Wage-Price Spiral: The 1970s Economic Collapse Explained

Added: 2026-05-17

[00:00:00]Stay with me here because what I'm about to tell you is the part of the story that connects your morning commute to something that took down an entire decade of American economic policy way back in the 1970s.

[00:00:14]That union boss is not just a guy trying to get a raise for his members. He is the opening act of a very old and very ugly economic show. One that once it starts tends to run for years whether the audience wants it or not.

[00:00:28]The wage price spiral is not complicated in theory. It is brutally simple.

[00:00:34]Workers see prices rising at the gas station, at the grocery store, on their commute. They go to their employer and they say, "I can't afford to live on what you're paying me anymore." The employer, who is himself watching input costs rise, eventually capitulates because he can't afford to lose the workers. And he raises wages. Then because he is now a higher labor cost structure, he raises prices to consumers on whatever he sells us.

[00:01:03]Those higher prices then land on some other worker somewhere who goes to his employer and says the same thing.

[00:01:10]So here, inflation begets wage demand.

[00:01:13]Wage demand beget price increases. Price increases beget more inflation. Round and round and round.

[00:01:22]Now here's the part of the story that makes every serious investor genuinely uncomfortable.

[00:01:28]Even if the Strait of Hormuz reopens tomorrow, even if crude oil drops back to a comfortable levels, the wage price spiral doesn't automatically stop. That is the dirty secret that nobody on the Sunday morning shows will say out loud.

[00:01:43]The trigger for the spiral was the supply shock, but the spiral itself has its own momentum. It has already been loaded into the system. Wages negotiated this year are not un-negotiated when oil gets cheaper. Contracts, once signed, do not retroactively adjust because crude dropped by 10 bucks. The ferry company's fuel surcharge may eventually come off the bill, but if the transit authority settles with the union at a higher wage rate, that operating cost does not go away when the gulf calms down. It's baked in permanently.

[00:02:18]Now, here's the shadow data that I love to talk to you about that makes all of this stuff concrete.