Fist Of History

Posts Tagged ‘Carter’

The Great Stagflation and Modern America

Tuesday, December 22nd, 2015

The-United-States-Energy-CrisisThe United States has faced a series of major economic issues in its history, the two most commonly discussed are the Great Depression (1929 to 1942 arguably) and the Great Recession (2008 – 2009 officially) but between those two is a lumpy, difficult to fathom, general economic decline that ran from 1971 until roughly 1982 which could be considered the Great Stagflation.  It was the hallmark of the 1970s United States economy, with a solid impact on the British economy as well.  Within the United States it was caused by an intersection of several different policy issues, economic impacts, and major events, such as the two oil shocks that took place in that decade as OPEC reduced oil production in response to the United States’ position towards Israel.

nixon-elvisNixon, who had a very loose concern for domestic economic issues, made the problems worse when facing the gold crisis of 1971.  Briefly the United States pegged the dollar to a fixed conversion rate and other currencies were fixed to the United States dollar.  During the early 1970s the dollar ended up being worth less in actual goods and services than its fixed gold value, leading to other nations beginning to convert their dollar holdings into gold.  Nixon nipped that problem by simply ending the gold conversion of dollars “temporarily” and then imposing price controls to take the sting out of the sudden devaluing of the United States dollar as foreign governments dumped their now non-convertible dollars.  This was fine for Nixon, he was facing re-election in 1972 and he simply wanted domestic voters to feel that their paychecks remained the same, it didn’t matter to him what happened to the economy post-1972 as much, he simply planed to fix it then.

win_sloganOne of the impacts of this, and other factors such as rising foreign competition that cut the United States share of global trade, spiked inflation rates.  This combined though with an unusual factor, as rising inflation eroded the buying power of domestic wages in the United States, organized labor was powerful enough to demand wage increases from companies to offset the inflation.  This reduced the amount of capital available for investment and the economic instability and uncertainty that rising inflation caused discouraged many businesses from entering into any major investments.  This led to economic stagnation, the production of goods and services simply didn’t expand to meet the growing money supply, which caused shocking inflation rates.  (During the height of the crisis inflation rates of 10% were not uncommon in a single year.)

prop13_ballotNormally economic cycles tweak the system, but the events of the 1970s reshaped the United States economic and political landscape.  First, rising inflation pushed up the tax brackets which working and middle class employees were taxed at, as the brackets were not indexed in the 1970s to inflation.  So although the relative buying power of a paycheck remained the same, the bite taken out by state and local taxes went up for many workers, reducing their overall net pay.  This combined with many states reporting record surpluses due to the revenues taken in, and a resistance by those state governments to return the surpluses to the voters.  (California was notorious for this, socking away much of the surplus for future anticipated shortfalls or new programs once the economy settled down.)  Property taxes shot up as well, as the paper value of homes skyrocketed due to inflation and people saw their property tax bills rocket upwards, further reducing their buying power.

prop13The result was a general tax revolt across the United States as citizens, in state elections and in 1980 with the election of Ronald Reagan and a Republican Congress, demanded their tax burden be lowered.  What made this shift particularly unique though was that prior to the late 1970s and early 1980s the United States populous had been less leery of inflation, and higher taxes, and more leery of the government reducing its safety nets.  By the height of this crisis the United States citizenry had changed their demands, inflation control and lower taxes were more critical to them than safety nets, especially safety nets that seemed to re-route funds from middle class pockets to the poor, minorities, and immigrants.

the-time-is-now-reagan-posterWhich state governments, and the federal government, responded to with great gusto.  The federal government, and state governments, slashed social welfare programs aggressively and changed the regulatory client to make the government more pro-business.  This combined with a focused effort to reduce the power of organized labor and allowing unemployment to spike, and a sharp early 1980s recession, to crush inflation.  In many ways since then the United States as a nation has not looked back, and other nations have followed its model, focusing on tight government services, reduced social support for the lowest portions of society, and keeping the tax burden controlled.

Sources:  Wikipedia articles on stagflation, the Nixon Shock, and the 1973-1975 recession, Investopedia article on the Great Inflation of the 1970s, Dollars and Sense article on the 1970s economic crisis, and chapters from The Seventies:  The Great Shift in American Culture, Society, and Politics by Bruce J. Schulman

Synthetic Fuel Corporation

Monday, February 10th, 2014


The 1970s and 1980s are a fascinating time in both U.S. history and global history in general, a book I’m reading right now titled Strange Rebels focuses on drawing links between Pope John Paul II, the Iranian Revolution, Thatcherism, the Afghan-Soviet War, and Deng’s New Path for China.  All amazing topics, however in this case I wanted to focus on an unusual little moment in U.S. history, the public/private government funded corporation called the Synthetic Fuels Corporation.  Depending on your political outlook this effort was either an example of why government should stay out of the private market, a progressive effort to change the U.S. energy situation that was misguided, and/or an environmental disaster that changes in the worldwide oil market unintentionally averted.  It all began with the second oil price shock of 1979 which coincided with the Iranian Revolution – the resulting social and political chaos severely cut Iranian oil exports for a short period of time.  However consumers, and the markets that they make up, had a collective memory of the earlier oil embargo imposed on the U.S. from 1973 to 1974 in response to the U.S. pro-Israel foreign policy stance.  (Specifically in response to the U.S. rearming Israel at the height of the 1973 Yom Kippur War.  The various OPEC nations voted to embargo the U.S. as punishment for that action.)  This caused massive oil and gasoline shortages in 1974 so when production seemed in danger of disruption in 1979 oil prices spiked due to a mass of speculative buying and hoarding, despite the fact that there actually wasn’t a productive decline.


However Congress decided that Something Needed To Be Done so they passed the Synthetic Fuels Corporation Act which, not surprisingly from the name, authorized the U.S. government to create a public-private company whose goal was to pump funding into, and oversee, the development of an expanded domestic industry that could produce U.S. homegrown replacements for gasoline.  In 1980 President Jimmy Carter signed the act into law and the company was founded and funded.  The company dabbled with funding unusual projects, such as turning coal into liquid fuel, but the gem at the center of its operation was the development of oil shale lands in the western United States.  The company ended up linked to other efforts to extract shale oil in the west, including the massive multiple year project known as the Colony Oil Shale Project in Colorado.  The goal was for the Synthetic Fuels Corporation to find a method or methods to produce millions of barrels of synthetic fuel in record time, specifically a goal of two million barrels of synthetic fuel per day by the early 1990s at the latest.  However technical limitations proved too difficult to overcome in the early 1980s and other forces came into play upon this unique hybrid corporation.


Specifically, and foremost, Ronald Reagan who upon taking office in 1981 replaced everyone on the board of the Synthetic Fuels Corporation, as all of the company’s leaders had been appointed by Jimmy Carter.  The company foundered but also wasn’t producing synthetic fuels – and pouring large amounts of U.S. government funds into research projects.  By 1985 the Treasury Department described the project as a write-off and Congress, now focused on reducing federal spending and getting closer to a balanced budget, cut the experiment off entirely.  Added to this was a massive decline in oil prices due to increased production from some OPEC members in the 1980s, the successful development of North Sea oil, and the oil production of Alaska coming online.  Overall the Synthetic Fuels Corporation was an odd experiment in public funding to jump-start what was seen as a strategically vital domestic industry, however market forces made the idea obsolete quickly and the partnership never quite seemed to create what it intended.

Sources:  Wikipedia entries on the Synthetic Fuels Corporation and the Colony Shale Oil Project, an article on the Synthetic Fuels Corporation, Wikipedia articles on 1973 oil crisis and 1979 oil crisis