One advantage of President Joe Biden’s age should be that he at least remembers the inflation of the 1970s, the factors that led to it, the efforts that failed and those that finally succeeded in bringing inflation under control.
But evidently not.
Loose money supply unhinged from the gold standard, oil shortages and other assorted bad policies ignited almost runaway inflation in the 1970s, and the combination of high inflation and dismal economic growth resulted in “stagflation” and one of the worst economic periods in our nation’s history.
The Nixon administration tried wage and price controls, blaming businesses for raising their prices too high and paying their employees too much. That didn’t work.
The Ford administration thought (well, thought may be too charitable) that inflation was about consumer psychology, and printed up millions of “Whip Inflation Now” (WIN) buttons for Americans to wear on their lapels.
Seriously. I have one.
Buttons do not bring mortgage rates down from 18.5%. Blaming businesses does not bring inflation down from 13.9%.
What worked? Ronald Reagan trusted Federal Reserve Chairman Paul Volker to do what was necessary—tighten the money supply to starve inflation to death, even at the cost of a severe recession. Modern presidents would pressure the Fed to not take such drastic actions because they don’t want to take the political hit for a recession.
Modern president like, apparently, Joe Biden, who in last night’s State of the Union address endorsed price controls, blamed businesses for raising prices, and said that further loosening the money supply and helicoptering even more federal spending on the economy would tame inflation.
After all, seventeen Nobel Prize-winning economists say it would. Which only undermines the credibility of the Nobel Prize in economics.
Actually, it would do the opposite, as the experience of the 1970s and 1980s teaches us.
There is no solution to inflation other than reining in loose money and enduring whatever temporary economic pain may result. Like we did last time.
But Biden apparently can’t remember.
Originally published by Institute for Policy Innovation. Republished with permission.