by Mitch Kokai
Senior Political Analyst, John Locke Foundation
History doesn’t repeat, and maybe it doesn’t even rhyme, but echoes of October 1973 were heard last week. The firing of former Federal Bureau of Investigation head James Comey may not equate to the dismissal of Watergate special prosecutor Archibald Cox in the infamous Saturday Night Massacre. But President Donald Trump seemed to do his best to conjure memories of that crisis by alluding to possible “tapes” of his conversations with the sacked FBI chief, while staging a photo op with Henry Kissinger, Richard Nixon’s Secretary of State.
Market pundits raised the specter of returning to those dreadful days of 44 years ago, which marked the beginning of the stagflation of the 1970s. …
Amid all the allusions to Watergate last week, an examination of history shows the economic and financial backdrop of 1973 is starkly different from now. That doesn’t mean that nothing bad can happen, just that it will be different this time, if it does happen.
The events of 1973 started more than two years earlier. On Aug. 15, 1971, Nixon announced his dramatic economic plan: a wage and price freeze, import restrictions, and the end of the dollar’s convertibility to gold at a fixed price of $35 an ounce. The effective devaluation of the dollar led to an upsurge in commodity prices, culminating in the quadrupling of crude oil prices by the Organization of Petroleum Exporting Countries. With long lines for gasoline and soaring supermarket prices, inflation surged past 12%, year over year, by November 1974.
At the same time, unemployment soared to 9%, a level not seen since the Great Depression. …
… Yes, it is different now. Unemployment fell to a cyclical low of 4.4% in April. Friday, the Labor Department reported that the consumer price index was up 2.2% in April from the level a year earlier, while core CPI was up 1.9%; those year-over-year measures were down from 2.4% and 2%, respectively, a month earlier. While the Fed tracks a different index–the personal consumption expenditure deflator—for its inflation goal, inflation remains under the central bank’s target.