The meltdown in the U.S. economy has often conjured up comparisons to the Great Depression, but the deep, long recession of the early 1970s may offer a closer parallel to our current situation.
There's no doubt things are bad now, but few are expecting 22% unemployment, like there was during the Depression. Plus, we haven't been on the gold standard since the 1970s, which makes monetary comparisons to the Depression era difficult. Perhaps a better analogy for this freshly minted
, which the National Bureau of Economic Research officially declared last week, is the period between the psychedelic 1960s and the disco 1970s.
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The 1973-1975 recession was long and deep and characterized by an oil shock that led to lines at the gas pump. While oil has recently pulled back from its highs, the 2008 recession certainly dealt with its fair share of high gasoline prices. The $4-a-gallon gas shocked people into dumping their gas guzzling SUVs for a
Prius. Auto makers that had banked on the SUVs for huge profits quickly saw their fortunes evaporate. The Bush administration and congressional leaders on Wednesday were finalizing a $14 billion loan package to thwart the previously unthinkable demise of
The 1970s oil crisis was blamed on shortages, while the most recent oil crisis is blamed on speculators. Even though oil has recently pulled back, the S&P 500 Energy Index increased 16% in 2008 after jumping 17% in 2007.
Then there's the stock market contraction. During 1974, the
dropped 22.9%. In fact, the S&P 500 began 1973 at 118 and finished 1975 at 89. Two years after the recession began, it was still under water. This year is an even more dramatic plunge, having started at 1,447 and so far clocking in at 851. It has dropped an eye-popping 42% year to date.
Next is unemployment. It started at 4.8% in 1973 and jumped to 8.3% in the first quarter of 1975. Unemployment was 4.6% in 2007, but jumped to
6.7% in October
, a 15-year high. Economists expect that number to rise as the recession drags on.
Reports have said
Bank of America
could lay off as many as 30,000 workers as a result of its
are among the laundry list of companies to lay off workers recently.
The share of persons without a job for more than half a year peaked at 2.1% of the labor force in November 1975, eight months after the end of the 1973-1975 recession, according to the Bureau of Labor Statistics. The most obvious reason for the slow improvement in long-term unemployment following the two most recent contractions was the relatively slower pace of job growth. Following each of the recessions of the mid-1970s and early 1980s, employment rose by 1.5% within a year. Employers are always hesitant to expand and grow after a difficult period.
Then, of course, there are the comparisons between the unpopular and expensive Vietnam War and the current war in Iraq that is costing $10 billion a month. In order to pay for the Vietnam War, President Lyndon Johnson began borrowing large sums of money and in turn the printing of more money caused inflation. Adjusted for inflation, the Vietnam War ended up costing roughly $5 billion a month, according to a joint report issued by the Institute for Policy Studies and Foreign Policy in Focus.
Gold spiked to $800 in the 1970s and hit an all-time high of$1,030.80 on March 17. Of course that's nominal pricing. Gold hit the equivalent of $2,145 in 2007 dollars during the 1970s recession, according to
Let's not ignore inflation. Inflation hit a shocking 14% in the 1970s, largely driven by oil prices. This time around, signs of inflation have abated, with deflation becoming more of a concern as stocks deleverage and housing prices continue to drop. Still, with Treasury's printing presses running overtime to keep up with all of the government bailout spending, inflation is at least a nominal concern.
And finally, both periods were marked by employee unrest. During the 1970s, postal employees walked off the job, railroad workers stopped the trains, and long shore strikes closed the ports. This year, there's been a lengthy and disruptive
strike and workers staged a takeover at the Republic Windows and Doors plant in Chicago, after becoming enraged when they were laid off with little notice and were owed back wages.
So what eventually brought us out of the 1970s recession? Is it something we can emulate to help climb out of today's current financial crisis? Many conclude it was a tax cut that enticed the consumer to begin shopping. The government already has sent one round of stimulus checks and President-elect Barack Obama's administration is reportedly contemplating another, $500 billion plan for early next year, which could include money to beef up infrastructure.
As with most recessions, spending will be the way out.
Mark Twain said, "History doesn't repeat, but it does rhyme."
Does this mean disco is coming back?