patrick.net

shrekgrinch says

See, Jimmy Carter had this BRILLIANT idea that rationing gas prices would be the answer to raging inflation

That's very clever. See you took a bit of truth, added a lie and then wrote 3 more paragraphs of a dumb story. Hoping that your story will distract people from the lie...

Good try.

Jimmy Carter had this BRILLIANT idea that rationing gas prices would be the answer to raging inflation. Basically, every other day gas stations would alternate between serving customers with even or odd numbered license plate numbers.

You should start an alternate universe history wiki, where everything bad from in the 70's can be blamed on Carter, even if it was under Nixon or Ford. You can pin the widely hated 55 mph speed limit on him too. Oh, and make Paul Volker a Reagan appointment.

MarkInSF says

Oh, and make Paul Volker a Reagan appointment.

Volker was reappointed by Reagan in 1983. By Volker's own description, Reagan was under intense political pressure because he insisted on higher interest rates in order to slay the Carter inflation dragon, but he never caved to that pressure. Milton Friedman said it was the bravest, most principled economic move he had ever seen an American President make. Thanks for providing the opportunity for me to illustrate once again what a great man Ronald Reagan really was.

Ray, you should join Shrek in his alternate universe history wiki.

The president does not set monetary policy. In any event, Volker hiked rates to their highest levels ever BEFORE Reagan came into office.

http://www.newyorkfed.org/markets/statistics/dlyrates/fedrate.html

@RayAmerica

"By Volker’s own description, Reagan was under intense political pressure because he insisted on higher interest rates in order to slay the Carter inflation dragon, but he never caved to that pressure."

I am not much of a Reagan fan (I prefer Eisenhower or Ford), but at least he stuck to principle here for the better...

Troy says

The funny thing is I think my thesis is obvious — inflation in the 1970s was simply the baby boom hitting 20.

The inflation in the 1970's actually had its start by incremental degrees in the 1960's. From a low of about 2% in the mid-60's, by 1969 inflation was breaking out about 3-4%, which seemed high at the time--this was fueled by the ongoing war and the massive transfer payments of the then four-year old Great Society. In a panic, in about August of '72, Nixon decided to impose wage and price controls to help constrain inflation which was then in the 5% range--of course this was with an eye on his re-election prospects. I remember how relieved we were that gasoline would remain at 29 cents a gallon for the foreseeable future! Nixon was re-elected, but the controls were working so poorly after a few months that they actually went to a Phase II, which was just as disastrous. They caused all kinds of unintended distortions and of course the only things that were controlled then were wages, there always seemed to be an exception for raising prices, which was allowed. I remember one instance of baby chicks having to be drowned--the costs of the feed for them had gone too high to feed them and the people couldn't raise the price of chickens enough to cover the costs, or something to that effect. Towards the end of '73 the controls were abandoned altogether. It was like removing a lid from an overheated pressure cooker--the pent-up inflationary pressures exploded such that 1974 saw double digit inflation every month for the year. Auto makers raised prices throughout 1974 about five times to the extent that an Olds Delta 88 that cost $4,100 at the end of '73 cost $4,900 at the beginning of '75. Of course, the Arab oil embargo played its part when gasoline double from about 30 to 60 cents during the next few months. The scenario was set for the rest of the decade, with only one serious effort to control inflation when Ford had a bunch of W.I.N buttons (Whip Inflation Now) made up and sent out--other than that, they were just flying by the seat of their pants.

One thing that did exist then that doesn't exist now is that starting some time in 1975, we would get regular blanket raises to cover the rapidly rising costs of living. I remember one time having a merit raise and blanket raise take effect in the same check and I tought I'd never need a raise again--no such luck, in about three months I was back at square one with rent increases. It seems like this is what's called wage push inflation--wages are raised, then prices are raised to cover the increased raises, resulting in a vicious cycle. Also, this provided a government bonanza as income tax brackets were not yet indexed for inflation. You would be put into ever higher brackets with no effective increase in spending power, but having to pay more taxes anyway.

N Dr Lo R says

Also, this provided a government bonanza as income tax brackets were not yet indexed for inflation. You would be put into ever higher brackets with no effective increase in spending power, but having to pay more taxes anyway.

Not to mention capital "gains" taxes. That must have been fun to pay taxes on "gains", that were actually a loss in real terms.

N Dr Lo R says

this provided a government bonanza as income tax brackets were not yet indexed for inflation. You would be put into ever higher brackets with no effective increase in spending power, but having to pay more taxes anyway.

I always wondered why they never did taxes on the curve (like grades in high school), instead they always tax at specific arbitrary amounts.

Did the "we are in recovery" news that I've been hearing turned out to be false? Sigh!

N Dr Lo R says

which seemed high at the time–this was fueled by the ongoing war and the massive transfer payments of the then four-year old Great Society

Oh, bullshit on that. Great Society wasn't going to bust the budget in just 4 years.

1964:
Pensions $13.5
Health Care $1.8
Education $2.3
Defense $65.4
Welfare $7.1

1969:
Pensions $24.5
Health Care $10.9
Education $8.5
Defense $94.7
Welfare $8.3

The dominant increase was Defense ($65B to $95B). Social Security and Medicare were paid for by new taxes -- FICA went from 3.125% in 1962 to 4.8% in 1969, and Medicare tax was started at 0.35% in 1965 to pay for that.

Of course, inflation was noticed and Johnson did ask congress to impose a Clinton-like 10% tax rise in 1968. Conservatives who were running the Congress in 1968 opposed that.

Missing from your analysis of course was the inflationary effect of sending 500,000+ young men to Vietnam every year in the late 1960s, and the massive footprint the DOD had on employment & spending overall.

Unemployment was as low as it was going to get in the late 1960s --

http://research.stlouisfed.org/fred2/series/UNRATE

and THAT was the true inflationary cause of the time.

In a panic, in about August of ‘72, Nixon decided to impose wage and price controls to help constrain inflation which was then in the 5% range

It seems like this is what’s called wage push inflation–wages are raised, then prices are raised to cover the increased raises, resulting in a vicious cycle.

yup, the wage-price spiral. It's what ruined Germany in the 1922-23 period. Workers would have to spend their paychecks the day they got them since inflation was so out of control.

As you say, we really don't have that now, and probably can't since unemployment is so high.

The central difference between now and the 1970s was that back then China and India might as well have been on the moon, as far as economic off-shoring ability.