1973

1973.  I remember it well. Trying to finish a degree and programming with punched cards. I’d get tired of doing physics derivations that were 4 or 5 pages long and go over to the college library and read an economist I had just discovered, Milton Friedman, who wrote a monthly magazine article.  In the spring of 73 things were booming.  Farmers, flush with cash from Nixon opening up trade to Russia, bought all new pickups and tractors.  All their old equipment was circa 1948-52, the last time farming had been good. Food prices shot up 10% that spring and farm products rose at an annual rate of 50%.  All the other commodities then took off too.  Things looked oh so rosy. 8% annual growth!  Unemployment was 3.4%.(When Dems called Trump on his claim to lowest unemployment in history, they were actually correct until 2019 saw 3.3%) Nixon had lifted his price controls and people couldn’t get supplies.  Ponca City still has plumbing horror stories about copper-aluminum pipes that ruptured 15 years later , installed as a substitute in a copper shortage.  The Dems controlled Congress with a Veto-Proof Majority.  Nobody could stop their deficit spending. But Friedman was worried about Fed expansionism, keeping interest rates low.  He wanted us to watch the alternate money supply, M2 and adjust interest accordingly. And Congress was living on the edge, he insisted, with massive spending. Meanwhile, shortages of certain commodities started showing up.  Coffee went sky high. People substituted roasted barley and even milo for a true battery acid. Every product seemed rushed from the Chevy Vega to Disco music. Ha! Ha! Ha! Ha! Stayin’ alive! Today we are all enthused about the end of COVID and want to travel.  In 1973 everybody went traveling too while Nixon fought for his political life, vetoing nothing.  By the end of summer inflation had risen to 11% and continued at that pace until 1980 when Paul Volcker’s Fed made the Fed Discount rate 18% and prime rate was 21%.  Gasoline went from 35 cents to over a dollar in 7 years. People felt so hopeless that only Jessica Beale’s movie “Flash Dance” about hope in dying Pittsburgh was relief. The Fed got inflation under control at the cost of a horrid 4-year recession. But that wasn’t the only recession with inflation (stagflation) in the 70s.  The 1973-74 winter saw things collapse with OPEC withholding crude oil  and Gerald Ford could just kiss his idea about running again good-bye.  But the thing about Congress is that they didn’t recognize any problem with deficits. And the Fed was slow on the trigger to raise interest rates.  You’d hear Congressmen argue that Congress had always spent money before to no ill effect.  The Fed argued that their quarter point raises were what they had always done before and things always went back upright.  If inflation gets its claws into a demand-fueled , supply constrained economy, it doesn’t let loose easily, Friedman warned.  Indeed, labor unions wanting a 3% raise would tack on 5% for inflation and demand 8%.  Suppliers “charged ahead” to next year’s prices.  Everybody wound up speculating in natural resource stocks that bubbled and collapsed in 1979.

            Today, it seems so similar. Obstinate Dems and Fed, commodities going up fast, people hoping for a spending spree after they buy that new house.  Demand everywhere, supplies low, housing wild. Maybe gild the lily with  popcorn ceilings, a shake roof, and  paneling on that house.