Inflation and cpi consumer price index 1970-1979 gas 02


Although the 1960’s were an age of possibility and budget surpluses, in the second half of the decade President Johnson set out to spend those surpluses on social programs and by the 1970’s inflation had taken hold. The decade is marked by an explosion in the development of solid-state physics, driven by the development of the integrated circuit, and the laser.

While the 1960’s were characterized by successful space missions the 1970’s began on a sour note as on April 11, 1970 Apollo 13 was a disaster as an oxygen tank exploded and the lunar landing was aborted and in 1973 when skylab was damaged during launch removing one of two main solar panel arrays and jamming the other one so that it could not deploy. The decade ended with Skylab crashing into the ocean near Australia due to a lack of power.

Economically, the major driving force was the “Arab Oil Embargo” which was partially the result of retaliation against U.S. support for Israel in the 1967 Six-Day War and the 1973 Arab–Israeli War. It was also partially the result of the downfall of the U.S. dollar. Due to the declining value of the dollar, gold was under-priced and France was insisting on buying all the cheap gold possible. So Nixon was forced to admit that the dollar was no longer “as good as gold”. Thus he canceled the long standing policy of converting dollars to gold at the fixed price of $35/ounce. This is referred to as “closing the gold window”. This resulted in a repudiation of the dollar by most of the rest of the world and its value fell even faster.

In an effort to shore up the value of the dollar and patch up relations with Saudi Arabia, Nixon and Kissinger cut a deal that appeared so beneficial that the Saudi’s couldn’t refuse. Shortly thereafter the other OPEC nations signed similar agreements.

Simply stated the agreement provided that the U.S. would supply military support to Saudi Arabia in exchange not for oil as the Saudi’s expected, but instead for a simple agreement that all oil sales would be denominated only in U.S. dollars. Prior to this, oil was priced in dollars but settlement could be made in any local currency. This deal required that other countries actually pay only in U.S. dollars and then Saudi Arabia would deposit its excess dollars into the purchase of U.S. treasury bills. This boosted the flagging demand for dollars worldwide since everyone needed to buy dollars first in order to purchase oil, while at the same time it also boosted the sale of Treasury obligations. This allowed the U.S. to export much of its inflation over the coming decades as excess dollars remained offshore rather than circulating within the U.S and causing inflation. See Oil, Petrodollars and Gold. The Misery Index

The “misery index” was created as a simple measure of the well-being of the general populous by economist Arthur Okun in the 1960’s by simply adding the unemployment rate on top of the inflation rate. By the 1970’s “ stagflation” had set in. Stagflation is a condition where the economy stagnates in spite of rampant inflation.

Although Carter’s campaign relied heavily on the misery index and how miserable the economy had become Misery index levels under his administration never fell much below the levels where he assumed office and during the 2nd half of his term actually approached previous highs. The Consumer Price Index CPI from 1970 – 1979 Year