employment and reasonable price stability. We now look back on those decades as a period of “golden growth" in U.S. economic history. By the mid-1970s, however, the oil price shocks and the emergence of stagflation shattered the consensus among economists. Arthur F. Burns, chairman of the Federal Reserve Board, described the new world after the first oil price shock had driven the economy into a deep recession in testimony before Congress (October 11, 1974). According to Bums, one of the nation's most distinguished researchers of the business cycle, the recession was extremely unusual, because it was accompanied by "galloping inflation" and "booming" capital investment: said Burns, "I have been a student of the business cycle for a long time, and I know of no precedent for it in history." Thus, by the mid-1970s, soaring oil prices fueled a rising consumer price index (CPI) at double-digit rates in 1974 and again in 1979-80. (Once those oil price crises had passed, however, CPI inflation settled down to relatively modest rates during the past twelve years.(1)) Meanwhile, the unemployment rate had also shifted erratically higher in the 1970s. Unemployment became a persistent problem, alleviated with only a few years of improvement until very recently. In the period of golden growth from 1950 to 1974, the unemployment rate rose above 6 percent in only two recession years (1958 and 1961). In the years of oil price crises and economic and financial turbulence, from 1975 to 1993, the unemployment rate fell below 6 percent in only four years (1979 and 1988-1990).(2) The oil price shocks and the persistence of intolerable rates of both unemployment and inflation -labeled stagflation - tore apart whatever consensus might have existed among economists. As a result, the broad agreement on economic theory dissolved, as did the basis for economic policy at the national level. The U.S. economic malaise created conflict among those economist...
