When Prices Exploded, Growth Stopped, and Economists Had No Answers
1. The World Leaves the Post-War Boom — and Hits a Wall
The post–World War II economic miracle came to a sudden halt in the late 1960s and early 1970s.
For nearly 25 years, economies had grown steadily:
- low inflation
- stable jobs
- booming industries
- rising middle class
But the systems that kept the world stable began to strain:
- governments spent heavily on social programs
- the Vietnam War drained US finances
- wages grew faster than productivity
- demand for goods outpaced supply
The global economy was overheating, even before the major crisis began.
2. The Collapse of the Bretton Woods System (1971)
The End of Fixed Exchange Rates and the Dollar-Gold Standard
In 1971, the US ended the dollar’s convertibility to gold.
This action — known as the Nixon Shock — dismantled the global financial system created in 1944.
Why it happened:
- the US printed too many dollars
- gold reserves could no longer support the system
- inflation pressures were rising
- countries began doubting the dollar’s stability
The immediate effect:
- currencies began floating freely
- financial volatility increased
- uncertainty spread across global markets
The world had lost a monetary anchor.
This was the quiet beginning of the 1970s crisis.
3. The 1973 Oil Embargo: The Spark That Ignited the Crisis
In October 1973, Middle Eastern oil-producing countries (OPEC) imposed an oil embargo on nations that supported Israel in the Yom Kippur War.
The consequences were catastrophic:
- oil prices quadrupled overnight
- petrol shortages hit the US and Europe
- factories closed due to energy shortages
- inflation soared
- transportation and food prices rose sharply
This was the world’s first modern energy crisis, and it exposed how dependent industrial economies had become on oil.
Everything — from transportation to manufacturing to electricity — suddenly became more expensive.
4. Stagflation: The Crisis No Economist Predicted
Before the 1970s, economists believed inflation and unemployment could not rise together.
But the 1970s proved them wrong.
The new reality:
- high inflation
- high unemployment
- low growth
This deadly combination was called stagflation.
Why it was so shocking:
- inflation destroyed savings
- wages increased but could not keep up
- businesses suffered because costs rose faster than profits
- governments had no clear solution
- central banks were afraid to raise interest rates too much
- consumer confidence collapsed
Stagflation broke economic theory—and confidence.
5. The Second Oil Crisis (1979): A Crisis on Top of a Crisis
Just when the world began adjusting to the first shock, another blow arrived.
The Iranian Revolution in 1979 disrupted global oil supply again.
Oil prices doubled.
Inflation soared again.
Recession deepened.
This second shock pushed many countries to the breaking point.
6. Government Failures: Policies That Made It Worse
A. Price and wage controls
Governments attempted to freeze prices and wages.
This failed, creating:
- shortages
- black markets
- reduced production incentives
B. Loose monetary policy
Instead of tightening money early, central banks kept interest rates too low, fueling inflation even further.
C. Excessive government spending
Countries tried to stimulate economies, but the new money only increased inflation.
D. Delayed action
Policymakers underestimated how quickly inflation could escalate.
The result:
Years of economic hardship, unemployment, and declining living standards.
7. Everyday Life: The Human Impact
Living in the 1970s crisis meant:
- prices changing weekly
- wages not keeping pace
- mortgage rates rising sharply
- fuel shortages and long lines at petrol stations
- manufacturing layoffs
- rising poverty in many regions
The crisis affected nearly every household.
It became clear that inflation — not recession — was the new enemy.
8. The Turning Point: Paul Volcker’s Interest Rate Revolution (1979–1982)
Extreme Pain for Long-Term Stability
Paul Volcker, the chairman of the US Federal Reserve, made a historic decision:
Raise interest rates aggressively — no matter the short-term pain.
Rates went above 15%, even 20% at some points.
The consequences:
- short-term recession
- bankruptcies
- unemployment rose sharply
- borrowing became extremely expensive
But inflation — the silent destroyer — was finally defeated.
Volcker proved that:
- inflation must be crushed early
- central banks must act decisively
- long-term growth requires short-term sacrifice
His strategy shaped every central bank’s playbook, including during the 2023–2025 inflation crisis.
9. End of the Crisis: A New Era Begins (Mid-1980s)
By the mid-1980s:
- inflation dropped
- economies stabilised
- oil markets normalised
- interest rates gradually fell
- confidence returned
The 1970s crisis ended, but its lessons shaped policy for decades.
10. The 1970s Crisis Legacy: Lessons That Still Guide Today
The 1970s inflation shock changed the world permanently.
A. Central banks learned to act early
Do not allow inflation to spiral.
B. Oil dependence became a strategic concern
Energy security became national security.
C. Wage–price spirals must be avoided
Inflation expectations matter.
D. Floating exchange rates became standard
The world never returned to fixed currency systems.
E. Global coordination became necessary
Economic crises are always international.
11. Why the 1970s Crisis Looks Most Like 2023–2025
The 2023–2025 inflation period resembles the 1970s more than 1929 or 2008:
- energy shocks
- supply disruptions
- geopolitical conflicts
- high inflation driven by shortages, not speculation
- central banks raising rates aggressively
- governments struggling to balance growth and inflation
However, unlike the 1970s:
- banking systems today are stronger
- supply chains are global
- technology reduces some cost pressures
- central banks moved faster
This is why the 2023–25 inflation crisis did not become stagflation of the same scale.
But the 1970s remains the closest historical blueprint.