Think Inflation Is Bad Now? Let's Take A Step Back To The 1970s

Prices are jumping as the economy rebounds from the pandemic, but the Biden Administration and the Federal Reserve say a return to 1970s-style inflation is unlikely.

Transcript

SCOTT SIMON, HOST:

Gasoline prices are on the rise. So are prices for lumber and used cars. Treasury Secretary Janet Yellen tried to reassure lawmakers this week that the recent jump in inflation is temporary, certainly not the beginning of a lasting upward spiral.

(SOUNDBITE OF ARCHIVED RECORDING)

JANET YELLEN: I came of age and studied economics in the 1970s. And I remember what that terrible period was like. And no one wants to see that happen again.

SIMON: The generations who've grown up since the 1970s have no recollection of that kind of inflation. NPR's Scott Horsley looks back on the lessons of a tumultuous decade.

SCOTT HORSLEY, BYLINE: Just two months after taking office in 1974 and one month after pardoning Richard Nixon, Gerald Ford stepped before a joint session of Congress to address what he called public enemy No. 1.

(SOUNDBITE OF ARCHIVED RECORDING)

GERALD FORD: We must whip inflation right now.

(APPLAUSE)

HORSLEY: In the mid-'70s, you could actually get a campaign-style button with that slogan to replace the yellow smiley face button on your wide lapels.

ALAN BLINDER: Oh, I still have my WIN button. It said WIN - whip inflation now - red buttons with white letters.

HORSLEY: But Princeton economist Alan Blinder says it was the country that got whipped in the '70s as inflation soared into double digits. Supply shocks were part of the problem. The Arab oil embargo and the Iranian revolution brought an end to the days of cheap gasoline.

(SOUNDBITE OF ARCHIVED RECORDING)

UNIDENTIFIED PERSON: Today's OPEC increases are expected to drive the price of unleaded up to a national average of 77 cents per gallon.

HORSLEY: Assorted farm calamities also drove up grocery prices. On "All In The Family," inflation was a not-so-funny punchline.

(SOUNDBITE OF TV SHOW, "ALL IN THE FAMILY")

JEAN STAPLETON: (As Edith Butler) Tonight we're having spaghetti with marinara sauce.

(LAUGHTER)

CARROLL O'CONNOR: (As Archie Bunker) Marinara sauce is nothing but lumpy juice.

(LAUGHTER)

STAPLETON: (As Edith Bunker) But, Archie, meat is so expensive.

HORSLEY: Prices actually started creeping up in the mid-'60s when the federal government was spending heavily on both the Vietnam War and the Great Society. Nixon froze prices in the early '70s, but that just postponed the pain. Once controls were lifted, prices bounced even higher. By 1978, Jimmy Carter was calling inflation America's most pressing domestic problem.

(SOUNDBITE OF ARCHIVED RECORDING)

JIMMY CARTER: Fighting inflation will be a central preoccupation of mine during the months ahead. And I want to arouse our nation to join me in this effort.

HORSLEY: Despite the tough talk from Nixon, Ford and Carter, prices kept climbing. Economist Blinder, who later served as vice chairman of the Federal Reserve, says psychology was partly to blame. In the '70s, Americans came to believe that high inflation was here to stay. And that expectation became a kind of self-fulfilling prophecy.

BLINDER: If you're a business and you expect the inflation rate to be 5%, you're likely, when it comes time to set the prices for the next year, go up 5%. On the other hand, if you think inflation is going to be 1%, you're more likely to go up 1%.

HORSLEY: Ultimately, it took a crackdown by cigar-chomping Fed Chairman Paul Volcker to break that cycle. Volcker slammed the brakes on the economy by raising interest rates to 20%. He told "The MacNeil/Lehrer NewsHour" tough medicine was necessary to prove he was serious about getting inflation under control.

(SOUNDBITE OF TV SHOW, "THE MACNEIL/LEHRER NEWSHOUR")

PAUL VOLCKER: At some point, this dam was going to break, and the psychology is going to change.

HORSLEY: It was a painful correction, with nearly 4 million jobs lost. But it worked. By 1983, inflation had retreated to just over 3%, and it stayed low for the last four decades. Now, though, with pandemic supply shocks and prospects for red-hot demand fueled in part by government spending, some see echoes of the 1970s. Inflation last month hit 4.2%. But both the administration and the Federal Reserve think that's temporary. And they're banking, in part, on changed expectations. We've now had decades of stable prices. And Blinder says that should help to prevent another inflationary spiral.

BLINDER: I think the generation that were adults in that high inflation period will always remember it. But a lot of Americans that never lived with inflation at all. So naturally, they don't expect it.

HORSLEY: Both the White House and the central bank are on the lookout for any alarming shift in expectations. But for now, they see a return of runaway inflation is about as likely as a comeback for mood rings and bell-bottom jeans.

Scott Horsley, NPR News, Washington. Transcript provided by NPR, Copyright NPR.