Inflation is in the headlines again, after a long absence. For me, this brings back unpleasant memories, because I lived through the "stagflation" of the late '70s and early '80s. The rising prices of that period made it harder to develop my first small business, and affected our lives in a lot of ways.
But the roots of the problem actually began much earlier. In 1933, the Roosevelt administration barred Americans from owning gold (an exception was made for jewelry, which is often plated rather than solid). At that time, the official price of gold was $20.67 per ounce. The following year, the government reset the relationship of the dollar to gold to $35 an ounce--reducing the value of the dollar by 40%.
In the 1960s, President Lyndon Johnson made the decision to pursue two expensive goals at the same time--the escalation of the US involvement in the Vietnam War, and his "War on Poverty" programs. This stepped up the pattern of government deficits--expenditures exceeding revenue--that we have lived with for nearly all the years since--you don't even need two hands to count on your fingers the number of years where the US budget was balanced. Ever since then, the government has spent more than it received in taxes, and financed the deficit with debt. For most of US history, the government mostly ran deficits during wars, and ran a balanced budget during times of peace.
Johnson's successor, Richard Nixon, took the US off the gold standard completely in 1971. That action, plus outside factors like the 1973 Arab Oil Embargo, set off a long-term inflation that we still live with today. In recent years, the Federal Reserve system has set a target of 2% annual inflation--they regard that as desirable. That allows our money to lose only a third of its value in five years!
Today, April 4, 2022, the price of gold is $1931.95 per ounce--96 times what it was in 1933! Yes, Americans are allowed to own gold again (if they can come up with the money to pay for it). But the value of the dollar is what we have to live with. And that affects the prices we have to pay for the things we need.
What difference does this make on the commodities we actually use? I am old enough to remember what those old prices were. When I was learning to drive a car in 1966, you could buy gas for 29 cents a gallon. You could buy a brand-new car for about $2000. You could get a Milky Way or Three Musketeers candy bar for five cents. Yes, wages were lower then--but you could buy more with what you earned. When I was first married, I had a minimum wage job at $1.60 an hour--but if I worked 40 hours a week, we could live on that, because of the low costs for rent, gas, cars and food.
Housing costs and rents were lower then. My parents bought a brand-new house in a fast-growing suburb on the north side of Cincinnati in 1962. The price of the house was $16,000. It was typical of the time--about 1200 square feet, 3 bedrooms, one bath, full basement, attached one-car garage (most families only had one car back then). In 1970, my bride and I rented a one-bedroom apartment for $110 a month. Later we moved into another one that was only $100 even. When we moved to Indianapolis for a year in 1973, we got a two-bedroom apartment with laundry hookups for $150 a month.
In some of these areas, there have been other factors besides inflation affecting prices. Cars in the 1970s were simpler--most had no air conditioning, no electric locks or windows, simple AM or AM/FM radios, no tire pressure monitors and so on. New houses have gotten bigger--"master suites" with private bath for the parents and a separate one for the kids (maybe even a half-bath downstairs for guests). Two and even three-car garages are expected these days. Building codes have gotten more complex--demanding changes in wiring and plumbing from the old days. But the cost of housing rose. In 1977 I bought my first house for $17,000--a run-down 50-year-old house in an older neighborhood. By then, new houses were costing $28,000 or more. Now, the median price for a new home in the US is $400,000. My second house, which I bought in 1979 for $31,000 (built in 1913, a bit larger, brick, but still needing a lot of fixup--I cashed it out in 1990 for $60,000) sold a few years ago for over $200,000.
So the high inflation of the '70s and '80s was not fun to live through. And I am not real pleased to see it apparently returning. It looks like the people running our government are just as stupid now as they were fifty years ago.
I saw an item on the news this morning that Putin has put Russia back on the gold standard--they have set a price of gold for the ruble, the Russian currency. I am not a Putin fan, nor do I have much trust in him. But in the area of finance, he may be a bit smarter than our own politicians.
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