Red October Panic: Inflation History

What if the 1970s inflation ‘panic’ was really a response to greater sexual freedom? Makes you think, doesn’t it? Oh no, it doesn’t.

NRPLUS MEMBER ARTICLE They say that those who cannot remember the past are condemned to repeat it. The same is true of those who rewrite it — which, over at New York magazine, is precisely what America’s self-appointed historian of conservativism, Rick Perlstein, has done in submitting that the anger generated by double-digit inflation in the 1970s was not economic in nature but “cultural.”

Perlstein writes:

At so, you have to ask: What were these people really talking about when they talked about inflation?

The conclusion I’ve drawn is that this was a form of moral panic. The 1970s was when the social transformations of the 1960s worked their way into the mainstream. “Inflation spiraling out of control” was a way of talking about how more permissiveness, more profligacy, more individual freedom, more sexual freedom had sent society spiraling out of control. “Discipline” from the top down was a fantasy about how to make all the madness stop.

This is dorm-room guff. Sometimes, a cigar really is a cigar. What “these people” were “really talking about when they talked about inflation” was . . . inflation. And they were talking about inflation because inflation was having a profoundly negative effect on their lives. Halfway through his piece, Perlstein pays cursory lip service to this idea: It can, he writes, be “palpably anguishing for a family on a tight budget to be forced to stretch a dollar further every year.” But he quickly waves away that concern by insisting that unions and private employers dealt with the issue adequately throughout and by noting that “for people paying down fixed-rate mortgages, inflation was a boon” — which is a little like saying that hurricanes aren’t that much of a problem on the grounds that a lot of people don’t get hit by them while others get much-needed water for their lawns.

This is not an area that is ripe for revisionism. By December 1979, a dollar earned in January 1970 had kept less than half of its buying power — a radical departure from the stability of previous decades. As the U.S. Bureau of Labor Statistics shows, there was more inflation between 1971 and 1974 than there had been during the entire 1960s, and as much inflation during the five years between 1973 and 1978 as there had been during the 1950s and 1960s combined. This was no mere abstraction. In the two decades prior to the 1970s, food prices went up 40 percent in total — at an average rate of around 2 percent per year. In the 1970s, they increased by 114 percent — at an average rate of 11.4 percent per year.

Go and ask someone about inflation in the 1970s — they don’t even have to be American. You could also ask one of the millions of British citizens who, magically enough, spent the decade engaged in the same U.S.-led “moral panic.” With groans and rolling eyes, they will tell you about the anxiety caused by the cost of living constantly outstripping wages; about the dangerous connection that exists between rising consumer prices and all-powerful labor unions; about the perils of bracket creep; and about the profound difficulties induced by the rising interest rates that were necessary to fight back. Perlstein tries to downplay these memories by submitting that “union workers” had “cost of living adjustments” built into their contracts, “while employers raised wages for nonunion workers, too.” But this is misleading, not least because unions often demanded increases well above the rate of inflation, which, as the New York Times noted in 2019, “fueled higher inflation economywide” and, in turn, “fed into consumer prices,” which, in turn, forced non-union workers to constantly demand raises. The result? An aggravating chaos, within which all but the rich were obliged to rework their budget every few months, and in which that stressful “can I have a raise?” conversation happened on a biannual basis out of harsh necessity.

All in all, Perlstein seems to believe that the American public believed inflation was a problem because leaders such as Gerald Ford, Jimmy Carter, and Ronald Reagan told them it was a problem. “When ideological rivals converge so dramatically upon common assumptions on controversial public questions,” he writes, “something deeper is going on than mere politics.” But this is to invert cause and effect. Americans weren’t worried about inflation in the 1970s because their leaders expressed concern about inflation in the 1970s; their leaders expressed concern about inflation in the 1970s because Americans were worried about inflation in the 1970s. And Americans were worried about inflation in the 1970s because inflation was hurting them in the 1970s. It is true that, after a certain point, inflation is worsened by psychology; if people believe inflation is happening, it will be more likely to continue than if they do not. But this does not happen in a cultural vacuum; it happens when the supply of money or goods or both are out of whack with demand.

Which is to say that, instead of the 1970s being “when the social transformations of the 1960s worked their way into the mainstream,” the 1970s was when the deficit-spending and easy-money policies of the late 1960s combined with the disastrous pain-delaying tactics of the early 1970s (in particular, wage and price controls) and detonated an economic time bomb. For Perlstein’s theory to hold, one has to believe that the American public was sufficiently comfortable with the “social transformations of the 1960s” in 1972 that it believed the economy was strong and reelected Richard Nixon in a landslide, but sufficiently uncomfortable with the “social transformations of the 1960s” by 1974 to start worrying about something that didn’t matter. Which, of course, is absurd. The difference was inflation, which began to spiral soon after the 1972 election, which was made worse by the OPEC-designed supply shock of 1973, and which was not brought under control until, nearly a decade later, Paul Volcker was given permission to take the harsh corrective measures that would bring the saga to a close.

There was a lot wrong with the old-school American Left — on policy, the now-dying-off Farm-Labor types were commonly misguided and invariably naīve — but at least it dealt in reality. Until a few years ago, the social-democratic message was a simple one: People need tangible things such as food, shelter, and medical care; some people don’t have those things; so the government should give them to them by taking resources away from others. Having been captured by the academy, modern progressivism has wholly abandoned this simplicity in favor of a relentless tendency to abstract the concrete and concretize the abstract. It takes a gifted practitioner of this unlovely art to turn as simple a concept as inflation into a stand-in for Something Else. My hat goes off to Rick Perlstein for the achievement.