THE GREAT INFLATION A N D ITS AFTERMATH THE PAST A N D FUTURE OF A M E R I C A N AFFLUENCE ROBERT J SAMUELSON NEWSWEEK AND WASHINGTON POST COLUMNIST U.S.A $26.00 Canada $30.00 I t's a giant gap in our history The Great Inflation, argues award-winning columnist Robert J Samuelson in this provocative book, was the worst domestic policy blunder of the postwar era and played a crucial role in transforming American poli­ tics, economy, and everyday life—and yet its story is hardly remembered or appreciated In these uncertain economic times, it is more imperative than ever that we understand what happened in the 1960s and 1970s, lest we be doomed to repeat our mistakes From 1960 to 1979, inflation rose from barely more than percent to nearly 14 percent It was the great­ est peacetime inflationary spike in this nation's his­ tory, and it had massive repercussions in every area of our lives The direct consequences included Ronald Reagan's election to the presidency in 1980, stagna­ tion in living standards, and a growing belief—both in America and abroad—that the great-power status of the United States was ending The Great Inflation and Its Aftermath traces the origins and rise of doubledigit inflation and its fall in the brutal 1981-82 reces­ sion, engineered by the Federal Reserve under thenchairman Paul Volcker and with the staunch backing of Reagan But that is only half the story The end of high inflation triggered economic and social changes that are still with us The stock market and housing booms were both direct outcomes; American business became more productive—and also much less protec­ tive of workers—and globalization was encouraged We cannot understand today's world, Samuelson contends, without understanding the Great Inflation and its aftermath Nor can we prepare for the future unless we heed its lessons This incisive and enlight­ ening book will stand as the authoritative account of a watershed event of our times ROBERT J S A M U E L S O N is a columnist for Newsweek and The Washington Post He began his jour­ nalism career as a reporter for the Post in 1969 He is the author of The Good Life and Its Discontents: The American Dream in the Age of Entitlement, ip^j-ipỗy and Untruth: Why the Conventional Wisdom Is (Almost Always) Wrong, a collection of his columns He lives in Bethesda, Maryland, with his wife, Judy Herr They have three children Jacket design: Julie Metz Design Join our nonfiction e-newsletter by visiting www.rh-newsletters.com Random House New York, N.Y © 2008 by Random House, Inc P r a i s e for R o b e r t J S a m u e l s o n ' s THE G O O D LIFE A N D ITS D I S C O N T E N T S The American Dream in the Age of Entitlement, ip^f—ippf A New York Times Business Book B e s t s e l l e r "Original, intellectually sound and fun to read." — M A N C U R O L S O N , The Wall Street Journal "Shrewd and optimistic combines first-rate analysis with persuasive historical, political and sociological insights." — J A G D I S H B H A G W A T I , The New Republic "A smart, balanced epitaph for an era— with a few clues for what's ahead." — R O B E R T J D O W L I N G , BusinessWeek "Lucid [and] nonsectarian Samuelson traces how the reasonable demand for progress has given way to the excessive demand for perfection." —ROBERT KUTTNER, The New York Times ISBN 978-0-375-50548-5 ALSO BY R O B E R T J S A M U E L S O N The Good Life and Its Discontents: The American Dream in the Age of Entitlement, 1945-1995 Untruth: Why the Conventional Wisdom Is (Almost Always) Wrong THE GREAT INFLATION AND ITS AFTERMATH RANDOM NEW HOUSE YORK R O B E R T J S A M U E L S O N THE GREAT I N F L A T I O N AND ITS AFTERMATH THE PAST AND F U T U R E AMERICAN OF AFFLUENCE Copyright © 2008 by Robert J Samuelson All rights reserved Published in the United States by Random House, an imprint of The Random House Publishing Group, a division of Random House, Inc., N e w York R A N D O M H O U S E and colophon are registered trademarks of Random House, Inc LIBRARY OF C O N G R E S S C A T A L O G I N G - I N - P U B L I C A T I O N DATA Samuelson, Robert J The great inflation and its aftermath : the past and future of American affluence / Robert J Samuelson p cm Includes bibliographical references and index ISBN 978-0-375-50548-5 Inflation (Finance)—United States United States—Economic policy United States—Economic conditions I Tide HG540.S26 2008 332.4'10973—dc22 2008023468 Printed in the United States of America on acid-free paper www.atrandom.com 24689753i FIRST EDITION Book design by Jessica Shatan Heslin/'Studio Shatan, Inc Notes 16 Global population figures from table 1356, Statistical Abstract of the United States, 1974 17 Sylvester J Schieber, "The End of the Golden Years," The Milken In­ stitute Review (second quarter 2008): 54 18 See Paul London, The Competition Solution 19 For the 30 percent to 50 percent of elderly dependent in the 1930s, see National Conference on Social Welfare, Fiftieth Anniversary Edition: The Report of the Committee on Economic Security of 1935 (Washington, D.C.: Project on the Federal Social Role, 1985), 24 For 75 percent with­ out health insurance, see Amy Finkelstein, "The Aggregate Effects of Health Insurance: Evidence from the Introduction of Medicare" (Work­ ing Paper 11619, National Bureau of Economic Research, Cambridge, Mass., August 2005), 20 For life expectancy in 1935, see Carter et al., Historical Statistics of the United States, vol 1, 440, table Ab644-55 21 For manufacturing jobs, see table B-46, Economic Report of the Presi­ dent, 2008 For total employment, see table B-45 For study of job loss, see Robert Lawrence, Blue Collar Blues: Is Trade to Blame for Rising U.S Income Inequality? (Washington, D.C.: Peterson Institute for International Economics, 2008) 22 See Lawrence, Blue-Collar Blues, 37, 51 23 For the 2007 estimate of Persian Gulf financial assets, see the Institute of International Finance, press release, January 16, 2008 For the 2020 projection, see "The Coming Oil Windfall in the Gulf," McKinsey Global Institute, January 2008 299 Notes 24 This and the following paragraph rely on the International Energy Agency (IEA), World Energy Outlook 2007 (Paris: International Energy Agency, 2007) See table 1.1 for both current use and projections to 2030 See page 59 for population projections See Annex A for detailed projections For 2030 projections of greenhouse gas emissions, see page 97 For projection of Chinese vehicles, see page 299 25 For coal's share of electricity, see IEA, World Energy Outlook 2007, 593 26 For population figures, see "U.S Population Projections, 2005-2050," Pew Hispanic Center, Feb 11, 2008, http://pewhispanic org For assimilation of Mexican Americans, see Edward E Tellez and Vilma Ortiz, Generations of Exclusion: Mexican Americans, Assimilation, and Race (NewYork: Russell Sage Foundation, 2008), 140-42.The reference is in the following paragraph 27 For 1938 unemployment—Hansen gave his original talk at the end of the year—see Carter et al., Historical Statistics of the United States, vol 2, table Ba478-86 For Hansen's views, see Alvin Hansen, "Economic Progress and Declining Population Growth" in The American Economic Review (March 1939): 1-15 28 Peter Lindert, Growing Public: Social Spending and Economic Growth Since the Eighteenth Century (New York: Cambridge University Press, 2004) See also Lindert, "Why the Welfare State Looks Like a Free Lunch" (working paper, Harvard University, November 2002 draft) 29 See Alexis de Tocqueville, Democracy in America, vol (New York: Schocken Books, 1961), chap 300 INDEX A Bernanke, Ben, , 2 Ackley, Gardner, 15 B e r n h o l z , Peter, affluent d e p r i v a t i o n , , 2 , 2 , Blumenthal, Michael, 119 age-discrimination laws, n B o e h n e , Edward, 131 airlines, n b o r r o w i n g See c o n s u m e r d e b t A k e r s J o h n F., 5 Bretton Woods, , n Alcaly, R o g e r , Bryan, William Jennings, 87 Allen, Frederick Lewis, 4 bubbles, American Telephone and Telegraph b u d g e t deficits (AT&T), 143,143n, 152n 6,28,37,38,181,196,208,234 Kennedy's views, - Anderson, John, 26 relationship t o trade deficits, n Anderson, Martin, 1 , 1 a n d w e l f a r e state, - , Apple Computer, 158 Burns, Arthur, 7 - , - , , 1 Articles o f Confederation, B u r d e s s , Gary, Bush, George H.W.,109 business cycles B B a g e h o t , Walter, 9 i n classical e c o n o m i c s , 5 Baker, H o w a r d , concept o f eliminating, - , 50, 55, balanced budget stereotype, - 63 Balanced Monetary Policy Act o f 1982, g o v e r n m e n t s ability to control, 113 in Great Depression, 5 - bank panics, , , 8 - , , 9 , impact of competition, 182 249 impact o f spending, - b a n k reserves, , n - 2 n , , , in n e w e c o n o m i c order, 132,249-50 question o f taming, , - 9 bankruptcies, 129 s m o o t h i n g as art, 2 Barsky, R o b e r t , spending categories, 195 Bell, Daniel, Byrd, Harry, Berle,AdolfA.,Jr., 153 Byrd, R o b e r t C , 301 113 Index C e c o n o m i c impacts, 182 Calder, Lendol, 2 impact o n corporations, - 5 Califano, Joseph, - impact o n inflation, 2 call l o a n s , 8 i n n e w e c o n o m i c order, Cannon, Lou, 114 Connallyjohn, capital controls, c o n s u m e r debt, - capital flows, 161,162,164,197,250 161,162,250 67,68,98,109 C o n s u m e r Price Index (CPI) capitalism glossary definition, adaptability, 6 h o w it is d r a w n , basic characteristics, i n d e x i n g w a g e s to, 2 imperfectability, - as i n f l a t i o n i n d i c a t o r , m o d e r n backlash, - separate i n d e x w i t h o u t energy, 15 in popular culture, 6 - a n d stagflation, i n p o s t - W o r l d W a r II d e c a d e s , - statistics, - 0 , - 6 relationship o f inflation to, - consumer spending, , , 4 in 1980s, - c o n s u m p t i o n taxes, I n , , i n U S history, - Continental Congress, 85 See also continentals, 85 globalization core inflation, defined, Carter, J i m m y corporations e c o n o m i c package, - chooses Volcker to head Fed, 1 - changes in behavior toward workers, C o u n c i l o f E c o n o m i c Advisers, 124, 7-8 125 impact o f competition, - 5 embraces i n c o m e s policy, 9 - 1 i m p a c t o f inflation o n profit reporting, and Federal R e s e r v e , , , 1 - 30-31 a n d inflation issue, — , - , 6 , a n d j o b insecurity, - 8 69-70 Cost-of-Living Adjustment ( C O L A ) , 147, malaise speech, , 1 251 s p e e c h o n n a t i o n s loss o f faith, - C o u n c i l o f E c o n o m i c Advisers (CEA) and wage-price controls, 91 u n d e r Carter, , C E A See C o u n c i l o f E c o n o m i c A d v i s e r s creation, (CEA) glossary definition, central banks, 7 , , , 9 , 2 , under Johnson, 15, 5 , n , 95 See also F e d e r a l R e s e r v e under Kennedy, 51, - , 54, - , C E O pay, , - 59,60,61 Civil Aeronautics Board (CAB), 152n under N i x o n , , Civil War, , under Reagan, 115,116 Clausen, A W "Tom," 119 and wage-price guideposts, - C l i n t o n , Bill, , C P I See C o n s u m e r P r i c e I n d e x ( C P I ) closed economies, 2 - creative destruction, , , C o c a - C o l a , 151 credit C o l d War, , 2 democratization, , , 2 - Comin, Diego, 182 life c y c l e , 2 competition waning o f expansion, 2 - and deregulation, - See also s e c u r i t i z a t i o n 302 Index c r e d i t cards, - , , undoing, Cross o f G o l d speech, w e l f a r e s t a t e as t h r e a t , - current account, defined, E i c h e n g r e e n , Barry, 4 , Eisenhower, D w i g h t D., 54 D Eizenstat, Stuart E , debt, household, - employment deflation, , j o b security, , - 8 D e L o n g , J B r a d f o r d , l o n g - t e r m relationships, - deposit insurance, 3 , , in n e w e c o n o m i c order, depreciation allowances, 31 See also full e m p l o y m e n t ; u n e m p l o y m e n t Dillon, C Douglas, 60 Employment Act of , , d i s c o u n t rate, , , 3 , energy prices, , - , n disinflation, 138n, 5-6,7,28,38-39,109,128, See also o i l 141,179,183,208,221,253 entitlements, , dollar Eurodollars, 161 Eurodollars, 161 e x c h a n g e rate, , F as g l o b a l c u r r e n c y , , , 2 , 2 n , farmers, 3 - , - , n , 224 and globalization, - F e d f u n d s rate, , , 2 - , 3 , impact o n international finance, - international capital 88,129 Fed Funds, , flows, Federal C o m m u n i c a t i o n s 162-63 Commission (FCC), 152n Nixon's 1971 devaluation, 118 federal debt, , n strong, , , Federal O p e n Market C o m m i t t e e double-digit inflation (FOMC), 120,120n-121n, 128,129, e c o n o m i c statistics, - 131-32,134,172,253 e n d of, - 1 Federal R e s e r v e as h i s t o r i c a l o v e r s i g h t , , - accelerator-brakes analogy, as p o l i c y b l u n d e r , 1 B u r n s as c h a i r m a n , 7 - , - , , r e c e s s i o n as c u r e , - 118 See also G r e a t I n f l a t i o n and business cycles, 2 D o w J o n e s Industrial Average, , , , and Carter, , , 1 - 181 change in orientation toward n e w economics, 80-81 downsizing, 143,143n, 184 c o n t r o l l i n g m o n e y supply, - defined, E establishment, 8 - early retirement, n expansionary policies, - Easterlin, R i c h a r d , 2 a n d full e m p l o y m e n t , , - economic growth a n d g o l d standard, c o n s u m e r d e b t b u r d e n as t h r e a t , - g l o b a l i z a t i o n as c o m p l i c a t i n g f a c t o r , 2 g l o b a l i z a t i o n as t h r e a t , 2 - as g u a r d i a n o f c u r r e n c y , 2 and happiness, 1 - influence o n economy, - n e e d for, - and Johnson, , slowing, - , as l e n d e r o f last r e s o r t , 2 - social role, 2 - 303 Index Federal R e s e r v e (cont'd.) Gates, Bill, 151 a n d m o n e t a r y policy, 90—91 G D P See G r o s s D o m e s t i c P r o d u c t ( G D P ) and nature o f A m e r i c a n m o n e y , 83—90 General Motors, - , and N i x o n , , - G e r m a n hyperinflation, 21 nominal independence, 78 G e r s t n e r , L o u i s , Jr., 5 a n d p r i c e stability, - , 2 global warming, , , 2 , - and productivity, - globalization a n d "real bills" d o c t r i n e , c o n f u s i o n o f d o m e s t i c versus role in Great D e p r e s s i o n , 1 - international influences, 2 - role i n Great Inflation, - , , 1 , - s e t t i n g interest rate, c u r r e n c y issues, , - , 2 , 2 n , 224,225 Federal R e s e r v e notes, dangers, 2 - 2 fiat c u r r e n c y , , as e c o n o m i c b o o m , 4 - finance as e c o n o m i c i n f l u e n c e , , - as d r i v e r o f e v e n t s , - history, a n d e c o n o m i c instability, - and inflation, significance in recent e c o n o m i c history, i n t e r n a t i o n a l capital 181-83 flows, 162 overview, - financial panics, 8 , 2 , 2 , 2 , r e c o m m e n d e d approach, 3 - fiscal p o l i c y as threat t o e c o n o m i c g r o w t h , , 2 - defined, , vacuum o f power, 225 versus m o n e t a r y policy, 91 G N P See G r o s s N a t i o n a l P r o d u c t ( G N P ) F O M C See F e d e r a l O p e n M a r k e t Committee gold, - , - , , n , 9 , (FOMC) gold cover, n Ford, Gerald, , - g o l d standard, , , , , , , 9 , foreign direct investment (FDI), , 254-55 Frank, R o b e r t , 1 Gonzalez, Henry, 113 Franklin, B e n , Goodfriend, Marvin, 128 Freeman, Orville, 96 Gordon, Kermit, , frictional u n e m p l o y m e n t , n G o s s e l i n , Peter, , Friedman, Benjamin, 213 g o v e r n m e n t regulation, , Friedman, Milton, 72, 73, , 1 , , gradualism, 6 - , full e m p l o y m e n t Gramley, Lyle, Great Depression and Fed, 79, - initial d e f i n i t i o n , , as d e m a r c a t i o n p o i n t , - as p o l i t i c a l a n d e c o n o m i c g o a l , — , Federal R e s e r v e role, 1 - 54, 57, , , , glossary definition, 5 role o f i n c o m e s policies, as h i s t o r y , 4 - influence o n economists, 55 G leads t o m o r e g o v e r n m e n t intervention, Galbraith, J o h n K e n n e t h , 4 , , - , 247 153,154,167,210-11,212 role o f g o l d standard, gasoline prices secular stagnation theory, - 4 0 - 0 increases, - n Great Inflation causes, , a n d M i d d l e East oil supply, - 304 Index defined, 1 - , 5 I Federal R e s e r v e role, - , , 1 , IBM, 155 102-4 immigration, as h i s t o r y , - 4 191-92,242-43 incomes h o m e b u y i n g as i n s u r a n c e a g a i n s t , 2 - inequality, issue in e l e c t i o n , - i n n e w e c o n o m i c order, lessons for today, - 8,180-81,188-93 i n c o m e s policies, , role o f e c o n o m i s t s , - 4 inequality, i n c o m e , as s e l f - i n f l i c t e d w o u n d , inflation 18-19,207 statistics, 2 , , , 8,180-81,188-93 as a f t e r t h o u g h t , , 6 , Great M o d e r a t i o n , , - , , 9 , attempts to legislate, 2 202 benefits o f taming, - See also b u s i n e s s c y c l e s u n d e r Carter, - , - , 6 , - Great Society, , - 6 C o n s u m e r P r i c e I n d e x as i n d i c a t o r , greenbacks, 85 12 Greenspan, Alan, , , - , cost-push versus d e m a n d - p u l l , Greider, W i l l i a m , , n , , defined, , 5 Gross D o m e s t i c P r o d u c t ( G D P ) e c o n o m i c explanation, 145 defined, 5 under Ford, - Friedman's view, , n statistics, - 0 , , - 6 Gross N a t i o n a l P r o d u c t ( G N P ) , n and globalization, , , Grove, Andrew, - i m p a c t o n e x c h a n g e rate, i m p a c t o n people's lives, - H under Johnson, Hacker, Jacob, - Keynes's view, - 2 15-16,94-96 Haldeman, H R., 67 n e e d for controlling, , 2 - Hansen, Alvin, - 4 under N i x o n , , happiness, 1 - outside U.S., - Harris, Seymour, under Reagan, , - , , - , , h e a l t h care, - , 110-11,115,123-24,127-33 health insurance, , , , , , relationship to capitalism, - , 6 191,232 relationship to e m p l o y m e n t , - , , See also M e d i c a i d ; M e d i c a r e 137n-138n Heller, Walter, - , , , , relationship to productivity, - , Hewlett-Packard, 151 r o l e i n e c o n o m i c s o f last h a l f - c e n t u r y , housing 4-11 c o n n e c t i o n o f collapse to Great as s e l f - f u l f i l l i n g , Inflation, , statistics, - 0 , , - 6 impact o f securitization, See also d o u b l e - d i g i t i n f l a t i o n ; G r e a t increase in prices, - Inflation mortgages, , 2 Intel, , subprime mortgages, - , , 9 , interest rates 206n, 2 , 2 impact o f inflation, - H u m e , David, 76 impact o n business, - hyperinflation, - p r i m e rate, 305 Index i n t e r e s t rates (cont'd): K e n n e d y , Paul, raising t o p r e v e n t h i g h e r i n f l a t i o n , - Keynes, John Maynard, - 2 , 51, 5 - , S & L crisis, - 3 , 62,167 K i l b o r n , Peter, 2 statistics o n t e n - y e a r T r e a s u r y b o n d s , Killian, Lutz, 15 1950-2007,260,261-66 K i n g , R o b e r t G., u s i n g to control m o n e y supply, 2 - International Harvester, - K o r e a n War, , , , n International M o n e t a r y Fund (IMF), 120 Kraft, J o s e p h , Internet, Kroc, Ray, 151 12,13,30,144 Interstate C o m m e r c e C o m m i s s i o n ( I C C ) , 108,152n L investment banks, , , , 2 , Lardner, James, , Iran-Iraq War, 17 Lazear, E d w a r d , Iraq War, l l n Lee, Chulhee, 191 legal tender, l e n d e r o f last r e s o r t , 2 , 2 - , 5 - J Jackson, Andrew, 86 Lenin, Vladimir, 20, - 2 Jacoby, Sanford, Lerner,Josh, 197 jawboning, 94, 96 leveraged buyouts (LBOs), , j o b s See Lindert, Peter, 4 - employment Jobs, Steve, 151 Lindsey, D a v i d E , Johnson, Haynes, 39 Lipset, S e y m o u r Martin, - Johnson, L y n d o n B L o n d o n , Paul, , 2 a n d capital controls, n L o w e n s t e i n , R o g e r , 166—67 and Federal R e s e r v e , , and Great Society, , - 6 M i m p a c t o f tax cut, Maisel, Sherman, 80 and inflation, 15-16,94-96 "malaise," , , 1 role o f e c o n o m i c s , , 5 Marshall Plan, 161 and w a g e and price controls, , - Martin, William McChesneyJr., - , Jones, Reginald, , 1 103 J o r d a n , Jerry, 1 Matusow, Allen, 6 , K M c C r a c k e n , Paul, Mayer, Martin, 197 K a h n , Alfred, , McCullough, Hugh, 84-85 Kaufman, Henry, 133 McDonald's, 151 K e m p , Jack, 1 McKinley, William, 87 Kennedy, David, 67 McNamara, Robert, 95 Kennedy, Edward M., 109 M e a n s , Gardner, 153 K e n n e d y , J o h n F Medicaid, , , , 2 , 2 C o u n c i l o f E c o n o m i c Advisers", , Medicare, - , 54, - , , , 65,215,216,226,229-33 Meltzer, Allan, , election of 1960, - Microsoft, 158 tax cut proposal, - Miller, A d o l p h , v i e w s o n b u d g e t deficits, - Miller, G W i l l i a m , 306 101,119 Index mixed economy, 142,155-56 n e w e c o n o m i c s (Keynesianism), , , monetary policy 62-63,71,80, 83,144 defined, - , See also K e y n e s , J o h n M a y n a r d n e w e c o n o m y vs n e w e c o n o m i c order, v e r s u s fiscal p o l i c y , - money 144 bimetallic standard, - Niskanen, William, 115 before Great Depression, Nixon, Richard i m p o r t a n c e o f trust, and Federal R e s e r v e , , - as i n e l a s t i c , 8 gradualism policy, 6 - as m e d i u m o f e x c h a n g e , progressive project, n as s p e c i e , view of unemployment, 49 as s t o r e o f v a l u e , and wage-price controls, - , , , as u n i t o f a c c o u n t , 98-99 in U S history, - n o m i n a l values, defined, See also d o l l a r N o n - A c c e l e r a t i n g Inflation R a t e o f m o n e y illusion, , Unemployment (NAIRU), 73n, 257 m o n e y multiplier, 2 n , , m o n e y supply O controlling, 121-24,130-31,132,133 oil, , , , - , , , , , 2 , defined, 224 Friedman's view, , n See also e n e r g y p r i c e s m o n e y velocity, n , O k u n , Arthur, 5 , n m o n e y - m a r k e t mutual funds, 3 , , 2 o l d order, 7 - M o y e r s , Bill, 1 My Years with General See also n e w Motors (Sloan), economy Olney, Martha, 168-69 Only the Paranoid Survive (Grove), - o p e n market operations, defined, N Orphanides, Athanasios, - , N A I R U See o u t p u t gap, 81 Non-Accelerating Inflation R a t e o f U n e m p l o y m e n t (NAIRU) P n a t u r a l rate o f u n e m p l o y m e n t , , n , Partee, Charles, 256-57 pattern bargaining, , n e w e c o n o m i c order pawnbrokers, Pax Americana, 2 characteristics, - 7 c o m p a r e d w i t h old order, , 7 - P C E Price Index, defined, - conflicting wants, 2 p e n s i o n b e n e f i t s See r e t i r e m e n t b e n e f i t s and e c o n o m i c growth, 168 personal computers, , , evolution, 4 , 5 personal debt, - and i n c o m e inequality, 188—93 Phelps, E d m u n d , , and j o b insecurity, 184—88 Philippon, Thomas, 182 leading e c o n o m i c philosophers, 167 Phillips, A W , moral ambiguity, Phillips C u r v e , , , , paradoxes, - p o t e n t i a l o u t p u t , as e c o n o m i c i n d i c a t o r , 56-57 relationship to old order, - 307 Index Prestowitz, Clyde, 158 Roosa, Robert, 118 pricing power, 31 R o o s e v e l t , Franklin, , - productivity and Fed, - S i m p a c t o f inequality, - S a m u e l s o n , Paul, - , - q u e s t i o n o f future gains, 2 - Sarnoff, D a v i d , relationship to inflation, 28—29, 31 savings a n d l o a n crisis, - 3 , , statistics, S c h i e b e r , S y l v e s t e r J., 2 1950-2007,259,261-66 Proxmire, William, 127n Schlesinger, Arthur, 4 Schneider, William, - Schultz, Frederick H., - , Q Schultze, Charles, 15, , quantity theory o f money, , Schumpeter, Joseph, 167 secular stagnation, - 4 R securitization, - , , - , 9 , 228 Rasche, Robert, 271 Reagan, Ronald Sidey, H u g h , approval ratings, 1 S & L crisis, - 3 , , c o m p a r i s o n w i t h Volcker, 1 - slack, 6 , , Conservative recollections, , n S l o a n , A l f r e d P.,Jr., , c o n t a i n m e n t o f inflation, 41 social contract, , , e c o n o m i c agenda, 1 - Social Security, , , 2 , 2 - and e n d o f double-digit inflation, Solow, Robert, , - 106-7,109,110-11 Sputnik, 51 leadership style, 1 - stagflation, role o f inflation i n his e l e c t i o n , 5, - Stanley Works, - support for Volcker, 1 - , 1 Stein, Herbert, 54, , 6 tax cuts, 1 , 1 Stempel, Robert C , v i e w o f inflation, 115 stock markets 154 "real bills" d o c t r i n e , c o n n e c t i o n to Great Inflation, , , real e s t a t e See h o u s i n g in global e c o n o m y , 2 - real v a l u e , n , and investment syndicates, - recessions, , , , , , n , , , 9 , r e l a t i o n s h i p t o interest rates, - 128-30,179 statistics o n y e a r - e n d c l o s e o f S & P question o f 2008, index, role i n controlling inflation, 2 Volcker-Reagan, 1950-2007,260,261-66 subprime mortgages, - , , 9 , n , 133,140,151,242 221,228 as w a y t o n e u t r a l i z e r i s i n g i n f l a t i o n , - Regan, Donald, 116 retirement benefits, T 185-86,187,188 taxation Reuss, Henry, 126 c o n s u m p t i o n tax, 21 I n , , risk shift, - i n c o m e tax, - 3 Rivlin, Alice, 69 r e c o m m e n d e d changes, - 3 Rockefeller, David, 119 tax cuts, - , 1 , 1 Rockoff, Hugh, 92 tech bubble, , , Rogoff, Kenneth, 41 308 Index Teeters, N a n c y , critics, 1 - T h i r d W o r l d d e b t crisis, description, 3 - Tobin, James, 24, 52, 56, e n d i n g recession, Tocqueville, Alexis de, R e a g a n ' s s u p p o r t for, 1 - , 1 trade deficits, , - , , relationship w i t h R e a g a n , Troy, G i l , taming inflation, - , , 1 , trucking industry, - , n 133,140,151,242 106-7,115 123-24,127-33,134-38,242 T r u m a n , H a r r y S., W U wage-price controls Uchitelle, Louis, , u n d e r Carter, unemployment and C o u n c i l o f E c o n o m i c Advisers, in early s , 1 , 1 93-94 frictional, n under Johnson, , - in July J o h n s o n administration j a w b o n i n g , 1980,126 under N i x o n , , 94-96 relationship to inflation, - , , under N i x o n , 137n-38n 67-68,69,91,98-99 wartime, - in 1950s, - , Wal-Mart, , statistics, - 0 , , - 6 wartime w a g e - p r i c e controls, - trends, - 8 w e a l t h effect, , 2 unavoidable, n Weitz,EricD.,21 See also full e m p l o y m e n t Welch, Jackjr., 168 welfare capitalism, unions, , - , , - , - , , w e l f a r e state 155 U S Treasury securities n e e d for s t e m m i n g m o u n t i n g costs, 229-33 F e d purchases for b a n k reserves, T r e a s u r y b o n d statistics, - 0 , as t h r e a t t o e c o n o m i c g r o w t h , , 215-18 260,261-66 White, Theodore, 26 Treasury b o n d versus stock e x a m p l e , W h y te, W i l l i a m , 35-36 Wicker, T o m , 101 V Wilk, Michael, 135 Valletta, R o b e r t G., Williams, John C , 82 v e l o c i t y o f m o n e y See m o n e y v e l o c i t y W I N ( W h i p Inflation N o w ) buttons, - v e n t u r e capital, , , World Bank, , V i e t n a m War, 1 , , , - , , , 6 , World War 1,92 69,72 W o r l d W a r II, - , - , Volcker, Paul background, 118 Yankelovich, Daniel, - Carter's c h o i c e f o r F e d c h a i r m a n , Yardeni, Edward, Yergin, Daniel, - 118-20 Y o m K i p p u r War, 16 comparison with Reagan, 1 - 309 ABOUT ROBERT J SAMUELSON THE AUTHOR has written a column for The Washington Post since 1977 and for Newsweek since 1984 He has received numer­ ous journalism awards and is the author of The Good Life and Its Dis­ contents: The American Dream in the Age of Entitlement, 1945—1995 A collection of his columns, Untruth: Why the Conventional Wisdom Is (Almost Always) Wrong, was published in 2001 He and his wife, Judy Herr, have three children and live in Bethesda, Maryland ABOUT THE TYPE This book was set in Bembo, a typeface based on an old-style Roman face that was used for Cardinal Bembo's tract De Aetna in 1495 Bembo was cut by Francisco Griffo in the early sixteenth century The Lanston Monotype Company of Philadelphia brought the wellproportioned letterforms of Bembo to the United States in the 1930s ... America and abroad—that the great- power status of the United States was ending The Great Inflation and Its Aftermath traces the origins and rise of doubledigit inflation and its fall in the brutal... S C A T A L O G I N G - I N - P U B L I C A T I O N DATA Samuelson, Robert J The great inflation and its aftermath : the past and future of American affluence / Robert J Samuelson p cm Includes... XXll THE GREAT INFLATION AND ITS AFTERMATH THE LOST HISTORY i H istory is what we say it is If you asked a group of scholars to name the most important landmarks in the American story of the past