Derek Thompson Substack

What do the following things have in common: the death of the Soviet Union, the rise of modern conservatism in America, and Nintendo? Answer: An energy crisis.

In October 1973, Arab members of OPEC launched an oil embargo against the United States and its allies. Within months, the price of a barrel of crude quadrupled. In the U.S., the immediate effects included gas lines and a national speed limit. A second shock followed during the Iranian Revolution of 1979, and gas prices surged again. The combined effect was the toxic union of stagnation and inflation, two things that economists had previously said were practically incapable of coexisting. The immediate effects — gas lines and recession — were the least interesting consequences of this historical event. The arms of the crisis reached around the world:

• In the USSR: Oil shocks were a windfall for the Soviet petroleum economy, and oil money allowed Moscow to paper over the dysfunction of its planned economy for years. But in the 1980s, oil prices fell, and Gorbachev’s petro-economy collapsed, contributing significantly to the demise of the Soviet Empire.
• In Japan: Heavy industry, relying on cheap oil, had powered the economy in the 1960s. But expensive oil threatened that model of growth. In the 1970s, industrial policy was rerouted toward smaller manufactured goods that required less energy: computer chips, circuits, and robotics. The consumer electronics revolution of the 1980s in Japan—the Walkman, the VCR, Nintendo—was an echo of the oil crisis.
• In the United States, the historian Gary Gerstle has described how stagflation shattered the New Deal consensus. Americans lost faith in the sort of activist government associated with Roosevelt, Truman, and LBJ. The political order that emerged from this period prized individualism, celebrated markets, and outwardly mocked the idea of effective governance. The election of Ronald Reagan, and thus the rise of the modern conservative movement, is hard to imagine in a world where the economy of the 1970s is as copacetic as the economy of the 1950s.