There really is nothing to win, at a basic level, when it comes to balancing wages and prices.

Americans 50 and older have seen enough to fully realize it as inflation hits levels not seen in four decades.

Americans under 50? Everything is new to them.

We thus offer a brief lesson in recent American economic history, to better understand the monster of inflation that has been let out of its cage in part by the COVID-19 pandemic.

Inflation, as we hope most people know, is the percentage increase in prices to buy a predefined set of goods from year to year.

If this collection of goods costs $1,000 in year A and $1,100 in year B, that represents an annual inflation rate of 10%.

If monthly inflation is, say, 3.2% (or 6.1%, 8.7%, 12.5% ​​or whatever), that doesn’t mean prices are going up by that percentage every month. It simply reflects the price increase of that predefined basket of goods that month compared to the same month a year earlier.

The lower the inflation rate, the better. Usually. (You can also have deflation, when the prices of these goods fall compared to the previous year.)

During the 1960s, annual inflation was less than 2% per year from 1960 to 1965. Then it started to rise.

The cost of the Vietnam War was an early factor. Then came the first “energy crisis” of 1973, when most Arab oil-producing countries withheld supplies out of anger over US support for Israel in the Middle East.

In 1974, annual inflation was 11.1%.

Things have improved a bit, but a new Arab oil embargo and “stagflation” — an insidious mix of inflation with a slow-growing or shrinking economy — drove the inflation rate of the 1980s to 13.5%.

Unsurprisingly, people frustrated by the rising cost of living were demanding and often received higher salaries. Which pushed prices even higher.

At the same time, the government “prime” The interest rate — what the Federal Reserve charges banks to borrow money so banks can in turn lend it to others — hit a record high of 21.5% in 1980.

Now, for a bit of perspective: many countries have experienced much, much higher inflation than the United States did when today’s 50-somethings were in high school.

No matter. Americans felt the pain.

It took six years to bring annual inflation below 2%. It rebounded to 5.4% in 1990 and 4.2% in 1991, the years of the first Gulf War.

Then inflation stayed below that for 30 years. So far.

As we look ahead to June’s annual inflation rate of 9.1% – the highest since 1981 – here comes the question: how was inflation broken then?

These interest rates of more than 20% had a lot to do with it. They especially discouraged large purchases for which people and businesses had to borrow money.

Unfortunately for many Americans, it has also led many companies to cut wages and jobs. They bought less.

Supply has generally increased. This price spike has subsided. And companies gradually felt they could hire and invest again.

It’s all about supply and demand – not just supplies of various goods, but also the supply of money to buy them.

It’s a simplistic explanation. It’s not just about how much profit companies want or need.

Political and military actions can be disruptive, as with Russia’s invasion of Ukraine. And we here in farm and ranch country know full well that hail, frosts and untimely frosts, too much rain or too little can suddenly reduce food supplies and increase grocery prices.

Conversely, too much food production lowers food prices and, with it, the incomes of our agricultural producers.

This is the story of inflation that young Americans did not experience. They have only known an economy where prices rise slowly, if at all.

However, they also often saw themselves or their parents go for years without a noticeable increase unless they found better paying jobs or careers.

Here’s the dilemma: at least for the past 60 years, Americans have seen wages and prices rise rapidly (from the late 1960s to the 1980s) or both rise slowly (from the 1980s to 2021, when the Annual inflation hit 4.2% on its way to 9.1% in June.

Which would we prefer? Or – perhaps – neither, nationally, would be better or worse?

That’s what we all have to judge.

– North Platte Telegraph

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