“Inflation is as violent as a mugger, as frightening as an armed robber and as deadly as a hit man.” — Ronald Reagan
I graduated from college and began my career in 1979. Inflation had been out of control since the first oil shock in 1973. Jerry Ford, despite a well-intentioned attempt to Whip Inflation Now, had not.
Salaries for graduating engineers had been on an escalator since 1973. That year the average graduate with an engineering degree was getting an average annual salary of about $12,000. My first job paid $18,500 in 1979. Even that was not enough to keep up with inflation during the Carter years, when Jimmy simply gave up on taming inflation. Mortgage interest rates soared from 8% for a 30-year fixed to 12.5% when Janet and I bought our first house in 1980. At that, we counted ourselves lucky. A month later, it briefly touched 18%.
For a couple starting out of college, inflation made everything difficult. We did not have student loan debt. (Yes, children, back then you could go to an “expensive” university like the University of Michigan-Ann Arbor and pay for it with part-time and summer jobs. Tuition was still reasonable. Griggs was new enough that colleges had not yet realized how much they could jack up tuition rates.) With a house and car loan, and inflation relentlessly raising prices, it was almost impossible to save. We did save some, freeing the money by eating fry bread and beans a lot of meals. But even there, you would put it in the bank and watch it shrink.
One of the things that Reagan did that made him great was to actually tame the inflation dragon. It was painful. (That was part of the reason for the 18% mortgage interest rates.) There was a recession that lasted almost two years. But he had the courage to do it, and two years after that, by 1984, it was Morning in America rather than Orwell’s Oceania.
Despite the good economic times that followed, Janet and I did not fully recover from the bad start forced on us by the 1970s inflation until 2011, over 30 years after I entered the workforce. We were severely hampered by a lack of working capital and savings. We had some, but only enough to cover a short period of unemployment. We had to forego a lot of investment opportunities because it would tie up money we needed for emergencies. Not that we were living on beans and fry bread, but we had to be really careful with money since our financial safety net was inadequate. Our friends a few years older or younger did not experience the same issues. Lower inflation rates in the early-’70s and mid-’80s meant they could actually accumulate an early career nest egg.
I see this happening again. I cannot say I am completely inflation-proof today, because inflation will reduce the value of my savings and salary. But I can say it is unlikely to keep me from living the lifestyle to which I have grown accustomed, due to low debts and high accumulated assets. Similarly, my adult children have their careers launched and have the financial airbags that Janet and I lacked at that stage of our lives.
Still, I worry about its effects on those just starting, folks like Janet and me in 1979, that want to work hard, start families, and seek their piece of the American dream. I wonder how badly inflation will blight their efforts. What is worse, when it comes to inflation, Biden is not taking the steps necessary to contain it. Instead, he is ignoring it, like someone who had early-stage cancer and won’t go to the doctor until it is too late to treat.
Reagan tamed the inflation dragon. Biden is feeding it.
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