The inflation that is reshaping both the American economy and American politics is coming home for the holidays.
The aisles at the Hannaford supermarket here are jammed with shoppers, but as they fill their grocery baskets for the country’s favourite holiday they also are filled with fear. The Thanksgiving turkey costs US$4.60 more than last year, the cranberries are up by more than a quarter, the sweet potatoes by more than a dime, and the peas by more than a nickel, according to grim figures assembled by the American Farm Bureau.
Thanksgiving here is a time when families assemble around a table groaning with the bounty of the autumn harvest. Indeed, since the end of the First World War, the anthem for this holiday has been the Dutch hymn We Gather Together. But this year that family gathering may show signs of what could be the most significant generation gap in decades.
The seeds of that potential generation gap will not be racial integration or political alienation or even party polarization but, instead, inflation. Public opinion data assembled by Pittsburgh-based CivicScience show worry throughout the generations – but that those between the ages of 18 and 29 are twice as likely as those older than 65 to say they are “not at all concerned” about inflation.
Those older than 65 were 20 years of age or older when Jimmy Carter was inaugurated amid what economic historians have come to call the Great Inflation. They experienced the economic instability of inflation and its handmaiden, social instability, which in that period prompted fear and warped the commercial life of the country.
Over the course of the two decades beginning in 1960, U.S. annual inflation grew from 1.4 per cent to 13.3 per cent. That undermined the authority of a government that seemed incapable of staunching inflation and returning predictability to the prices Americans paid for everyday purchases in the grocery store, at the gas station and the shopping centre, as well as for major purchases such as automobiles and houses.
A Quinnipiac University poll this month found that nearly seven in 10 Americans said increased prices for things such as food and gasoline have caused them to change their spending habits, and the CivicScience figures show that Republicans are more concerned about inflation at more than double the rate of Democrats. So it is not surprising that the two leading Democrats publicly expressing fear of inflation are former treasury secretary Lawrence Summers, who turns 67 next week, and Senator Joe Manchin of West Virginia, who is 74 years old.
They experienced how, as Robert J. Samuelson wrote in a 2008 retrospective on the Great Inflation, “inflation’s climb and collapse exerted a dominant influence over the economy’s successes and failures,” adding, “Inflation and its fall shaped, either directly or indirectly, how Americans felt about themselves and their society; how they voted and the nature of their politics; how businesses operated and treated their workers; and how the American economy was connected with the rest of the world.”
Pages later Mr. Samuelson issued a warning that is haunting today: “As memories of the Great Inflation fade – for many Americans they don’t even exist – it may get lost. Inflation’s hazards may seem less menacing, and only by suffering them again will we be reminded of their pernicious power.”
During the Great Inflation, banks, life insurance companies, pension funds, stocks, bonds, farmers, corporate balance sheets, small businesses and households were affected. Because people’s incomes grew (though not enough to keep up with inflation), the phenomenon of “bracket creep” drew Americans into more punishing tax brackets – a result that, in a bizarre subproduct of inflation, aided governments by providing more revenues.
At the same time, inflationary expectations, perhaps more dangerous than inflation itself, prompted other deleterious effects.
“If people believe that inflation is here to stay,” financial analyst A. Gary Shilling wrote in 1983, “they will continue to use the strategies that have worked so well in the past: Buy now, pay later; increase debt in order to accumulate tangibles; buy collectibles and real estate at any price, for prices can only go up; accept price increases from suppliers and compensation demands from the work force, for they can easily be passed on in turn.”
Public-opinion specialists Seymour Martin Lipset and William Schneider wrote during the Great Inflation that “a high rate of inflation appears to lower the public expectations of the future in all respects: for their own lives, for the country as a whole, or the economy.”
That is why former president Gerald Ford urged Americans to wear “WIN buttons,” standing for “Whip Inflation Now,” one of the more risible and unsuccessful efforts to stanch inflation expectations. In a February, 1980, interview with editors, Mr. Carter, who had defeated Mr. Ford in part because of economic issues, said, “It would be misleading for me to tell any of you that there is a solution to it.”
Inflation was a largely forgotten thing of the past – a historical curiosity, though the hyperinflation after the First World War in Germany and after the Second World War in Hungary still were studied widely – until about six months ago. And indeed the current inflation, which in an annual rate reached 6.2 per cent last month as measured by the Consumer Price Index, might well be transitory, lasting for a few quarters and due in large measure to supply chain disruptions – though the massive amounts of money Congress has injected into the economy and the money created by the Federal Reserve bank may make it persist.
“There are really bad things about high inflation,” said Christopher Ragan, a McGill University economist. “The first is how it disrupts the economy and damages growth. The second, and probably the worst, is the pain that must be inflicted on real people to wring inflation out of the system.”
The disinflation that attacks inflation is a monetary tightening that jacks up interest rates and creates a recession. That’s why central banks are so vigilant about keeping inflation low. Once it gets to 6 per cent and stays there, the public clamours to get it back down and that’s painful.
The current inflation news is not all bad, however. The price for Thanksgiving stuffing is down by a half-dollar.
The opening line of the Dutch hymn begins with “We gather together,” and is followed immediately by “to ask the Lord’s blessing.” Amid COVID-19 concerns and inflation worries, that’s what many American families are doing this week.
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