The Lost History

I

History is what we say it is. If you asked a group of scholars to name the most important landmarks in the American story of the past half century, they would list some or all of the following: the war in Vietnam; the civil rights movement; the assassinations of John Kennedy, Robert Kennedy and Martin Luther King, Jr.; Watergate and President Nixon's resignation; the sexual revolution; the invention of the computer chip; Ronald Reagan's election in 1980; the end of the Cold War; the creation of the Internet; the emergence of AIDS; the terrorist attacks of September 11, 2001; and the two wars in Iraq (1991 and 2003). Looking abroad, these scholars might include other developments: the rise of Japan as a major economic power in the 1970s and 1980s; the emergence of China in the 1980s from its self-imposed isolation; and the spread of nuclear weapons (to China, India, Pakistan and others). But missing from any list would be the rise and fall of double-digit U.S. inflation. This would be a huge oversight.

We have now arrived at the end of a roughly half-century economic cycle dominated by inflation, for good and ill. Its rise and fall constitute one of the great upheavals of our time, though one largely forgotten and misunderstood. From 1960 to 1979, annual U.S. inflation increased from a negligible 1.4 percent to 13.3 percent. By 2001, it had receded to 1.6 percent, almost exactly what it had been in 1960. For this entire period, inflation's climb and collapse exerted a dominant influence over the economy's successes and failures and much more. Inflation and its fall shaped, either directly or indirectly, how Americans felt about themselves and their society; how they voted and the nature of their politics; how businesses operated and treated their workers; and how the American economy was connected with the rest of the world. Although no one would claim that inflation's side effects were the only forces that influenced the nation over these decades, they counted for more than most people including most historians, economists and journalists think. It's impossible to decipher our era, or to think sensibly about the future, without understanding the Great Inflation and its aftermath.

Stable prices provide a sense of security. They help define a reliable social and political order. They are like safe streets, clean drinking water and dependable electricity. Their importance is noticed only when they go missing. When they did in the 1970s, Americans were horrified. During most of these years, large price increases were the norm, like a rain that never stopped. Sometimes it was a pitter-patter, sometimes a downpour. But it was almost always raining. From week to week, people couldn't know the cost of their groceries, utility bills, appliances, dry cleaning, toothpaste and pizza. People couldn't predict whether their wages and salaries would keep pace. People couldn't plan; their savings were at risk. And no one seemed capable of controlling inflation. The inflationary episode was a deeply disturbing and disillusioning experience that eroded
Americans' confidence in their future and their leaders.

There were widespread consequences. Without double-digit inflation, Ronald Reagan would almost certainly not have been elected president in 1980 and the conservative political movement that he inspired would have emerged later or, conceivably, not at all. High inflation incontestably destabilized the economy, leading to four recessions (those of 1969-70, 1973-75, 1980 and 1981-82) of growing severity; monthly unemployment peaked at 10.8 percent in late 1982. High inflation stunted the increase of living standards...

 

"Barack Obama . . . should read The Great Inflation and Its Aftermath, [a] timely history of how good political intentions stoked an inflationary hell in the 1970s--and how only bold, painful action smothered the flames."

 

"Samuelson's clear-eyed focus on the rise and fall of inflation remains relevant today."

 

"[Samuelson preaches] old-fashioned virtue on a macroeconomic scale: don't promise more than you can deliver; weigh the unintended consequences of your actions; beware hucksters bearing easy fixes."

 

"Economics can be fun! Samuelson has a knack for making obscure topics interesting."

 

Robert J. Samuelson is a columnist for Newsweek and The Washington Post. He began his journalism career as a reporter for the Post in 1969. He is the author of The Good Life and Its Discontents: The American Dream in the Age of Entitlement, 1945-1995 and Untruth: Why the Conventional Wisdom Is (Almost Always) Wrong, a collection of his columns. He lives in Bethesda, Maryland, with his wife, Judy Herr. They have three children.


From the Hardcover edition.

 

The Great Inflation and Its Aftermath by Robert J. Samuelson
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