Anti-Inflation Program: Voluntary Wage And Price Guidelines (Jimmy Carter)

PBS ^ | 10/24/1978 | Jimmy Carter

[FreeKeys]

He never seemed to believe in America or Americans

The man who paved  the way for Iran's  ayatollahs,  Venezuela's Chavez and North Korea's nuclear program

[remember]

Thought you might want to read this per our previous conversation.

Thanks. The speech actually seems pretty reasonable up until he mentions the voluntary wage and price standards and ways in which the government would put pressure on the private sector to accept them.

[remember]

Wait a minute, didn't Carter practically invent inflation?

True. As the following graph shows, the M2 money supply and inflation began increasing in the sixties, in mere anticipation of the Carter presidency.

[Moonman62]

It's amazing what a growing stock market and a growing GDP will do to both the money supply and the CPI, both in the 1920's and the 1980-1990's. One has to wonder why the Federal Reserve would remove liquidity in order to stop it both times. I wonder if the myth that economic growth causes inflation will ever die.

[Moonman62]

Thanks. The speech actually seems pretty reasonable up until he mentions the voluntary wage and price standards and ways in which the government would put pressure on the private sector to accept them.

As I said in another post, I couldn't believe he said that tax cuts are inflationary. He already had inflation, the cause must have been something else that had already occurred. It surely wasn't tax cuts.

Continuing our conversation from a previous thread. Carter inherited some problems, but so did Nixon, Ford and Reagan. I happen to think that Ford put us on to the path of recovery, but Carter ruined it. As noted there was a big jump in spending in the 1960's. Part of it was the Vietnam war, the Great Society, the Cold war, the space program, and I'm sure all sort of other wasteful programs that politicians love. We'd also spent quite a bit rebuilding the areas destroyed by WWII.

During the time from WWII to the early 1970's we were on the Bretton Woods foreign exchange system. The gist of it was that holding dollars was as good as holding gold, because dollars were exchangeable by member nations at a fixed price into gold. This led to a large amount of confidence in US debt, and the government was able to borrow and spend like never before in the 1960's. By the 1970's the fixed price of the dollar in gold and the market price for gold began to develop a gap. Nations that held dollars, concluded that they'd never get the conversion promised, so they demanded an immediate conversion with france leading the way. Nixon's only way out was to devalue the dollar and end the Bretton Woods system. Thus began the inflation of the 1970's. Nixon's price controls didn't help, but we also had the oil embargo, which really caused problems. People assume it was all because of our support for Israel, but it was more than that (not every OPEC member is Arab either). OPEC didn't like our dollar devaluation (they are paid in dollars). The OPEC nations also held a grudge from the past when they considered themselves exploited by the West. Plus we were vulnerable, and my suspicion is that france put them up to it, and they probably got quite nudge from the Soviet Union, too.

[remember]

As I said in another post, I couldn't believe he said that tax cuts are inflationary. He already had inflation, the cause must have been something else that had already occurred. It surely wasn't tax cuts.

Looking above at the excerpt of Carter's speech that you posted, he said the following:

Restraint involves tax policy as well as spending decisions. Tax reduction has never been more politically popular than it is today. But if future tax cuts are made rashly, with no eye on the budge deficits, they will hurt us all by causing more inflation.

There are tax cuts which could directly lower costs and prices and help in the fight against inflation. I may consider ways to reduce those particular taxes while still cutting the budget deficit, but until we have a convincing prospect of controlling inflation, I will oppose any further reductions in Federal income taxes.

Hence, he did specify that it tax cuts made "rashly" that increased the budget deficit that were inflationary. In addition, he stated that there were some tax cuts that could help in the fight against inflation though he did not really specify what types of tax cuts those might be. Still, I will concede that not all tax cuts that increase the deficit are inflationary, at least not immediately. According the the current administration's own figures, some sizable portion of the current deficit is due to the tax cuts. However, inflation is still well in check (assuming the government's figures are accurate). The tax cuts will definitely increase the debt, at least in the short term. However, there has been no discernable effect on inflation.

On the topic of Carter, I did just see the end of a television interview with him (he's currently plugging a new book). The interviewer mentioned something that I wasn't aware of. It seems that Carter served the second longest in the military of any President since those who served in the Civil War (the first, of course, was Eisenhower). Carter served 11 years in the Navy.

[Moonman62]

Thanks for pointing that out. I guess my own prejudice prevented me from seeing that. Still, look at how he was focused on lowering costs. He should have focused on economic growth instead.

[Moonman62]

As to what causes inflation, I've looked at historical data and there are some major events that really pop out: war, price controls, and currency manipulation usually in combination with huge amounts of government spending. 1946 saw our highest rate of inflation in modern times, 26%. That was the year that WWII price controls were lifted.

I've never seen an instance where economic growth in a market economy, or tax cuts caused inflation.

[remember]

As to what causes inflation, I've looked at historical data and there are some major events that really pop out: war, price controls, and currency manipulation usually in combination with huge amounts of government spending. 1946 saw our highest rate of inflation in modern times, 26%. That was the year that WWII price controls were lifted.

I've never seen an instance where economic growth in a market economy, or tax cuts caused inflation.

One cause of inflation that has always seemed very understandable is the increase in the money supply. When prices are affected by a temporary event (such as price controls), it would seem likely that they would tend to revert to the norm once that temporary condition ended. But when you increase the money supply permanently, you'll forever have more dollars chasing the available goods. Of course, the money supply can increase as fast as productivity with no ill effects. If twice as many dollars are chasing twice as many goods, it would seem that prices would tend to remain stable. Anyhow, I originally created the above graph to test that possibility.

It was only some time later that I noticed the correlation with wars. The five major spikes in the inflation occur at the end or shortly after the War of 1812, the Civil War, the First World War, the Second World War, and the Vietnam War. This shows how many of the events that correlate with inflation may be related. For example, wars bring greatly increased spending, which prompts the government to speed up the growth in the money supply, which leads to some inflation, which sometimes tempts the government to implement price controls or engage in currency manipulation. Of course, I don't mean to imply that the relationship is that simple, just that there are relationships there.

[AnimalLover]

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[Moonman62]

Don't leave out the Revolutionary War. That was the only time in our history that there was hyperinflation, and the government was bankrupt toward the end. During the war, the Brits had special ships that were printing our currency.

An interesting observation is how quickly prices returned to normal after the war. That's usually the case after these periods of inflation. The exception being the inflation of the 1970's.

[remember]

Don't leave out the Revolutionary War. That was the only time in our history that there was hyperinflation, and the government was bankrupt toward the end. During the war, the Brits had special ships that were printing our currency.

I didn't have data that went back that far. However, I did run across an interesting graph at http://oregonstate.edu/Dept/pol_sci/fac/sahr/pll1665.htm that goes back to 1665.

An interesting observation is how quickly prices returned to normal after the war. That's usually the case after these periods of inflation. The exception being the inflation of the 1970's.

Actually, the aforementioned graph seems to show that prices tended to return to normal up until the First World War. After that, we seemed to enter a period of constant inflation and we simply returned to the "normal" rate of inflation after the Second World War and Vietnam War. I did note an upward trend in inflation over the long-term in the graph that I posted above. However, I may try graphing the CPI on a logarithmic scale at some point to verify the graph at the aforementioned URL.