Myself, I attribute the Great Inflation to self-perpetuation. For example, I heard on the news once -- years back, and only once -- that the rising price of oil just compensated for prior inflation. (David Glasner points out that "the Arab oil embargo did not take place until late in 1973 when inflation, wage-and-price controls notwithstanding, had already surged well beyond acceptable limits".)
But self-perpetuation does not explain how the inflation got started. Wages were often blamed, wrongly I think. And yes, sometimes, "guns and butter" gets the blame. But I say it was the rising cost of finance that got inflation going. I don't think anyone ever agrees with me on this, but that doesn't make me wrong.
3 comments:
Time magazine, 31 December 1965:
"The economic policies of 1966 will be determined most of all by one factor: the war in Viet Nam. Barring an unexpected truce, defense spending will soar so high —by at least an additional $7 billion—that it will impose a severe demand upon the nation's productive capacity and give body to the specter of inflation."
agreed. inflation is a positive feedback loop. As it amplifies, more amplification inputs get added...eventually, it's on the front page of Time.
Thanks, Anon.
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I have an old book with a reprint of "Guns and Butter -- Failure of a Policy" from the 12 Feb 1968 issue of U.S. News & World Report. Here is the opening:
"Vietnam is forcing some second thoughts about the idea that war could be won under a 'Do Not Disturb' sign at home. Goal of 'business as usual' in the United States in the midst of faraway combat is going by the board. Policy looked good on paper, but --
'Taps' appears to be sounding for one policy on which President Johnson has rested his full first term in the White House.
The policy: to fight a war -- to have 'guns' in abundance -- and at the same time to have 'business as usual,' giving people all the 'butter' they want.
Ever since 1965, when the decision was made to go into Vietnam with a major military operation, the plan in Washington has involved an effort to mix guns and butter.
That effort today is being reassessed."
That, from the February 1968 article. And according to Sumner there was a tax hike in 1968. (BTW the budget was balanced in 1969.)
Already by 1968, they were holding "guns and butter" responsible for the inflation. My guess: There was not a lot of analysis done to discover the true first cause that started the inflation. I say again, it was the rising cost of finance that got inflation going.
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The book, from 1972, is Stabilizing America's Economy, edited by George A. Nikolaieff.
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