In a recent article on the Huffington Post, Stan Sorscher reports the graph above and asks the question of what could have happened in the early 1970s that changed everything. Impressive, but what caused this “something” that happened in the early 1970s? According to Sorscher,

X marks the spot. In this case, “X” is our choice of national values. We abandoned traditional American values that built a great and prosperous nation.  

Unfortunately, this is a classic case of an explanation that doesn’t explain anything. Why did the American people decide to abandon traditional American values just at that specific moment in time?

In reality, the turning point of that time has been known for a long time. The first to notice it were Harry Bluestone and Bennet Harrison with their 1988 book “The Great U-turn: Corporate Restructuring And The Polarizing Of America.” They noted that a lot of economic parameters had completely reversed their historical trends in the early 1970s, including the overall inequality measured in terms of the Gini coefficient. For nearly a century, the US society had been moving toward a higher degree of equality. From the early 1970s, the trend changed direction, bringing the US to an inequality level similar to that of the average South-American countries.

So, what was that “something” that changed everything in the early 1970s? Nobody really knows for sure, but at least there was a major measurable change that took place in 1970: peak oil in the US. (image below, from Wikipedia).

It was a true asteroid that hit the US economy and that changed a lot of things. Possibly the most important change was that the US ceased to be an oil exporter and became an oil importer. That change was “user transparent,” in the sense that the Americans who were filling up the tanks of their cars didn’t know where the oil that had produced their gasoline was coming from (and mostly didn’t even care). But the change implied a major transfer of capital from the US to foreign producers, while a large part of it returned to the US in the form of investments. It was the “petrodollar recycling” phenomenon that mainly affected the financial system; all that money never really trickled down to the poorer sections of the US society. That may well explain the increasing inequality trend that started in the early 1970s.

But, if the oil peak of 1970 explains the inequality trends, shouldn’t the new reversal of the trend – the “shale oil revolution” change everything again? Perhaps surprisingly, there is some evidence that this may be the case

The data from the World Bank indicate that the Gini coefficient for the US has peaked in 2006 and has remained constant, or slightly declining, ever since. Again, that makes some sense; one wouldn’t have expected a return to the low inequality values of the 1960s since the great shale oil boom didn’t transform the US into an oil exporter. At present, with the recent peaking of the Bakken field, it looks like that the good times of half a century ago will never return.

All this would require a lot of work to be better quantified and proven. But it is not a surprise that our life depends so much and so deeply on the production of that vital black liquid that we call “crude oil”. And with the probable downturn of the US production that seems to be starting right now, we are going to see more, and more radical, changes in our society. What these changes will be, we have to see, but it is hard to think that they will be for better equality.

Ugo Bardi teaches physical chemistry at the University of Florence, in Italy. He is interested in resource depletion, system dynamics modeling, climate science and renewable energy. Contact: ugo.bardi(whirlything)unifi.it
Originally published by Cassandra’s Legacy
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One Comment

  1. K SHESHU BABU says:

    Around the same time, US also had internal political turmoil with Nixon affairs. The oil had its impact alongwith the political state of affairs.