averaged economic growth rates fell by half for the decades after 1980 compared to the two decades before, and interest rates topped out at nearly 17 percent in 1981.
But much is different now. Today’s global energy crisis is actually much worse, affecting not just oil but gas and electricity as well. As in the ’70s, high fuel prices are due both to resource depletion (then, declining US oil production; today, declining global production of conventional oil) and to geopolitical events (then, events in the Middle East; now, the Russia-Ukraine war). The ’70s energy crisis was eventually defused by increased petroleum production in places like the North Sea, Alaska, Mexico, and China. Today, prospects for boosting world oil production are few (notably in the Permian formation in Texas), and most hopes for future energy supplies rest on renewable sources like solar and wind. But these sources will require vast investment and the electrification of enormous swathes of our industrial system—and may end up being limited by materials requirements for panels, turbines, and batteries.
Inflation is once again surging, but the Federal Reserve may not be able to deploy high interest rates to fight it, as it did in the 1970s and early ’80s. As energy economist Carey King explains, those interest rate hikes were a drag on economic growth. So, after the 1980s, the Fed gradually lowered interest rates, and the economy began a tepid recovery. But lowering interest rates led households, governments, and businesses to take on more debt, with increased debt somewhat making up for slower economic growth (since a larger proportion of spending was now funded by debt rather than profits or wages). King notes, “The US total debt and loan to GDP ratio rose from near 160 percent in the 1970s to over 370 percent in 2009 at the peak of the Great Recession. Following a decline after 2009, this ratio has remained above 350 percent since, with a short peak over 400 percent at the beginning of the COVID pandemic.” The result today is a situation in which massive debt—government, corporate, and household—makes raising interest rates exceedingly hazardous, because doing so boosts interest payments as older debt gets rolled over at higher interest rates, thereby risking a round of debt defaults that could send economies toppling like a row of dominoes.
So, our current situation has some features in common with, but is far from being an exact repeat of, the ’70s.
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