Remedies for modern inflation

Anybody who remembers the 1970s remembers the Great Inflation, when retirees on fixed incomes struggled to make ends meet.

They probably also remember what happened next, when the Federal Reserve under Paul Volker tightened the money supply, driving down prices by driving down the economy, forcing two recessions that lowered consumer spending and increased unemployment.

For the last four decades, inflation has been not much more than a bad memory for most people. This year, however, it has reappeared as a cause for concern. Fear of a return to 1970s-style inflation is driving calls for a retreat from the free-spending goals of the Biden administration, which some Republicans claim have overheated the economy. They are calling for Federal Reserve Chairman Jerome Powell to do what Volker did, and raise interest rates to cool demand. That would be a mistake.

The circumstances driving this economy are much different from those in the 1970s, and the kind of inflation that persisted then is not likely to come back.

Powell is right to reassure lenders that he’ll take action if inflation spirals out of control, but we are nowhere near that point.