Center of the Earth
columnist: DigitalBob

Topic: Economics
Stagflation, My Old Friend

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For those of us who grew up in the 1970s, we're beginning to see familiar patterns that led to double digit inflation. Enjoy my childhood memories.

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by DigitalBob
(Libertarian)
Sunday, April 6, 2008

The Simon and Garfunkel song "The Sound of Silence" starts with a haunting "Hello, Darkness, my old friend." The singer is able to see things all around him, "written on the subway walls, and tenement halls." I'm seeing some of the same things when I have to travel for business. The tolls and gas prices are going up faster than my salary. For those under 40, this is a new experience.

In the 1970s, I grew up in Benton Harbor, "My Little Town." I was thankful that my dad had a service job in the local hospital. My friends' parents weren't so lucky. They had jobs at the local manufacturing plants. Malleable and Superior Steel were once great places to work. They had their boom years in the 1940s, during the Great War, but were gone by 1980. I would hear of strikes for better wages. Auto Specialties went on strike in 1978 and never recovered. The Clark equipment company also had rough times, and finally moved out of Michigan in the 1980s. A new Auto Specialties occupies the old Clark plant on Pipestone. Whirlpool, one of the few manufacturers left from my childhood, has grown recently by acquisition of Maytag. During the 1970s, it seemed like Whirlpool had a labor strike for higher wages every other year.

With the rates of inflation at the time, I could understand. Back then, I don't remember eating steak, ever. As Catholics, we had fish on Fridays, but my mother could find turbot or salmon pretty cheap, even the rest of the week. We had neighbors who hit their catch in Lake Michigan, and didn't mind sharing. At the church, my mother participated in a local food buying co-op. She and other housewives would put in their orders to a food service company and got the same discounts a restaurant would, because they could buy in bulk. I remember eating a lot of spaghetti and pizza. What else are you going to do with a number-10 can of oregano and a couple gallons of tomato sauce?

My Dad drove a 1970 Buick LaSabre and my mother had a 1968 Dodge Dart. The Buick's V-8 350 engine had horrible gas mileage. The Dart's 220 slant-6 wasn't so bad. When we went to even-odd days for gas, my dad would siphon the gas out of the car with the good license plate to fill up the other one. Neither car had air conditioning. He would joke that both cars had 440-air: 4 windows down and 40 miles per hour. I think '72 was the last time we took a long vacation for many years.

When I was 12, my mother "encouraged" me to ride my bike to all my baseball practices. In order to pay for my Boy Scout camp, my mother would drive around early on trash day and pick up bags of newspapers for recycling. My sisters and I got newspaper routes, because it wasn't likely that my parents were going to give out allowances. My dad tried to give a quarter a week allowance to me and my sisters, but those quarters didn't go far at the local Dog n' Suds. Kids are flexible.

30 years later, with teenage kids of my own, I never did get into the allowance thing. I buy them the things they need. A couple of them are getting jobs this summer, so they can take a trip with their school. My parents have both passed away. My job barely keeps up with inflation. I've never been in a labor union, so striking for higher wages to cover my $3.50 gallon of gas isn't going to happen. Dollar a gallon gas in 1986 seems like a long time ago. But $2 per gallon was only four years ago. A guy named Stuart made a chart that reflects my experience: [link edited for length].

Stagflation is a silly word. It describes inflation, with a loss in productivity that you normally see in a recession or a depression. When I heard it as a kid, I thought a deer was passing gas.

My grandfather had one of those W.I.N. buttons, which stood for "Whip Inflation Now". He liked Gerald Ford. He blamed higher prices on the labor unions wanting more money for their members. He had a tree nursery business, so he just saw the costs.

During the 1970s, the dollar bought less due to printing of more money to cover the costs of the Vietnam War and the expansion of government. Higher fuel prices came from the collusion of OPEC and the aftermath of the Yom Kippur war. Prices in this country rose, but the industrial output remained the same. Labor unions went on strike for higher wages. Many times a company, unable to deliver its product at a price high enough to cover its costs, simply went out of business. The Stagflation of the 70s impacted the Ford and Carter administrations.

Today we have Iraq war, which is costing hundreds of billions of dollars. Oil, which was closer to $20 per barrel at the start of the war, is now over $100.  We haven't hit 50,000 dead Americans yet, but we've lost nearly 4,000, and that's without conscription.

This week, the Fed chairman said that a recession is possible.  He needs to get out more.  It's been here. 

I saw the national unemployment rate is over 5%. Living here in Michigan, we feel the pinch of the state's unemployment rate of 7.2%. The national population is moving south and west, in search of better jobs. The Fed will probably overreact by lowering interest rates a few more times this summer. I just saw that the housing industry is getting a "rebate" of $6 billion, so it can build more homes that people can't afford. Our Congress just loves spending my money. I guess the $30 billion guarantee the Fed made for Bear-Stearns wasn't enough.

The only way we're going to get over this "bridge over troubled waters" is to allow some businesses to fail. The airline ATA just declared bankruptcy. I won't miss it. There are a few others that can leave the flying to the competent and the efficient. The extra month extension for some homeowners will stretch out the agony of pending foreclosures. I've been through one before. You need to have it happen quickly, so you can get on with your life. It screws up your credit rating for seven years, but you get past it.

Our old friends are back for a while: higher inflation, higher unemployment, loss of property value, debt from an unpopular war, and politicians who say they're looking out for us. We're going to need more than "Kodachrome" this time to make things look better.

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2008 DigitalBob, all rights reserved.
Published: Sunday, April 6, 2008
Last modified: Sunday, April 6, 2008

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