Economy

http://www.theatlantic.com/business/archive/2013/05/this-is-the-biggest-mistake-60-year-old-men-make-about-the-economy/275954/

I checked, and re-checked, and triple-checked, and I can confirm that it's not 1979 anymore.

Now, that shouldn't be too surprising -- I'm not writing this on an Apple II, after all -- but it is to a generation of men (and yes, they are all men) who think stagflation is always and everywhere a looming phenomenon. No matter how low inflation goes, they see portents of Weimar. But that neverending 70s show isn't just a phobia of rising prices. It's the idea that the solution to economic pain is more pain. In other words, Volcker-worship.

Stagflation wasn't supposed to happen, but it did. Economists had thought there was a stable relationship between higher unemployment and lower inflation -- the Phillips Curve -- that broke down in the 1970s: prices rose, but so did joblessness. It broke down because people started to expect more inflation the more inflation there was. This cycle of ever-rising prices got going with too loose monetary policy, and continued with the oil shocks. The former started when Richard Nixon pressured Fed Chair Arthur Burns into lowering rates in the runup to the 1972 election, and the latter turned commodity inflation into wage inflation due to widespread cost-of-living-adjustment contracts. It wasn't until Jimmy Carter appointed Paul Volcker to run the Fed in 1979 that things began to turn around. After unsuccessfully trying to target the money supply, Volcker decided to jack up interest rates, and keep them there, until inflation came down. It worked.

But whipping inflation didn't exactly make Volcker popular in the short run. It took what was at the time the deepest recession of the postwar period to bring down people's inflation expectations. Out-of-work homebuilders sent two-by-fours they no longer needed to the Federal Reserve; farmers barricaded it with their tractors. In other words, it was the paragon of what Very Serious People think about when they think about "leadership": inflicting pain today for a better tomorrow. It just so happened that in this case, it was the right thing to do.