Think old folks are too scared of inflation? Listen to this
For Americans under 50, inflation is little more than a theoretical concept. But for those of us born in the late 1950s and 1960s, the inflation of the 1970s was a formative experience we’d rather not repeat. Inflation was as much a part of our childhood as COVID is for today’s kids.
It was always there in the background. Occasionally it receded, only to return worse than before. Inflation was a sometimes disquieting, sometimes terrifying fact of life.
Everyone from that time remembers gasoline prices shooting up, accompanied by shortages, rationing and long lines at the pump. But inflation is never about a single product or sector. It is an economy-wide phenomenon. Gas prices went up and up and up but, equally important, other prices didn’t go down and down and down.
In the late 1970s, Tom Noonan, then around 20 years old, worked in a Winn-Dixie supermarket in Louisville, Kentucky. His job was to change price tags a couple of times a week. He’d go through the store with a box cutter and a pricing gun, slicing off the old price stickers and applying the new, higher ones. It’s one of the 1970s memories that came pouring out of my Facebook friends when I asked about their experiences.
Not every store was so meticulous. Many just slapped the new prices on top of the old ones. “I half remember peeling off price labels to get a lower price (maybe on a book?), not even realizing that what I was doing was wrong or illegitimate,” confesses Mike Schiffer, a law school IT manager born in 1968, in the Facebook thread. “I don't think I really understood how prices were set or changed at that point.”
I remember grocery shopping with my mother in the early 1970s, as the price of ground beef kept rising: from 89 cents a pound to 99 cents to $1.09 and even $1.19. In April 1973, we joined a weeklong meat boycott. (Like many participants, my mother cheated, relying for a few meals on meat purchased the previous week.)
The boycott was a half-baked combination of economic theory, activist theater and housewife cri de coeur. “Devalue Pot Roast Not Dollars!” read a protest poster shown on the New York Times front page. In response, President Richard Nixon imposed tighter price controls on meat. Betty Crocker’s meat-stretching Hamburger Helper, which went national in 1971, was a longer-lived remedy.
While I was a middle-schooler tracking meat prices and sewing my own clothes, Bill Meagher was a 10-year-old Philadelphia consumer with a gripe about a local delicacy. The price of his favorite TastyKake snack kept going up. He wrote a letter complaining to the president of the company. Much to his astonishment, Meagher recalled, he got a reply “explaining inflation to me in very simple terms.”
Across the country in Turlock, California, 5-year-old Mary Hodder discovered that her weekly allowance of five cents would no longer buy a candy bar. They were now 10 cents. “My 5y old brain was like WHOT how could this happen?” she wrote me in a text message. “And my dad explained inflation. And my 5 year old brain thought: why doesn't everyone just stop it?” Hers was essentially President Gerald Ford’s Whip Inflation Now strategy, minus the infamous buttons.
What made inflation especially disconcerting was that none of the adults in charge knew what to do about it. Our parents were powerless, and we could feel their stress. Even cost-of-living raises didn’t solve the problem, because prices went up as labor costs did. Everybody, from employers and workers to lenders and borrowers, learned to build an inflation estimate into their plans. And those expectations made inflation more and more intractable — raise your prices, strike for higher wages, lest you fall behind.
Making matters worse was “bracket creep.” With a steeply progressive income tax, a cost-of-living raise meant a higher tax bracket, which meant falling further behind inflation. In response, unions bargained for more generous health-insurance and pension benefits that wouldn’t face the tax hit — arrangements that were emulated for many non-union jobs and that redound in legacy costs to this day.
Even worse, average Americans weren’t alone in their helplessness. The president of TastyKake was just as impotent as our parents were. So was the president of the United States.
“It’s really scary,” a senior Carter administration official told Time in 1980, when inflation hit 13.5% after four years of increases. “This inflation thing is frightening because we do not know what causes it, or what to do about it. The economists go to their computers, plug in the data, and out comes information that says that nothing like this should be happening. It’s very, very scary stuff.”
By then, inflation permeated popular culture. In the opening credits of “The Mary Tyler Moore Show,” Mary tossed a package of meat into her shopping cart with a look of resigned disgust. We felt her pain. In a fantasy sequence on “The Jeffersons,” “King George” faced losing his (dry-cleaning) empire to the Dark Knight Inflation. He was saved by a bank loan — probably at double-digit interest.
On “Saturday Night Live,” Dan Aykroyd’s President Jimmy Carter gave a 1978 fireside chat urging Americans to fight inflation by burning 8% of their money. In Aykroyd’s most memorable turn as Carter, he counseled everyone to look on the bright side.
“Inflation is our friend,” he said. “Wouldn’t you like to own a $4,000 suit, and smoke a $75 cigar, drive a $600,000 car? I know I would!” Grin. In the “inflated world of the future,” he promised, “most Americans will be millionaires. Everyone will feel like a big shot.”
Fortunately, we aren’t living in that inflated world. The Federal Reserve under Paul Volcker managed to squelch inflation, at the cost of double-digit interest rates and the highest unemployment since the Great Depression. Asked decades later to name the most important legacy of the Great Inflation, he replied: “Don’t let inflation get ingrained. Once that happens, there’s too much agony in stopping the momentum.”
It took nearly a decade of low inflation rates to convince the public that inflation wouldn’t come roaring back. Long-term interest rates continued to build in a significant inflation premium. At my first job out of college, in the Wall Street Journal’s now-defunct Philadelphia bureau, I got a 9% cost-of-living raise. It was 1983, when inflation had dropped to 3.1%, but the union contract from the bad old days was still in effect. Just a few years earlier, 9% would have put us behind, especially after taxes.
The most important provision of the 1981 tax cuts was indexing tax brackets to inflation. Tax rates come and go, but indexing endures, preventing bracket creep even if inflation returns, as it has this year.
“That older people are worried about things that younger people are not, because they have lived through them, is of course every generation’s story,” writes Los Angeles Times television critic Robert Lloyd in a review of the new HBO series “Station Eleven.”
You may think us oldsters overly anxious as we worry about a resurgence of inflation. But you weren’t there.
— Virginia Postrel is a Bloomberg Opinion columnist. She is a visiting fellow at the Smith Institute for Political Economy and Philosophy at Chapman University and the author, most recently, of “The Fabric of Civilization: How Textiles Made the World.”