Malanga: The Social And Economic Effects of the 1970s Inflation

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By contrast, we’ve largely forgotten our most recent brush with raging peacetime inflation, the 1970s.  Although nothing like Germany’s in the 1920s, ours was nonetheless powerful enough to be more dispiriting and more transformative of our culture than any stretch of post-World War II recession has been.


One reason that inflation can be such a powerful social force is because it affects virtually everyone.  To people who’ve worked their whole lives playing by the rules, that is, to the majority of adult Americans in the early 1970s, inflation at the hands of wayward government policy seemed to be a betrayal.  People who had been thriftiest watched down payments for buying a home disappear, college savings accounts shrivel, retirement nest eggs vanish, the value of monthly pension checks shrink.  Harvard Business School Professor Samuel Hayes recounted the damage to a relative of his in a magazine story: “He was the epitome of the Protestant ethic.  He had inherited money, he had saved, he was very frugal, had a very modest house, had part of his investment money in bonds and short-term securities, had always maintained liquidity.  And he came out of the Seventies looking like a fool.  The people who had frittered away their money, as we would say, on elaborate homes and material possessions were laughing all the way to the bank.”


Still, after a 14 year roller-coaster of inflation, counting the upward surge that began in 1968, America was a different country by 1982.  Subsequently, our savings rate declined and our consumer debt started rising more rapidly.  Our fascination with real estate mounted, as those who had bought homes in the 1970s saw their value soar and their mortgage payments decline relative to their incomes—windfalls that transformed the way people looked at housing ownership and the amount of money they might borrow to buy a home.

“Why Inflation Is So Scary”, Stephen Malanga, Real Clear Markets, June 10

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