Inflation is the business opportunity of a lifetime

Inflation? Oh yeah, I’m old enough to remember.

As I’m sure you saw, inflation numbers came out red-hot on Thursday, with prices for the month of January rising at an annualized rate of 7.5%, the highest since February 1982. “This is a big shock to me,” says Jian Yang, professor of finance at University of Colorado. “When I hear that this inflation rate is the highest in 40 years, that really causes some concern about a challenge to the U.S. economy.”

So I think it’s worth going back four decades or so to see what caused inflation then, how it was tamed, its collateral effects — and to see how all that applies to today.

First, just a note on how unfamiliar this is. Let’s agree that you’re not aware of an economic phenomenon like inflation until you’re say, 10 years old. Therefore, no American under the age 50 has really experienced inflation. (The population of the U.S. is 329 million and the number of Americans over 50 is about 116 million, which means that 213 million Americans, or some two-thirds of us, have never lived with inflation.)

In fact, most of us are used to goods and services getting ever cheaper. This chart shows prices of a number of food items declining over the past 40 years even more than the overall rate of inflation, and even after recently ticking up.

Let’s now hop in the hot tub time machine and travel back to the last time we faced inflation. Students of economic history may recall reading about those WIN, or Whip Inflation Now, buttons the government sent out. Was that in 1982? No, the buttons came out years earlier, which speaks to a potentially alarming point. By February 1982 inflation was on the downswing. Economists were delighted with that month’s number of 7.6%, a four-year low, down from 11.4% a year earlier. Inflation actually peaked at 14.8% in March 1980. To wit: Nothing to say inflation won’t climb more.

Inflation had been a nagging problem for years back then, starting around 1974 when Gerald Ford was in office. It was in October of that year, with inflation running at 12.2%, that Ford declared inflation “public enemy number one” in a speech before Congress. (I always wondered what James Cagney thought about that public enemy business.)

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Ford’s plan included a number of measures to bring inflation under control which included carpooling, turning down thermostats and growing vegetables. He also asked citizens to sign a pledge they would send to Washington to receive a WIN button. As a 14-year-old I remember vividly scrutinizing prices of items on supermarket shelves. I also remember those WIN pins, as they were objects of ridicule.

People wore them upside down which read “NIM,” saying it stood for “No Immediate Miracles” or “Need Immediate Money.” There were also earrings, World War II-like bric-a-brac and sweaters (which I mentioned last June).

Alan Greenspan, a White House adviser, then later wrote WIN was “unbelievably stupid.” The Washington Post called the WIN campaign “one of the biggest government public relations blunders ever.”

Even worse for Ford, none of it worked. Inflation trended down…