Everything in America depended on oil, from manufacturing fertilizer to powering tractors, from lighting up cities to moving cars and trucks down the highway, from heating homes to powering factories. As a result, the price of everything went up: it was a classic supply-shock-driven inflation.
The war ended on January 19, 1974, and the Arab nations lifted their embargo on US oil in March of that year. Between two devaluations and the explosion in oil prices, inflation in the US was running red-hot by the mid-1970s, and it would take about a decade for it to be wrung out of our economy through Fed actions and normal readjustments in the international and domestic marketplace.
But Americans were furious. The price of pretty much everything was up by 10 percent or more, and wages weren’t keeping pace. Strikes started to roil the economy as Nixon was busted for accepting bribes and authorizing a break-in at the Democratic National Committee’s headquarters in the Watergate complex. Nixon left office and Gerald Ford became our president, launching his campaign to stabilize the dollar with a nationally televised speech on October 8, 1974.
Ford’s program included a temporary 5 percent increase in top-end income taxes, cuts to federal spending, and “the creation of a voluntary inflation-fighting organization, named ‘Whip Inflation Now’ (WIN).” The inflation rate in 1974 peaked at 12.3 percent, and home mortgage rates were going through the roof.
WIN became a joke, inflation persisted and got worse as we became locked into a wage-price spiral (particularly after Nixon’s wage-price controls ended), and President Ford was replaced by President Jimmy Carter in the election of 1976.
But inflation persisted as the realignment of the US dollar and the price of oil was forcing a market response to the value of the dollar. (An x percent annual inflation rate means, practically speaking, that the dollar has lost x percent of its value that year.)
The inflation rates for 1977, 1978, 1979, and 1980 were, respectively, 6.7 percent, 9.0 percent, 13.3 percent, and 12.5 percent.
In 1978, Margaret Thatcher came to power in the United Kingdom and, advised by neoliberals at the Institute of Economic Affairs (IEA), a UK-based private think tank, began a massive program of crushing that country’s labor unions while privatizing as much of the country’s infrastructure as she could, up to and including British Airways and British Rail.
She appointed Geoffrey Howe, a member of the Mont Pelerin Society and friend of Milton Friedman’s, as her chancellor of the exchequer (like the American secretary of the Treasury) to run the British economy. Friedman, crowing about his own influence on Howe and the IEA’s founder, Sir Antony Fisher, wrote, “The U-turn in British policy executed by Margaret Thatcher owes more to him (i.e., Fisher) than any other individual.”
The ideas of neoliberalism had, by this time, spread across the world, and Thatcher’s UK was getting international applause for being the world’s first major economy to put them into place. Pressure built on President Carter to do the same, and, hoping it might help whip inflation, he deregulated the US trucking and airline industries, among others, in the last two years of his presidency.