Dan Alpert on the Big Difference Between Now and the 1970s

Episode Summary

Executive Summary: The episode debates whether current inflation should be compared to the 1970s and argues that the analogy is overstated. Guest Daniel Alpert says the 1970s were driven by unique shocks—Nixon’s devaluations, oil shocks, wage/wealth dynamics, and global supply constraints—while today’s inflation is mostly pandemic-related bottlenecks and likely transitory. He also argues the U.S. needs hotter growth and stronger fiscal policy to lift incomes, not just Fed tightening.

Main Topics: Why the 1970s are an imperfect inflation analogy (Priority: 5/5): Alpert argues the 1970s were sui generis, shaped by a rare mix of monetary, geopolitical, demographic, and energy shocks that do not map neatly onto today’s economy. Competing explanations for 1970s inflation (Priority: 5/5): The discussion reviews monetarist, Bretton Woods/Nixon shock, and oil-shock explanations, emphasizing that economists still lack consensus on the decade’s inflation drivers. Inflation expectations and the Volcker legacy (Priority: 4/5): The hosts and guest debate whether modern central banking credibility and expectations management truly explain the post-1980 disinflation, with Alpert arguing Volcker’s real tool was severe demand suppression. Wages, income distribution, and who gets inflation (Priority: 5/5): Alpert stresses that inflation becomes durable when money reaches households that spend it; he contrasts the 1960s/70s wage-income dynamics with today’s more polarized wealth and income distribution. Supply bottlenecks vs. sustained demand-pull inflation (Priority: 5/5): The guest argues current price spikes reflect reopening frictions, shipping bottlenecks, and temporary shortages rather than a lasting demand-driven inflation regime. The Fed’s limits and the role of fiscal policy (Priority: 4/5): Alpert says the Fed has exhausted much of its toolbox after years near zero rates and needs fiscal spending to transmit money into incomes and restore policy flexibility. Composition matters in labor and inflation data (Priority: 4/5): The discussion closes on the idea that headline wage and inflation numbers can mislead; the composition of gains—especially among young and low-wage workers—matters more than the aggregate.

Key Arguments: The 1970s inflation surge cannot be reduced to a single cause; it reflected overlapping shocks including deficits, monetary policy, the end of Bretton Woods, and oil price explosions. Modern inflation fears are being amplified by an oversimplified 1970s analogy that ignores today’s different demographics, wealth concentration, and supply structure. Paul Volcker’s disinflation was not mainly about expectations management; it worked because he sharply raised rates and shut down demand, at significant economic cost. Inflation depends less on the quantity of money than on who receives it and whether it is spent; today, polarization weakens the transmission from GDP growth to household demand. The U.S. and global economies still have significant spare capacity, so reopening shortages should fade rather than turn into sustained stagflation. Fiscal policy, not the Fed alone, is needed to get the economy running hot enough to produce rising household incomes above inflation over time. Headline wage growth can be misleading because it may be driven by temporary changes in the composition of employment, such as young workers returning to summer jobs.

Data Points: Stock Movers report length: 5 minutes or less - Promotional intro for Bloomberg’s Stock Movers product Oil price before shocks: $3.5–$4 per barrel - Alpert’s description of crude prices before the 1970s oil shocks Oil price in mid-1970s: $10 per barrel - Alpert describing the first major oil-price surge Oil price by 1980: $40 per barrel - Illustrates the scale of the 1970s energy shock Velocity of M2 in 1995: Over 2x current level - Alpert argues velocity was much higher and more stable in earlier decades Current velocity of M2: About 1.1 to 1.2 - Used to show money transmission has weakened over time Imports as share of U.S. consumption: About 45% - Alpert says non-food, non-petroleum imports now account for nearly half of U.S. consumption Shipping cost increase at peak: 5 to 6 times pre-pandemic - Refers to container shipping costs during the supply-chain disruption Estimated import price impact from shipping and FX: 8% to 10% - Alpert’s rough calculation of expected import inflation that did not fully materialize Personal income increase in Q1: 17% - U.S. personal income rose sharply after pandemic support Personal income increase over first eight months of the year: 15% - Alpert cites government transfers supporting incomes Government spending in Q1: $785 billion - Used to illustrate scale of fiscal support during the pandemic Jobless-benefit recipients on Sept. 6: 10 million people - Alpert notes the scale of income support and labor-market detachment Baby boomers’ wealth share at age 30: Nearly 20% - Used to contrast generational wealth conditions in the 1970s Baby boomers’ wealth share today: About 53% - Shows concentration of wealth among older households Gen X wealth share at age 30: Just under 6% - Part of generational wealth comparison Millennial wealth share today: Barely 4% - Used to argue young cohorts lack comparable spending power Inflation-adjusted median income growth, 1999–2016: Flat or down - Alpert says household incomes stagnated for much of this period Average annual inflation-adjusted median income growth since 1999: 0.3% per year - Shows weak long-run gains for households Social Security COLA increase: 5.9% - Hosts cite a recent large COLA increase as part of demand dynamics FOMC supply-side reference: 2% over time - The Fed’s updated inflation framework is mentioned in the discussion

Pivotal Quotes: "The 70s were unique. They were sui generous in terms of the situations that occurred during that period and more importantly, prior to that period." — Daniel Alpert: Alpert’s core thesis that the 1970s are not a clean template for today "What he did is effectively shut down the economy." — Daniel Alpert: His characterization of Volcker’s inflation fight as demand suppression rather than pure expectations management "It’s not about money, it’s about getting the money into the hands of people who will spend it." — Daniel Alpert: His explanation of why distribution and transmission matter more than money supply alone

Implications: Listeners should expect more volatility from supply-chain normalization than a repeat of 1970s-style stagflation. The bigger policy lesson is that sustained inflation requires broad, durable income gains; without fiscal support and stronger wage transmission, the economy may revert to low-growth, low-inflation stagnation.