the last years of the Vietnam war. But inflation exceeded those issues in the breadth of concern it has aroused among Americans. It would be necessary to go back to the 1930s and the Great Depression to find a peacetime issue that had the country so concerned and so distraught. From the public's point of view, it [seems] an intractable problem... .8

At the time,Yankelovich's assessment was uncontroversial. People took it for granted. Now, it seems astonishing—inflation more upsetting than Vietnam or Watergate? How could that be? Those traumatic events remain deeply lodged in public memory, while inflation has mostly vanished. But what distinguished rising inflation from Watergate, Vietnam or even a sharp recession was that it directly affected almost everyone: workers, shoppers, retirees, small businesses, big businesses, state and local governments, nonprofit organizations, the national government. Everybody had to pay higher prices. Some might win from inflation; some might lose. The process seemed capricious and unpredictable. It threatened, or seemed to threaten, people's living standards, their savings. It seemed to envelop the future in a thick, impenetrable fog.

These fears, of course, were not unique to Americans. Lenin is reputed to have said that the best way to destroy a capitalist society is to debauch its currency—indeed, it's probably the best way to destroy any society, because high inflation arrays a government against its citizens. In a recent book, the Swiss economist Peter Bernholz counted twenty-nine hyperinflations in the modern era (basically: since the French Revolution), with hyperinflation arbitrarily defined as price increases of at least 50 percent a month. Among the worst was the German hyperinflation of 1920-23, reaching a unfathomable monthly rate of almost 30,000 percent. At levels well below these, inflation destroys both the economy and public trust. Private virtues—hard work, saving, planning ahead—are neutralized, because savings can be rendered worthless and hard work becomes pointless when pay depreciates so rapidly in value. People devote more time to spending their earnings quickly—as opposed to working and producing—before the paper money becomes entirely useless. In Germany, people carted currency in suitcases and wheelbarrows. Although money was ultimately stabilized, Germany's fledgling democracy (the Weimar Republic) never fully regained "the trust of the middle class that had lost so much to inflation," notes historian Eric D. Weitz.9

Even at much lower levels, inflation is profoundly disorienting, because people fear that they can't keep up with prices (even if they often can) and worry that they are losing ground to others who have better protection or who are luckier. Ironically, it was the English economist John Maynard Keynes who best explained inflation's socially corrosive effects. (The irony arises because the U.S. economic policies that led to high inflation were justified in his name. Keynes died in 1946, and so we can never know whether he would have endorsed the policies labeled "Keynesian." Lenin's observation also came from Keynes; there is no independent source.) Initially, Keynes argued, rising inflation stimulates economic activity because businesses assume that the higher prices signal more demand for their products Companies invest and hire more. But soon, inflation disrupts established social and economic relationships. Here is Keynes's central insight:

[W]hen the value of money changes, it does not change equally for all persons and purposes. A man's receipts and his outgoings [incomes and expenses] are not modified in one uniform proportion. Thus a change in prices and rewards, as measured in money, generally affects different classes unequally, transfers wealth from one to another, bestows affluence here and embarrassment there, and redistributes fortune's favors so as to frustrate design and disappoint expectation.10

Keynes's perception explains why high inflation is so threatening to middle-class societies. It makes social and economic advance seem a lottery—a lottery that's constantly being replayed so that winners in one round could become losers in the next. Even for those with jobs, it seems to reduce or deny control over their own destinies. Americans increasingly felt that way. In 1973, the CPI rose 8.7 percent; but hourly wages went up only 6.2 percent. Some price explosions triggered public protests. In early 1973, meat prices rose at a scorching annual rate of 75 percent (price controls had just been lifted). Shoppers reacted by staging a weeklong beef boycott; meat sales temporarily dropped by two-thirds. Americans tried to protect themselves against inflation through both public policies and private hedging. By 1975, about 60 percent of union contracts indexed wages to the CPI—as the CPI rose, wages followed. Earlier (in 1972), Congress indexed Social Security benefits to inflation. More families bought homes as inflation insurance. A Harvard economics professor told Peter Kilborn of The New York Times: "I see it in the young folk around here, the nontenured faculty. They're buying houses at high prices and taking big mortgages. They wouldn't do it if they weren't counting on inflation."11

Mostly, Americans were discouraged. Since 1935, the Gallup Poll has regularly asked respondents "What do you think is the most important problem facing the country today?" In the nine years from 1973 to 1981,"the high cost of living" ranked number one every year. In some surveys, an astounding 70 percent of the respondents cited it as the major problem. In 1971, it was second behind Vietnam; in 1972, it faded only because wage and price controls artificially and temporarily kept prices in check. In 1982 and 1983, it was second behind unemployment (and not coincidentally, the high joblessness stemmed from a savage recession caused by inflation). There was a term to describe the stubborn mixture of high inflation, modest economic growth and high unemployment—"stagflation." The columnist Joseph Kraft was among the first to use it. Writing in the Feburary 25, 1971, Washington Post, he said, "the core of stagflation is a sluggishness in economic activity. Unemployment is 6 percent. .. . [The economic] slowdown was at least partially caused by administration actions to restrain inflation. But the rise in consumer prices has not been cut very much. In 1969, the consumer price index rose 6.6 percent. Last year it rose 5.5 percent."12

Among government officials, there was indeed a widespread fatalism about reducing inflation. President Carter often seemed forlorn at the prospect. Early in 1980, he was asked at a press conference what he planned to do about inflation. He replied:"It would be misleading for me to tell any of you that there is a solution to it. As you know, this is a worldwide, all-pervasive problem with oil prices having been increased 100 percent during the last 13 or 14 months." His resignation was common. Inflation had so insinuated itself into the fabric of everyday life, the thinking went, that it could not be easily extracted. The standard remedy would be a horrific recession, or a depression, that would reduce wage and price increases. Conventional calculations suggested that a one percentage point rise in unemployment (say, from 6 percent to 7 percent) would reduce inflation only by half a percentage point (say, from 8 percent to 7.5 percent) over a year. To lower prevailing inflation (about 8 percent in early 1979) significantly would "take either an enormous recession or an extraordinarily long one," wrote one well-known economist at the time. The "staggering human costs" signified that "it would probably be precluded politically."13

Inflation was rationalized as a reflection of the deeper ills of American society. It was not a cause of our problems; it was a consequence of our condition. Specifically, it was said to show that the nation was becoming ungovernable. Americans had more wants (for higher pay, more government programs, a cleaner environment) than could be met. Inflation "is the symptom of deep-rooted social and economic contradiction and conflict, between major economic groups claiming pieces of the pie that together exceed the whole pie," wrote Yale economist James Tobin, a former adviser to President Kennedy who had advocated the policies that accelerated inflation. Alfred Kahn, a Cornell University economist and top Carter inflation aide, expressed a similar view. "Can a democracy discipline itself?" he asked. "The problem in our economy is that we have persistent, well-organized pressures by each individual and group to preserve his or her absolute position regardless of what happens to the country as a whole." Inflation was portrayed as an impersonal way to regulate this competition. Some groups would get ahead; others would fall behind.14

In some ways, the apex of national pessimism occurred in July 1979, when Carter, his popularity sinking, addressed the nation. The talk was subsequently dubbed the "malaise" speech, though Carter never actually used that word. The president spoke of a "fundamental threat to American democracy ... a crisis of confidence":

Confidence has defined our course and has served as a link between generations. We've always believed in something called progress. We've always had a faith that the days of our children would be better than our own. . . . Our people are losing this faith____For the first time in the history of our country, a majority of our people believe that the next five years will be worse than the past five years.15

But Carter did not attribute this loss of faith to the rise of inflation. Though much of his speech concerned energy policy— among other things, he proposed subsidies for synthetic fuels—his basic diagnosis of the country's spiritual crisis was, paradoxically, that Americans were too concerned with "progress," or at least material progress. "In a nation that was proud of hard work, strong families, close-knit communities, and our faith in God, too many of us now tend to worship self-indulgence and consumption," he said. "Human identity is no longer defined by what one does, but by what one owns. But we've discovered that owning things and consuming things does [sic] not satisfy our longing for meaning. We've learned that piling up material goods cannot fill the emptiness of lives that have no confidence or purpose." Government thereby escaped much responsibility for the nation s state of mind. Growing pessimism reflected individual failings.

All these somber musings were, up to a point, believable. Certainly, persistent federal budget deficits attested to politicians' tendency to promise more—more programs, more tax cuts, more individual benefits, and balanced budgets—than they could deliver. Certainly, many Americans craved spiritual meaning. But in the end, these theories were not so much explanations of the country's mood as excuses not to do anything about inflation, and the point at which they became less believable was the 1980 election. "By the summer of 1979, no other issue could rival inflation as a pressure on the American mind, its mood and family planning for the future," the political writer Theodore H.White later observed. Prices were routinely rising at double-digit annual rates, more than twice the 4.9 percent inflation in 1976 inherited by Carter.

Ronald Reagan won in a near landslide—50.7 percent of the popular vote against Carter's 41 percent and "independent" John Anderson's 6.6 percent. Inflation was the dominating concern. Voters didn't know that Reagan could control it; but they did know that Carter couldn't. Later, Carter himself judged that inflation had been the decisive issue against him, more important than his mishandling of the Iranian hostage crisis.* Exit polls showed that

* On November 4,1979—after the shah of Iran had fled into exile and been replaced by a new revolutionary government—young "revolutionaries" seized the U.S. embassy. Carter was unable to secure the release of

47 percent of Reagan's voters rated "controlling inflation" as the most important issue, followed closely by 45 percent who valued "strengthening America's position in the world." (Voters were asked about what one or two issues mattered, so more than one answer was possible.) In the Gallup Poll in September, 58 percent rated inflation as the number one problem. In other ways, Carter s economy hadn't performed so badly; it had, for instance, created eleven million jobs since his election.16

The acute public anxieties of the late 1970s, it turned out, did not spring from a spiritual void or unresolved group conflicts. They came from inflation and its side effects. Once high inflation had been suppressed—that is, once Reagan had chosen to endure the bruising recession that economists had said was politically impossible—the public's mood improved noticeably, even though unemployment declined only slowly. From a peak of 10.8 percent in late 1982, it still averaged 7.5 percent in 1984. But Reagan was easily reelected, and his campaign slogan of "It's morning again in America" was essentially a victory cry over inflation. It signified order and optimism, a sharp contrast to the mood four years earlier.

One study of public opinion surveys found that almost 60 percent of the decline of public confidence in national institutions (government, business, labor) in the 1970s reflected higher inflation and unemployment—and inflation dominated. Wrote public opinion analysts Seymour Martin Lipset and William Schneider: "A high the fifty-two hostages, a failure widely seen as humiliating to the United States. The hostages were released on January 20,1981, the day of Reagan's inauguration.

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, for the economy ... Inflation, more than anything else, created the infamous, albeit temporary, 'malaise' of 1979." (The italics are in the original.) The "malaise" was man-made.17

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