Strategic Vision American History
The Economy of the 1970s
2022 began disconcertingly similar to 1970, so are we doomed to repeat the era of disco, stagflation, and a flailing stock market For investors with an eye toward the coming decade of the 1970s, there were blue skies on the horizon. American ingenuity and technological prowess, with the help of a brilliant German rocket scientist by the name of Werner von Braun, had just pulled off one of the greatest achievements in the history of mankind: landing humans on a world outside of Earth. Unemployment was sitting at 3.5% (as it is now), and the economic engine of the world was notching impressive rates of growth, as measured by US GDP. Millions of Americans were also flocking to an investment vehicle known as the mutual fund: baskets of (generally) stocks packaged together for easy purchase. While the 401(k) company plan wouldn’t come onto the scene until 1978, money was still flooding into equities as we entered the new decade. Nascent investors were about to get a hard lesson in risk management. Warning: spoiler alert coming. On 31 December 1969, the Dow Jones Industrial Average finished out the decade of the 1960s at a level of 800. On 31 December 1979, the Dow closed the trading session at 839. An entire decade, and the DJIA had gained all of 39 points! Who could have possibly seen that coming? Instead of one cataclysmic event, it was a toxic mix of poor fiscal decisions, an easy money policy, and geopolitical turmoil which caused the lost decade.
Dependence on unstable regions to fill energy needs According to the US Energy Information Administration, a barrel of crude cost just under $3 in 1970. At that time, oil production in the US was peaking around 10 million barrels per day (BPD). Despite that impressive production rate, global demand among non-communist nations had more than doubled in the previous decade, from 19 million BPD to over 40 million BPD, with a Middle East-based group known as OPEC controlling some 55% of the world’s proven reserves. Oil prices remained relatively stable, however, until a military incursion in late 1973 sparked the first major global oil crisis. On 06 October 1973, during the Jewish holy day of atonement known as Yom Kippur, Egyptian forces attacked Israel from across the Suez Canal while Syrian troops simultaneously invaded the Golan Heights region—an area it had lost during the Third ArabIsraeli War in 1967. The attack was cheered on by the other OPEC nation-states. With the help of the United States, however, Israel—led by the most capable General Ariel Sharon—quickly regrouped and took the offensive. By November, a ceasefire had been called. As punishment for supporting Israel, OPEC initiated an oil embargo against the United States, Canada, the United Kingdom, Japan, and the Netherlands. The confusion caused massive gas lines and shortages of fuel in the United States, as well as a quadrupling of oil prices. By the end of the embargo in March of 1974, oil was selling for around $12 per barrel. Energy prices were a major component of the runaway inflation which epitomized the decade. Americans were suddenly spending an inordinate amount of their income to simply fuel their vehicles, with little left over for discretionary spending and savings. This had a deleterious effect on the American psyche, further reinforcing the decade of gloom. We have certainly experienced a massive increase in the price of oil and gas over the past few years. The average price at the pump for one gallon of gas more than doubled between the start of 2021 The cost of living soared in the ‘70s while wages and the stock market flatlined and June of 2022, rising from $2.33 to
6 Penn Wealth Report
volume
11 issue 01
01 Jan 2023
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