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Déjà Vu All Over Again: Echoes of the 1970s in Today’s Economy
The Unsettling Parallels
A confluence of economic forces is stirring anxieties about a potential repeat of the 1970s, a decade defined by stagflation
– the simultaneous occurrence of slow economic growth adn high inflation. While the circumstances aren’t identical,striking similarities in energy prices,supply chain disruptions,geopolitical instability,and wage pressures are raising concerns among economists and policymakers.
The energy Shock: Then and Now
The 1973 oil crisis, triggered by an OPEC embargo, sent shockwaves through the global economy, quadrupling oil prices. Today, Russia’s invasion of Ukraine has disrupted energy markets, leading to a surge in oil and natural gas prices, notably in Europe. The european benchmark TTF natural gas price peaked at over €300 per megawatt-hour in August 2022, a level unseen in decades, before falling back but remaining elevated. This energy price volatility is a key driver of current inflationary pressures.
Supply Chain Woes: A recurring Theme
The 1970s experienced significant supply chain disruptions due to factors like industrial disputes and limited global trade. Today, the COVID-19 pandemic exposed vulnerabilities in global supply chains, leading to shortages of goods, increased shipping costs, and production delays. While some of these issues are easing, the war in Ukraine has created new bottlenecks, particularly for food and fertilizer. The new York Federal Reserve’s Global Supply Chain Pressure Index, while declining from its peak, remains elevated compared to pre-pandemic levels.
| Indicator | 1970s (Average) | 2022-2023 (Average) |
|---|---|---|
| Inflation Rate (US) | 7.7% | 8.0% |
| Unemployment Rate (US) | 6.1% | 3.7% |
| oil Price (per barrel) | $19.50 | $80-120 |
| Global Trade Growth | 4.5% | 2.7% |
Wage-Price Spiral and Labor Dynamics
A key feature of the 1970s was a wage-price spiral,where rising wages fueled inflation,which in turn led to demands for higher wages. Today, a tight labor market, with unemployment rates near historic lows, is putting upward pressure on wages. While wage growth isn’t currently at the levels seen in the 1970s, there’s a risk that it could contribute to a self-reinforcing cycle of inflation. The Employment Cost Index (ECI) shows wage growth accelerating in recent quarters, though it remains below
