This is what’s better about our economy today than in ’70s and ’80s — and what’s worse

The 1970s were a difficult decade for our nation, socially, politically and culturally as well as economically. But the decade was not a mass extinction event.

That was my reaction to a recent headline touting an interview with “someone who managed to survive the 1970s.” Well, there were a couple hundred million of us who managed to survive the 1970s. We survived the 1980s too, a decade with less social and political turmoil than the 1970s, but one with intense economic pain concentrated in agriculture, steel, autos and other sectors sensitive to fluctuations in the value of the U.S. dollar.

Yet what Abraham Lincoln termed “the mystic chords of memory” are selective. Some rough consensus settles on specific decades. The 1970s thus were harrowing economically. The 1980s? An economic Garden of Eden.

That is fine for popular culture, but when one looks to history for insights on present problems, it is prudent to seek objective facts.

The 1970s certainly had the highest U.S. peacetime inflation of the 20th century. The Consumer Price Index had been newly reset to 100 in 1967. It hit 300 — meaning general consumer prices tripled — by 1983. For the decade from January 1970, to January 1980, the increase was a factor of 2.1. That averages 6.2% a year. So inflation genuinely was a problem.

In contrast, inflation in the last 10 years, September 2012, to September 2022, averaged 2.1% a year. The two pre-COVID decades, 2000-2020, had the same number. So the 5.9% CPI increase just in the first nine months of this year is an unprecedented shock to anyone under age 60.

And yet there are many ways in which the U.S. economy in the 1970s outperformed more recent ones.

“Real disposable per-capita GDP,” the inflation-adjusted value of output per person, rose by 3.4% a year in the 1970s, higher than any other decade from 1950 to the present. It grew as much in those 10 years as in the 20 from 2000 to 2020.

Inflation-adjusted earnings in manufacturing grew a half a percent a year in the 1970s. That doesn’t sound like much, but they fell a half a percent a year in the 1980s, as union jobs in the “rust belt” of autos and steel vanished. And the 1970s increase was four times the rate from 1990 to 2010.

‘70s college costs were low, and getting jobs was easy

It also was easier to be a young person in the 1970s than now. College costs were low. It was easy to get a job on graduation from high school or college. Total employment grew 2.4% a year, the highest since World War II. Job growth has not hit 1.4% in any of the last three decades.

People correctly think that, despite growth in the number of people with jobs, the 1970s were years of high unemployment in addition to inflation. That is correct. The average unemployment rate was 6.2%, above the 1950s and 1960s. But the average for the 1980s, seen by many as a decade of wonderful prosperity, was a bruising 7.3 percent, the highest in the last 110 years excepting the 1930s. And the 6.2% rate for the 1970s is exactly the same as for the pre-COVID decade from 2010-2020.

Federal finances were far healthier in the 1970s. Overall budgets deficits as a percentage of the total value of output averaged 1.9%. That doubled to 3.8% in the 1980s and was 4.8% for the 2010s. Over the 2021 and 2022 fiscal years it is about 13%, surpassed in the last century only by war years 1943-1945.

And the national debt relative to the size of the economy had fallen nearly continuously from the end of World War II to a historic low four months after Ronald Reagan replaced Jimmy Carter in the Oval Office.

In May 1981, total federal debt was 30.6% of GDP, lowest in the last 75 years. It was 49.7% when George H.W. Bush replaced Reagan, and 62.9% when Bill Clinton took office. It fell over his term to 55.1% when George W. Bush took up the mantle. With more tax cuts, the military reaction to 9/11, and the financial debacle starting in 2007, the figure was 77.1% when Barack Obama was sworn in and 103.6% when he handed the reins to Donald Trump. Joe Biden inherited a 126.1% level. So the “sound finance” ethic that pervaded both political parties prior to “supply-side economics” is an increasingly distant memory.

This is a blizzard of numbers and probably won’t change the minds of those who see the 1970s as unalloyed economic hell, one that only a lucky few “survived.” But thoughtful people recognize that memories are influenced by a variety of factors.

The 1970s included the most bitter ending years of the Vietnam War. Then there was the Watergate scandal and, economically, unilateral U.S. repudiation of the Bretton Woods system of international payments that resulted in a cheaper dollar. That gave relief to agriculture, steel, autos and other productive sectors that had been punished for more than a decade by an overly-pricey dollar, but it was described by the press, and seen by many, as a national humiliation. So we mix bad memories of politics and social change with economics.

2 disastrous Fed chairs followed by an inflation crusher

Two disastrous chairs of the Federal Reserve, a corrupt one appointed by Richard Nixon and a stubbornly inept one named by Carter, let inflation out of its cage. Carter rectified his mistake by naming Paul Volcker to chair the Fed. He would crush inflation in the opening years of the 1980s, but at the cost of a harsh recession.

Volcker’s high interest rates, combined with the huge deficits caused by Reagan’s supply-side tax cuts, drove the value of the dollar through the roof. This not only ended a decade of prosperity in farming, other natural resources and in steel, autos and other manufacturing, but drove those sectors into the most painful restructuring since the Great Depression. Some remember the 1980s as Reagan prosperity, but for farmers and workers in Rust Belt industries, it was nearly as bad as the Depression.

The 1990s were a decade of economic sanity and prosperity. These years afforded us a chance at longer-term economic sustainability.

But we threw that away in the new century with tax cuts, enormous military outlays on “wars of choice, not necessity” in Iraq and Afghanistan, and a financial sector meltdown caused by magical fantasies about the glories of market deregulation. A decade on, we are still trapped in this mess.

Reach economist Edward Lotterman at stpaul@edlotterman.com.

This story was originally published November 7, 2022 at 4:00 AM.