Are We Back To The ' 70s?

Listening to some analysts talk about the economy, there's been discussion about whether we are now back to a late 1970s scenario. After all, we have Jimmy Carter as president... OOPS! As you already know (and probably regret), we have George W. Bush as president, so I must apologize for the comparison to Jimmy Carter, so here I go: "While I didn't care for you as president, I apologize, Jimmy, for comparing you to George W. Bush! That was a cruel and inhuman remark."

Anyway, some analysts have been comparing the tremendous increases in oil/gasoline prices and food prices with the late '70s, and they seem to be wondering if we're in for another bout of what was then dubbed "stagflation." The term referred to stagnant economic growth, but rampant inflation. For what it's worth, I'd say there isn't as big a comparison. Back then, unions were relatively strong (certainly as compared to today) and they were able to get wage increases to keep purchasing power for many folks, as even the non-union people benefited from union negotiating power. That is not true today. The gap between the richest Americans and the rest of the population has widened to levels unseen since the 1920s, when unions were also weak, or non-existent in many sectors of the economy.

In the late 1970s, Paul Volcker, the Carter-appointed head of the Federal Reserve, began to raise interest rates. That policy continued into the early 1980s, with rates reaching around 20%, if my memory serves me right. We had a very sharp and severe recession in the early 1980s, but the country actually rebounded faster than many thought that it would. Again, I come back to wages. In my opinion, with most people's wages not in a free fall back then, and with government cost of living increases for people on Social Security and extended unemployment benefits, these things helped to keep many average people in the ballgame. With purchasing power not as diminished, the economy actually went on a tear eventually. The negative thing, looking back, was that the Reagan tax cuts, while necessary in my opinion, began the march to a widening income gap, as they did tilt toward the wealthy. With Democrats in control of the House of Representatives, many programs for low and middle income people continued, in spite of calls from the "sit on their ass class" to dismantle them.

Today, I just don't think Americans have the purchasing power. Wage and benefit cuts have left many Americans drifting toward Third World status, if you want to call that "status." Home values, if you have managed to stay out of foreclosure, are so diminished, that equity loans are seldom an option for many folks; so that source of cash is gone. Credit cards have been maxed out by many, and that dried up another source of money. Even people with fairly good incomes are now being scrutinized for loans, and even denied, so there just isn't the purchasing power anymore. Then, of course, there's the price of energy and food. By the time many Americans put gas in their tank to get to work and buy food for their families, they are one step away from foreclosure, or eviction, if they are renters. The country sits on the edge of a cliff. Will it tumble over that cliff?