The 1970’s were an interesting decade. Richard Nixon, OPEC, Disco, Jordache jeans, Jimmy Carter and of course the massive legislation that effected everyone’s retirement. The ERISA Act of 1974 which protected defined benefit plans, the invention of IRA’s and the changes to Social Security are great examples about how society at large felt about retirement and what their lifestyle would look like when the paychecks from earned income stop. The Carter administration’s plague of stagflation and high prices on goods and services–especially Jordache jeans– actually helped fix mistakes made by Congress but I don’t want to give away the happy ending.
Particularly overreaching were the increases to the Social Security payments that people were to receive and the cost of living adjustments that Congress passed during this time in question. In June of 1972 Congress overwhelming passed increases and up grades to the program because of a false confidence created by some short term surpluses.
1) Firstly- under the “Social Security Amendment of 1972” approved 20% across the board for 27.8 million people, jacking benefit checks up significantly. In October of 1972 Congress decided to lay out 5 billion to increase benefits for widows and dependents as well as raising the claim checks for lower income people who haven’t paid in for more than 30 years.
2) The second strike was the cost of living idea to combat the ravages of inflation on beneficiaries checks was included in the same bill to be phased in by 1975. A great idea if it had been done correctly! Benefits would be increased based on the Consumer Protection Index if the number was 3% or higher. Also around this time someone got the algebra wrong and it resulted in a major technical gaff in the formula that was used and benefits were bumped up double what they should have been. This formulaic boo-boo is very important to our story.
Suddenly the short term surpluses were fading fast.
In the early years of getting Social Security become the fixture that it is today, it was politically popular for legislation to be suggested in most election years–even years. This past action certainly favored the re-election of some politicians but has potentially had a disasterous effect on the program as we know it now.
Not only did the double indexing inflation whoopsie of 1972 and incumbents raising benefits for votes take the program down, we also had Jimmy Carter double digit inflation and exploding interest rates. Carter was woefully unpopular with the press and the rest of Congress so when high interest rates, huge inflation, high unemployment and slow economic growth, it really set the tone for his administration. Productivity growth dropped to 1% compared to the go-go 1960’s 3.2% number. We all learned a new word: stagflation. You guessed it– Stagflation is the third event that contributed to today’s shortfalls.
3) Stagflation is when there’s high price inflation for goods and services and high interest rates. If there’s high interest rates then the cost of money or borrowing money is expensive then usually prices will drop as there’s not enough capital being borrowed, not enough big ticket items that require borrowing being bought and not enough economic and business activity. If the prices don’t come done as a reaction to the inactivity or less buying of goods and services, things get stagnant and immobile– an economic constipation that effects many industries and millions of people. Because if stagflation, high rates, and high prices are prevalent, businesses get a little uncertain about budgeting, planning, and hiring. This uncertainty leads to corporations and people being stagnant too–not buying things unless they have to or putting off building that big soap production plant in Pittsburg that would have provided 5000 jobs. Those 5000 people would’ve had money in their pockets to buy cars, homes, furniture, college tuitions, or a new pair of Jordache jeans that were so coveted back in those times. Which also means the guy who owns the auto dealership, real estate agents, and local retail stores don’t benefit from consumers having spendable income.
As the title of this article refers, Jordache jeans were touted as very high end, sexy jeans in the late 1970’s. They were designed and invented by a four Israeli brothers who patterned them after some European styles. The suggestive commercials back then and the fact that some of the best looking girls at my school wore them is etched into my psyche and has damaged my self esteem almost irreparably. They were really pretty which made them completely unapproachable already but then add in the price of these designer pants inflated by concurrent economic trends and any chance of a skinny, bespectacled 13 year old boy with a bad haircut wearing a wrinkled shirt from the hamper had no shot at even hello. Not sure I’ve ever recovered fully.
Back to stagflation–Remember the error in the COLA formula which double indexed the inflation increases back in 1972? What do you think happened when inflation numbers were in the teens? Big increases in Social Security payments which further took down the surpluses of the 50’s and 60’s! It was quickly becoming a financial apocalypse for the program as the increases were not sustainable. Jimmy Carter to the rescue! In 1977 Pres Carter and Congress corrected the gaff in the COLA formula and tried to fix the shortfalls by raising the payroll taxes from 2% to 6.15%. Carter said these fixes would make the system sound until 2030. Not so as history tells us but that’s a story for another day.
Will Social Security need more amendments in the future? Probably. Almost absolutely. Let’s hope we learn from the errors of the past. My tormented memories of being rejected(OK I was too intimidated and I never did anything) of upper classman girls wearing designer jeans laughing at me-or so I thought– have been overcome with the wisdom of age. Or so I hope.
Jeff Dragon 
Leave a comment