Surging inflation

For the United States and much of the rest of the world, the 1970s were a time of high oil prices, surging inflation, stock market swoons, political upheaval, and geopolitical tension. Add pandemic and climate change to the list, and it also sounds like a fair description of the world today, a half-century later.

Psychoanalyst Theodor Reik once wrote, “It has been said that history repeats itself. This is perhaps not quite correct; it merely rhymes.” So, just how much do the 1970s and the 2020s rhyme?

Many commentators have based ‘1970s redux’ analyses primarily on what was then called ‘stagflation’ – inflation in the context of a stagnant economy. After World War II, the US economic growth rate achieved sustained, unprecedented highs. But then, in the 1970s, growth stalled. That’s partly because energy production also stalled (energy is, after all, the irreducible basis of all economic activity). US oil extraction rates started a long decline, the economic effects of which were greatly amplified by the Arab embargo of 1972 and the 1979 Iranian revolution, which sent oil prices soaring. Inflation surged. Averaged economic growth rates fell by half for the decades after 1980 compared to the two decades before, and interest rates topped out at nearly 17 per cent in 1981.

But much is different now. Today’s global energy crisis is actually much worse, affecting not just oil but gas and electricity as well. As in the 70s, high fuel prices are due both to resource depletion (then, declining US oil production; today, declining global production of conventional oil) and to geopolitical events (then, events in the Middle East; now, the Russia-Ukraine war). The ‘70s energy crisis was eventually defused by increased petroleum production in places like the North Sea, Alaska, Mexico, and China. Today, prospects for boosting world oil production are few (notably in the Permian formation in Texas), and most hopes for future energy supplies rest on renewable sources like solar and wind. But these sources will require vast investment and the electrification of enormous swathes of our industrial system – and may end up being limited by materials requirements for panels, turbines, and batteries.

Inflation is once again surging, but the Federal Reserve may not be able to deploy high interest rates to fight it, as it did in the 1970s and early 80s. As energy economist Carey King explains, those interest rate hikes were a drag on economic growth. So, after the 1980s, the Fed gradually lowered interest rates, and the economy began a tepid recovery. But lowering interest rates led households, governments, and businesses to take on more debt, with increased debt somewhat making up for slower economic growth (since a larger proportion of spending was now funded by debt rather than profits or wages). King notes, “The US total debt and loan to GDP ratio rose from near 160 per cent in the 1970s to over 370 per cent in 2009 at the peak of the Great Recession. Following a decline after 2009, this ratio has remained above 350 per cent since, with a short peak over 400 per cent at the beginning of the Covid pandemic.” The result today is a situation in which massive debt – government, corporate, and household – makes raising interest rates exceedingly hazardous, because doing so boosts interest payments as older debt gets rolled over at higher interest rates, thereby risking a round of debt defaults that could send economies toppling like a row of dominoes.

So, our current situation has some features in common with, but is far from being an exact repeat of, the 70s.

Repetitive patterns in time, or cycles, exist everywhere in nature and society. Searching for cycles in human history can be intellectually seductive and revelatory – but it can also be treacherous if we ‘see’ patterns that aren’t really there, or try to make bold predictions based on them. Cycles can proceed in temporal near-lockstep, like seasonal bird or butterfly migrations. But underlying or background conditions can change, resetting or altogether halting long-standing cyclical patterns (as when bird migrations fail due to habitat loss). Similarly, human societies exist within regimes of climate and relative resource abundance, and, when those regimes shift, social rhythms can be shattered. For example, ancient Egyptian civilization, which based its agricultural success on the annually replenished fertility of the Nile Delta, saw many cycles of advance and retreat. However, the ancient Greeks, who depended upon a more fragile ecosystem and depleted both forests and topsoil, enjoyed fewer turns of the screw before suffering long-term population decline.

If it’s important to pay attention to changes in underlying environmental factors when comparing historical periods, then let’s return to our comparison of the 1970s with the 2020s and consider some numbers. Human population in 1970 stood at about 3.7 billion; today, it’s over twice that, and estimated by the UN to hit 8 billion this month. Global materials use in 1970 stood at less than 30 billion tons annually; today it’s over three times that level, at roughly 100 billion tons. Meanwhile, rising population and resource extraction have had serious impacts on nature. Since the 1970s, the population numbers of wild insects, birds, mammals, amphibians, and reptiles have declined by 60% to 70% on average. A recent study found “a significant decline in average fishery biomass in all observed regions, across all oceans and climate zones. A third of the Earth’s topsoil has been lost since the 1970s. In short, from a biophysical, ecological point of view, we now inhabit a different world: in just 50 years, we have shifted from relative abundance to relative depletion and scarcity. There’s no reason to regard this shift as mostly the result of a repetitive cyclical process; rather, it makes more sense to think of it as the consequence of a one-time-only profusion of human population, innovation, and consumption enabled by a rapid influx of energy from fossil fuels. This can best be understood as a singular, self-limiting cycle – like a wildfire consuming all available fuel.

Maybe the biggest thing that’s different today is climate change. In 1970, the carbon dioxide content of the planetary atmosphere stood at 326 parts per million (compared with the pre-industrial level of 280 ppm); today, it is shooting past 421 ppm. Global temperatures have increased, on average, by over one degree Celsius already, and are likewise rising rapidly. While there are cycles in Earth’s climate (the past three million years have featured several roughly 100,000-year-long glacial periods punctuated by 10,000-year warmer interglacials), what’s happening now, as a result of people burning fossil fuels, has no true precedent.

Excerpted: ‘Oil Crisis! Surging Inflation! Is This the 1970s Again?’

Courtesy: Commondreams.org