Research Paper about Inflation

In October of 2021 inflation hit a high that had not been seen in almost 3 decades. Prices for energy and food were the most prevalent to increase from last October to this year (Elving 2021). Inflation is the general decrease of the purchasing power of money and an increase of goods and services prices. Since the consumer price index1 (CPI) was released, many economists accredit this high to the COVID-19 pandemic and its underlying effects. A published article written by Ron Elving reports on the recent inflation surge by looking back at recent history and how it impaired previous presidents. The core purpose of this paper is to look at modern history and review the macro-economic factors past presidents additionally had to experience because of high inflation. 

Looking at the Past 

Jumping back to the early 1970s President Richard Nixon was in the mist of The Vietnam War, which he knew would eventually lead to inflation motivated by overspending during the war and social programs put in place a decade before. During his first year as president the CPI rose to 5.8% and rose another .3% his second year to 5.8% (Elving 2021). Due to this the Federal Reserve Board (the Fed), which is the central bank of the U.S. and operates to successfully run and promote the U.S. economy, (Board of the Governors of the Federal Reserve System, 2021) implemented a restrictive monetary policy. This implementation saw a decrease in the money quantity in the economy, which adjacently decreased the Gross Domestic Product (GDP) of the country. Nixon opposed this decision so in August 1971 he enacted price and wage controls which were celling’s put in place to limit the increase in both price and wages to help restrain inflation. While in the short run his income policy worked and helped keep inflation at just 3% in 1972, but by 1973 the policy had concluded, and the CPI had doubled to 6.2% and by 1974 it had jumped to 11.1% (Federal Reserve Bank of Minneapolis, 2021). Nixon was never able to salvage the inflation that was plaguing the country due to his resignation in 1794. 

Nixon was promptly followed by his vice president, Gerald Ford. President Ford promoted an initiative called “Whip Inflation Now” or WIN (Elving 2021). WIN advocated for citizens to make disciplined fiscal decisions; this untimely didn’t do much as inflation still averaged around 9% during his term hitting a peak of 12% as well. (Elving 2021). 

After Ford ultimately failed to get inflation under control, President Jimmy Carter was elected president during a time known as “stagflation” which is defined as “a period of inflation with declining economic output” (Garber 2021). Because of the oil price shock that took place because of oil workers going on strike, inflation and unemployment rates were back up in the double digits during his term. Carter appointed Paul Volcker chair of the Fed, with Volcker’s new power he raised banking interest rates very steep with the intent to drain investments and hit economic growth (GDP). Many Americans lost their jobs and business were hurt because of this policy, although Volcker’s knew the implications, his plan was to confront inflation head on to get inflation and unemployment under control. 

With another president defeated and out the door, President Regan was elected and was the new voice of reason for the economy. Although unemployment and loans reached levels not seen since the Great Depression just like his predecessor, Regan stuck with Volcker and by 1983 inflation rates began their fall (Elving 2021). As inflation slowly fell so did the interest rates and it wasn’t long after that unemployment rates were dropping too. 

Back in the present the 6.2% inflation jump is the highest we have seen since 1990 when President George H.W Bush organized a union to evacuate the Iraqis from Kuwait that were disrupting the oil market of the world. Due to this conflict a global recession was felt heavily in the U.S.  

Is Present Day Inflation Substantial?

In the Article “Inflation is at 30-year highs. Here's how it's hurt past presidents” the writer does acknowledge a high in inflation rates in present day times, but there are some who argue that there is no significant inflation in sight. Some compare the pandemic to a genuine warfare, the kind of combat that usually does lead to inflation like the Vietnam War for example. Nevertheless, the great difference between these two fights is the actual crash of the supply chain in an economy due to shortages that rise the prices in an actual war. The pandemic a “figurative war” being fought on the other hand has left this whole side of the economy intact, during the pandemic the opposite occurs where demand takes most of the hits. Chief Asia Pacific economist, Alicia Garcia Herrero says, “Capital is not destroyed or depleted, so it is much easier to end up with excess,” meaning industries can produce more than is being produced now being that inflation is low.