Economic History of The United States - Inflation Woes: 1970s

Inflation Woes: 1970s

The postwar boom ended with a number of events in the early 1970s:

• the collapse of the Bretton Woods system in 1971
• the growing influx of imported manufacturing goods, such as automobiles and electronics
• the 1973 oil crisis,
• the 1973–1974 stock market crash,
• and the ensuing displacement of Keynesian economics by monetarist economics, especially by the free-market Chicago School of Economics, led by theorist Milton Friedman. At the same time, the consensus among experts moved against New-Deal-style regulation, in favor of deregulation.

In the late 1960s it was apparent to some that this juggernaut of economic growth was slowing down, and it began to become visibly apparent in the early 1970s. The United States grew increasingly dependent on oil importation from OPEC after peaking production in 1970, resulting in oil supply shocks in 1973 and 1979. Stagflation gripped the nation, and the government experimented with wage and price controls under President Nixon. The Bretton Woods Agreement collapsed in 1971–1972, and President Nixon closed the gold window at the Federal Reserve, taking the United States entirely off the gold standard. President Gerald Ford introduced the slogan, "Whip Inflation Now" (WIN). In 1974, productivity shrunk by 1.5%, though this soon recovered. In 1976, Jimmy Carter won the Presidency. Carter would later take much of the blame for the even more turbulent economic times to come, though some say circumstances were outside his control. Inflation continued to climb skyward. Productivity growth was small, when not negative. Interest rates remained high, with the prime reaching 20% in January 1981; Art Buchwald quipped that 1980 would go down in history as the year when it was cheaper to borrow money from the Mafia than the local bank.

Unemployment dropped mostly steadily from 1975 to 1979, although it then began to rise sharply.

This period also saw the increased rise of the environmental and consumer movements, and the government established new regulations and regulatory agencies such as the Occupational Safety and Health Administration, the Consumer Product Safety Commission, the Nuclear Regulatory Commission, and others.