Stagflation in the 1970s


In my continuing efforts to research the cause of the inflation of the 1970s, I have found the article Stagflation in the 1970s. This may put an over emphasis on Nixon as to what started it all, but I think it does add some valid points.

By 1971, pressures produced by the Vietnam War and federal social spending, coupled with the increase in foreign competition, pushed the inflation rate to 5 percent and unemployment to 6 percent. President Richard Nixon responded by increasing federal budget deficits and devaluing the dollar in an attempt to stimulate the economy and to make American goods more competitive overseas. Nixon also imposed a 90-day wage and price freeze, followed by a mandatory set of wage-price guidelines, and then, by voluntary controls. Inflation stayed at about 4 percent during the freeze, but once controls were lifted, inflation resumed its upward climb.

At least it does mention the pressures of the Vietnam War. I have blamed LBJ for refusing to inconvenience the civilian population by raising taxes. Raising taxes would have prevented the civilian population from tying up resources that civilians wanted to use in their daily lives. Increased taxes would have allowed LBJ to divert resources to the war effort without causing inflation. What he left as a result of his policies was the government competing against the private sector for the same resources. This is one of the situations that tends to cause inflation.

Of course, one should not forget the way that Richard Nixon’s administration continued the war, and even escalated it despite promises of winding it down.

Thinking of the economic situation of today, there is such underemployment and idle resources that the private sector is not using, that the same competition between the government and the private sector is not happening. Thus, unfortunately, <sarcasm>we can afford costly wars without creating inflation even though we cut taxes. Income inequality has a neat way of keeping the money out of the hands of the people who would actually need to spend that money and cause inflation if we didn’t cut back on the wars. So it all works out in the end.</sarcasm>

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