Old folks are too scared of inflation

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 Facebook friends when people asked about their experiences.
People remember grocery shopping 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.
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 people were tracking meat prices and sewing their own clothes, Bill Meagher was a 10-year-old Philadelphia consumer with a gripe about a local delicacy. The price of his favourite 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.”
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.”
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.
—Bloomberg