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Nashville: Gas crisis from 1970s has lessons for today

By: Adam Crisp
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Wayne Kelton

East Ridge resident Wayne Kelton remembers sitting in the passenger side of his dad’s Ford F-150 pickup, waiting in line for an hour or more to get a tank of gas.

It was 1973 and Mr. Kelton, now a 48-year-old who lived in Nashville at the time, was suffering through gas rationing instituted after the Organization of Petroleum Exporting Countries shut off oil exports to the United States for supporting Israel during the Yom Kippur War in October 1973. The embargo lasted until March 1974.

Some gas stations rationed the amount of gas they’d allow a person to buy. In some states, drivers with an odd number as the last digit of their license plate could buy gas only on odd-numbered days. Drivers with an even number could buy on even-numbered days.

“It was pretty hairy for a while,” said Bobby Parker, owner of Parker’s Brainerd Citgo Service on Brainerd Road who was working at his grandfather’s gas station during the embargo. “People would jump the curb to buy gas, and customers would be waiting in a line 50 cars long. It was never violent, but you had those jerks that would cut in line. Sometimes you didn’t have enough gas to sell, and we would stagger our sales times.”

The average price for regular leaded gasoline rose from 38.8 cents to 55.1 cents a gallon by June 1974. Adjusted for inflation, that’s between $1.87 and $2.71 in 2008 dollars. Tuesday’s national average was $4.05 a gallon for regular unleaded.

“I don’t know what’s worse, really,” Mr. Kelton said. “The thing about gas prices back then, they were higher (than what we had been paying), but it was still pretty cheap. Now you pay out the nose, but you can buy gas all day, any day.”

Today’s economy is showing signs of strain with inflation rising, unemployment trending higher and gas selling at unprecedented highs. The same factors led to a sour economy in the ’70s, but economists say our current economic picture isn’t nearly as bad. Still, one similarity between the ’70s and today is the ripple effect created after gas prices increased.

“In both time periods there seems to be what we call ‘negative aggregate apply shocks,’ where the price of oil ... winds up increasing all other things,” said Dr. Harrison C. Hartman, a University of Georgia economics lecturer. “What you see is price increases begin to ripple through the economy.”

During the ’70s, inflation averaged 7.1 percent per year. The unemployment rate averaged more than 6 percent, with periods when it was higher than 7 percent and 8 percent.

Our current 5.5 percent unemployment rate and 4.2 percent annual inflation rate don’t look too bad by comparison, said Dr. John Garen, chairman of the University of Kentucky economics department.

“Still, things have been better, and we don’t want to return to those days,” Dr. Garen said.

Back in the ’70s the fuel crunch was OPEC’s first show of real strength, he said, and the organization still has its hand in the rising price of fuel.

“Today, OPEC has considerable power, and there is a booming increase in demand, but there has not been increasing capacity,” Dr. Garen said.

Factoring into the organization’s strength is increasing instability and hostility toward the United States from some large oil-producing countries that aren’t in OPEC, said Dr. Jeremy Atack, an economics professor at Vanderbilt University.

“Certainly as we move to a global economy, let's also not forget tensions in Middle East and with other oil producers — Venezuela and Russia,” he said.

The scarcity of oil nearly 40 years ago caused American politicians to shop for domestic sources of oil in Alaska. Exploration began before the 1973 fuel crisis, but the Alaska Pipeline was built between 1974 and 1978. The scarcity also justified the exporting of North Sea oil by European countries.

Compare those moves to today’s pressure to drill in the Arctic National Wildlife Refuge as well as off the U.S. coast, Dr. Garen said.

Thirty-five years ago, the desire to drive more fuel-efficient cars led many Americans to buy foreign-made Hondas, Toyotas, Nissans (known then as Datsuns) and Volkswagens, smaller makes that offered better fuel economy.

This year, General Motors announced it will reduce production of sport utility vehicles and trucks because consumers no longer show much interest in gas-guzzling heavy vehicles. In addition, hybrid cars that employ gas-saving mechanics are extremely popular, records show.

The government also is part of the problem, Dr. Garen said, although the United States should have learned from 1970s problems that government interference in the market is counterproductive. Back then, government controls capped the price on “old gas,” fuel that already had been discovered and refined, but that resulted in old gas being removed from the market, creating scarcity that resulted in rationing, he said. The decade’s inflation was caused by the government printing too much money, he said.

And Dr. Garen sees some parallels today.

Meant to reduce gas prices, government subsidies for biofuels such as ethanol have resulted in food price increases, he said. Subprime loans — pushed by the government to help some people buy homes — have caused banks to lose money, and government bail-outs of those entities have fueled inflation concerns, he said.

“So it’s clear that government micromanagement of our economy ... does not work,” Dr. Garen said.

His solution would be for the government to do very little to interfere and let U.S. consumers ride the recent tide of bad economic news. But that might be a hard sell to politicians who want to show the public they are responsive, he said, pointing to the recent economic incentive checks.

UGA’s Dr. Hartman thinks that, in some respects, the current economy might be worse than in the ’70s. He points to the badly sagging national housing market. For the 12 months ending in May, U.S. home prices fell 4.8 percent, according to Associated Press reports.

“Another important difference between the ’70s and now is that housing prices were not falling sharply in the 1970s,” Dr. Hartman said. “Today prices are falling, and the house is the No. 1 or 2 asset that most Americans have.

“When they were in trouble in the past, homeowners could get a second mortgage and get out of the hole. That might not be the case now.”

For people who don’t necessarily study the economy and the complicated factors that drive it, the causes of the current economic slowdown aren’t much of a factor. It’s the day-to-day results that they must deal with.

“I don’t know that there is much that everyday folks can do,” Mr. Kelton said. “I’ve honestly gotten a little used to paying $4 a gallon, so I guess the initial sting is gone.”

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