Falling Wages, Soaring Energy Prices, and the Ghost of 1974
The Question Everyone's Asking, Is This the 1970s All Over Again?
The jobs report came out on a Friday. It usually does. American wages fell in real terms. Not by much, five cents an hour before taxes, which buys you nothing and nobody's pretending otherwise. Prices rose four times as fast as earnings. Over a year, average earnings climbed 3% while prices climbed 3.6%. In real purchasing power terms, inflation wiped out every gain workers made over the past two years.
That's the setup. Now the punchline. Real average wages fell by 7% over the 1970s. Seven percent across a decade. The S&P 500, adjusted for inflation, returned 4% total between January 1970 and January 1980. Four percent. Ten years of your life for four percent.
So the question writes itself. Are we walking into that again?
The answer is: maybe. And maybe not. The data is messy. The comparisons are seductive. And everyone with a newsletter or a substack or a Twitter account has already decided which side they're on. The stagflation doomers say it's 1974 all over again. The optimists say the economy is different now. The truth sits somewhere in the middle, which is where the truth usually sits when nobody wants to hear it.
What Actually Happened in the 1970s
The Oil Shock That Changed Everything
In October 1973, OPEC stopped selling oil to countries that supported Israel during the Yom Kippur War. Oil prices quadrupled in less than a year. This wasn't a gradual adjustment. It was a supply shock that hit every industrial economy in the world like a brick through a windshield.
The oil shock didn't create stagflation on its own. Kellogg economist Phillip Braun argues that it merely created the conditions. The Fed did the rest. Concerned about the oil shock causing a recession, the central bank slashed interest rates. Then inflation climbed. Then they raised rates. Then they cut again. Flip. Flop. The academic term is "policy error." The practical term is "making it worse."
The Wage-Price Spiral, When Workers Had Leverage
Here's the part that matters for today. In the 1970s, workers could bargain. Unions were stronger. Wage indexation clauses tied paychecks to the cost of living. When prices went up, wages followed. Then companies raised prices to cover the higher wages. Then workers demanded more. The spiral fed itself.
The wage-price spiral is the engine that turns a one-time price shock into a decade of inflation. Energy prices spike. Workers demand raises. Companies pass costs to consumers. Prices rise. Workers demand more. On and on it goes. The only way to break it is to break the spiral itself, which usually means breaking the workers' ability to demand raises.
That's what happened in the 1970s eventually. The Fed, under Paul Volcker, raised interest rates to 20%. Unemployment hit 10.8%. The spiral broke. The cost was enormous.
The Fed's Flop, Policy Mistakes That Made It Worse
Arthur Burns ran the Fed for most of the 1970s. He was under pressure from President Nixon to keep the economy hot. He didn't move fast enough to tamp down inflation. When he did move, he moved too late. The Fed's credibility eroded. Inflation expectations became entrenched. Once people expect prices to keep rising, they behave in ways that make prices keep rising.
The lesson is simple. Policy mistakes matter. And the mistakes of the 1970s, loose money, late tightening, political interference, made a bad situation worse.
What's Happening Now, The Numbers Don't Lie
Real Wages Are Falling Again
Friday's figures from the U.S. Labor Department show that average hourly earnings rose 0.13% last month. Consumer prices rose 0.53%. That's four times as fast as earnings. Over a year, earnings rose 3%. Prices rose 3.6%. The gap is small in any given month. Over time, it widens. The longer it continues, the more living standards erode.
The OECD reports that real wages remain below their levels five years ago in roughly one-third of member countries. The energy shock from 2026 is expected to put further pressure on wages. Real wage growth has lost momentum and is expected to slow further.
In the UK, average earnings grew at an annual pace of just 0.1% in real terms in the three months to March. The country faces its fourth period of falling real wages since 2008. In the Eurozone, workers had only just clawed back the ground lost in the 2022 inflationary shock. Now they're losing it again. Claus Vistesen of Pantheon Macroeconomics expects real wage growth to be close to zero across the Eurozone in 2026.
Energy Prices and the Strait of Hormuz
The Iranian takeover of the Strait of Hormuz is not a replay of the 1970s OPEC embargo. The geography is different. The politics are different. The scale is different. But the effect on prices is similar.
Rocketing diesel prices mean the price of everything rises. Last month, prices rose at an annualized rate of 6.5%, according to Cleveland Fed estimates. The official figures come out in October. The market hopes the estimates are wrong.
The IMF warned that the latest energy shock is comparable in scale to the 1970s oil crisis. The Fund projected global growth would slow to 3.1% this year, with inflation rising to 4.4% as energy prices climb.
But here's the difference. The 1970s oil shock was a supply shock that hit an economy already running hot. The 2026 shock is hitting an economy with less room to absorb it. Workers have less bargaining power. Consumers have less savings. Governments have less fiscal space.
The Labour Market Nobody's Talking About
The jobs report added 178,000 jobs last month. But those jobs were in healthcare and social assistance, a niche segment. The rest of the labour market is languishing. Wage growth is decelerating. Average hourly earnings rose 3.5% in March from a year earlier, compared to a 4.2% gain in March 2025. Workers are at the behest of their employers, and their employers know it.
The OECD describes labour markets as "resilient," with employment at record highs and unemployment near historic lows. But resilience is not the same as strength. The OECD itself notes that workers' purchasing power is not keeping up. The answer, according to the OECD Secretary-General, is "boosting labour productivity." That's the polite way of saying workers need to produce more to earn the same.
Why This Time Is Different, For Better and Worse
Workers Can't Bargain Like They Used To
This is the single most important difference between now and the 1970s. In the 1970s, unions could negotiate wage increases that matched inflation. Wage indexation was common. Workers had leverage because the labour market was tight and collective bargaining was strong.
Today, that leverage is gone. The job market has become a "no hire, no fire" environment. Switching jobs doesn't even guarantee a raise anymore, according to Atlanta Fed data. Consumers' inflation expectations remain anchored over the next three years, the median expectation at the one-year horizon rose to 3.4%, but the three-year expectation rose only to 3.1%.
That anchoring is good news. If workers don't expect inflation to persist, they don't demand the wage increases that would make it persist. The wage-price spiral of the 1970s required both the expectation of continued inflation and the institutional power to act on it. Today, workers have neither.
Fundstrat's analysis puts it bluntly: "Workers are unable to bargain for higher wages, which will suppress demand for goods and services. That means there likely won't be a wage-price spiral like the one seen in the 1970s and more likely that it will be a one-time price increase."
The pain will still be real. Consumers will dip into savings or tap into credit. But the spiral won't feed itself.
The Economy Breathes Less Oil
The U.S. economy is far less energy-intensive than it was in the 1970s. A dollar of GDP today requires half the oil it did fifty years ago. That doesn't mean energy prices don't matter, they matter enormously for households and for certain industries. But a spike in oil prices doesn't reverberate through the entire economy the way it did in 1973.
The 1970s economy was built on cheap oil. Factories ran on it. Cars ran on it. Homes were heated with it. When the price quadrupled, everything quadrupled. Today's economy is more service-oriented. A manufacturing company can absorb higher energy costs more easily when energy is a smaller share of total expenses. A family can absorb higher gas prices more easily when they're spending less of their income on transportation.
This doesn't eliminate the pain. It changes the shape of it.
Central Banks Learned Something, Maybe
The Fed today is not the Fed of Arthur Burns. Central bankers have spent forty years building credibility. They've learned that inflation expectations matter. They've learned that being late is worse than being early. They've learned that political pressure is not a reason to loosen policy.
But credibility is fragile. It takes decades to build and months to lose. The Fed's flip-flopping in the 1970s destroyed its credibility. Once people stopped believing the Fed would control inflation, inflation became self-fulfilling. The Fed today knows this. Whether it can act on that knowledge is a different question.
Federal Reserve Chair Jerome Powell has dismissed stagflation concerns as "much ado about nothing." He may be right. He may be wrong. The data suggests the pieces are in place, but the pieces have been in place before without the full picture coming together.
The 1970s Playbook, What Worked, What Didn't
Gold, Real Assets, and the S&P's Lost Decade
The financial playbook for the 1970s is simple: own things that hold value when money doesn't. Gold went from $35 an ounce to $850. Real estate held up. Commodities soared. The stock market, adjusted for inflation, went nowhere for a decade.
The S&P 500 returned 4% above inflation between 1970 and 1980. That's not a return. That's a rounding error.
But the playbook came with a cost. Gold is volatile. Real estate requires capital. Commodities require expertise. And the average investor who tried to play the 1970s game often got burned. The people who did well were the ones who owned real assets before the crisis hit, not the ones who bought in after the news broke.
The lesson isn't "buy gold." The lesson is that inflation changes what counts as a safe asset. Cash loses value. Bonds lose value. Stocks struggle. Real things, land, buildings, commodities, hold up better. That's not a prediction. It's history.
The Pain of Adjustment
The 1970s ended with a brutal adjustment. Volcker raised rates to 20%. Unemployment hit 10.8%. The economy contracted. The people who lost their jobs didn't care about the long-term benefits of price stability. They cared about paying the mortgage.
The adjustment was necessary. Inflation at 13% was unsustainable. But necessary doesn't mean painless. It meant layoffs. It meant bankruptcies. It meant families losing homes and businesses closing. The 1980s boom that followed was built on the wreckage of the 1970s bust.
If the 2020s follow the same path, and that's a big if, the adjustment will be similar. Rate hikes. Unemployment. Recession. The Fed has tools. The tools hurt.
What This Means for You, No Selling, Just Observation
Here's what the data shows. Real wages are falling. Energy prices are rising. The labour market is soft. The Fed is uncertain. The geopolitical situation is unstable. These are facts. They don't require interpretation.
What you do with those facts is up to you. Nobody can tell you whether to buy gold or stocks or bonds or bitcoin. Nobody can tell you whether to lock in a fixed-rate mortgage or pay down debt or hold cash. Those decisions depend on your situation, your risk tolerance, your time horizon, your obligations.
What I can tell you is what history suggests. Inflation erodes cash. It erodes fixed-income returns. It makes debt cheaper in real terms but harder to service if wages don't keep up. It rewards ownership of real assets. It punishes people who hold money.
History also suggests that the 1970s comparison is useful but imperfect. The 1970s had wage indexation and strong unions. The 2020s have gig work and weak unions. The 1970s had an economy built on oil. The 2020s have an economy built on services. The 1970s had a Fed that didn't understand inflation. The 2020s have a Fed that understands it too well.
The comparison is a starting point. It's not a destination.
A Note on Language
You'll notice I haven't used words like "opportunity" or "position" or "tailwind." That's deliberate. The financial industry has a habit of turning every crisis into a sales pitch. Falling wages are not an opportunity. Rising energy prices are not a tailwind. They're just things that are happening. The question is what you do about them, and that's a question nobody can answer for you.
The Long Hangover
The 1970s ended. Eventually. Volcker broke inflation. The economy recovered. The 1980s boomed. The 1990s boomed harder. The 2000s had their moments. The 2010s were weird. The 2020s are weirder.
The people who lived through the 1970s remember the gas lines. They remember the inflation. They remember the feeling that things weren't getting better. That feeling lasted for years. It shaped a generation's relationship with money, with work, with government.
If the 2020s are a repeat, and again, that's a big if, the hangover will be similar. Not identical. Not as bad, probably. The economy is more flexible now. The Fed is more competent. The labour market is more dynamic.
But the pain will be real. And it will last longer than anyone wants it to.
That's the thing about economic cycles. They don't care what you want. They don't care what you expect. They just happen. The best you can do is pay attention, keep your head down, and hope the Fed knows what it's doing.
It usually does. Usually.