Urban Unrest, Stagflation, and Labor Strife: Why is 1970s Economic Policy Coming Back, Too?

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tags: inflation, economics, 1970s

In 1688, the Swiss doctor Johannes Hofer identified a new disease “originating from the desire to return to one’s native land.” Sufferers sank into a chronically “sad mood,” he wrote, their faces lifeless and haggard. Hofer called the new illness “nostalgia,” fusing a pseudoscientific neologism out of the Greek words for “return” (nostos) and “pain” (algos). A disease of the imagination that eventually infected the body, nostalgia, as Hofer described it, caused its victims to lose all sense of time; the boundaries between past, present, and future, the real and the imaginary, broke down. In the centuries since Hofer’s now-discredited discovery, nostalgia has detached from its scientific roots, morphing from a curable ailment into a chronic cultural condition. Temporal disorientation and historical delusion are now the province of politics rather than medicine. But if there’s a condition that defines political debate in the United States today, it’s not longing for the past but fear of it—and fear of one decade in particular. The victims of this new illness enjoy a relationship to history every bit as confused as that of Hofer’s nostalgics.

The Republican response to Joe Biden’s State of the Union address was just five sentences old when this new phobia scored a mention. “Instead of moving America forward, it feels like President Biden and his party have sent us back in time—to the late ’70s,” Iowa Governor Kim Reynolds said in March. The 1970s: decade of stagflation, impending nuclear holocaust, labor mutiny, urban decay, on-screen chainsaw massacres and off-screen serial killers, unaffordable meat and unavailable gas. After decades in which politicians of all stripes have held the postwar years up as an example of progress toward a more perfect society, the reigning political mood across the United States and the West today is not nostalgia but nostophobia, not veneration of the “New Deal order” or a fictitiously harmonious 1950s, but fear—even, on occasion, terror—of a return to the 1970s. Trump loyalist Peter Navarro has claimed that “a feckless Team Biden has set America up for a new round of 1970s-style stagflation,” while historian Niall Ferguson recently argued that “the 2020s could actually be worse than the 1970s.” But it’s not only right-wingers raising these fears; what’s remarkable about the new nostophobia is how widely shared it is. The World Bank has warned of a regression to the 1970s, and Wall Street is now convinced we’re in for a stagflationary shock. Across politics, business, and the media, the 1970s are universally seen as the decade to which “no one wants to return,” as Treasury Secretary Janet Yellen has put it. When Yellen and Navarro can make common cause, you know that something truly unusual is afoot. 

The proximate cause of this new epidemic of panicky historical analogizing is inflation. Supply chain disruptions triggered by the pandemic and Russia’s invasion of Ukraine have forced consumer prices in many leading economies to climb to heights not seen in four decades. Trailing in the wake of this resurgent inflation have come a thousand think pieces and research papers warning of the risks of a return to the last decade scarred by serious price hikes—a decade in which inflation, we are told, paved the way for crime and riots, a societywide breakdown in law and order. Google searches for the words “stagflation” and “1970s” reached their highest level ever between April and June of this year. The 1970s have become a living ghost that haunts the post-pandemic United States.

Taxi Driver’s anti-hero, Travis Bickle, called the society of the 1970s “sick, venal.” Today’s nostophobes endorse this historical caricature. In their view, the 1970s were a “disaster” (Council on Foreign Relations fellow Sebastian Mallaby), a “horror movie” (Yale economist Stephen Roach) when postwar prosperity “collapsed into a tumult of social unrest,” as The Wall Street Journal’s former editor in chief Gerard Baker has put it. Over the course of the decade, America’s cities became “hell­scapes” (Baker again), and the whole country succumbed to an “existential sense of peril and failure” (ditto). Seventies syndrome has touched all the usual suspects in the business media and conservative policy circles: By now, the opinion pages of the Journal and Bloomberg are so thoroughly cloaked in the historical murk of the 1970s that they could qualify as an early Scorsese film. Across the Atlantic, rising energy prices have made reference to Britain’s 1978–79 “winter of discontent,” marked by bitter cold and nationwide strikes, a cliché of financial coverage. (Never mind that British workers are nowhere near organized enough today to demand the kind of wage increases secured during the 1970s; all that matters in these analogies is vibes, the idea that the 1970s were bad.) Economic history has become an essential weapon in the free marketeers’ fight against the Biden administration: “The 1970s demonstrated what the socialist playbook of tax, spend, and regulate brings: joblessness, inflation, and misery,” argued a recent research paper by the conservative Heritage Foundation. But nostophobia has also gripped moderates and grandees of the Democratic establishment: Larry Summers, perhaps the most influential economist of the Clinton-Obama years, has repeatedly warned that “we’re in very serious danger of repeating almost all the mistakes of the 1960s and early 1970s.”

Nostophobes urge lawmakers to learn from the 1970s—an admirable objective—but recommend all the wrong lessons. Fear of the 1970s grounds the demand for 1970s-style solutions to the world’s economic malaise. Remarkably, that fear is working. The Federal Reserve now appears determined to sacrifice employment on the altar of price stability, mimicking its own actions of more than 40 years ago: Fed Chair Jerome Powell’s speech at Jackson Hole in late August explicitly endorsed the 1970s as an object lesson for shaping economic policy today. Earlier, in May, Powell had said the Fed would continue raising interest rates in order to “get wages down.” This is both cruel, since it’s likely to push the economy deliberately into recession, and nonsensical, since rising wages aren’t the cause of inflation: The weakness of labor today means that, on the path to a 1970s-style “wage-price spiral,” we’re barely a single rotation up the fusilli. Coherence is usually the first victim of any historical analogy, and in this case the American worker seems likely to become victim number two. Fear of the 1970s has so thoroughly colonized the contemporary political imagination that we’re now set for a revival of the ­Volcker years.

Read entire article at The New Republic