The View From 1776

The devastating stagflation of the 1970s gave us the highest rates of inflation in the nation’s history, coupled with high unemployment.  The cause was Presidents Johnson and Nixon opening the Federal deficit-spending spigot for the liberal-progressive Great Society in the mid-1960s and keeping it open into the 1970s.

As gasoline prices soared to compensate for inflation, President Nixon imposed price controls in 1971.  President Carter left them in place. 

We got record-high gasoline prices and shortages of gasoline.  People were compelled to sit in sometimes hours-long lines at gasoline filling stations, hoping to reach the pumps before the station ran out of gasoline.

Not until President Reagan took office in 1981 were price controls lifted.  The Federal Reserve, with Reagan’s backing, curtailed the money supply and finally halted inflation.  That brought world oil prices back down and ended our gasoline shortage.

The message is that oil prices go both ways: up and down.

For the past couple of years we have endured a somewhat similar surge in oil and gasoline prices, induced this time by inflation and dollar devaluation, together with growing demand in China and other Asian markets and the threat of Al Queda and Iranian terrorism in the Middle East oil production territory.

Russia, as a major oil producer and exporter, has enjoyed a resurgent economy, supported hugely by high prices and high demand for oil.  The danger is that, when oil prices next collapse, Russia’s economy may crater.  If that happens, there could be a return to the iron-handed dictatorship of the Soviet era.

In that regard, read City Journal’s review of Collapse of an Empire: Lessons for Modern Russia, by Yegor Gaidar.