Inflation As Object Lesson

An account of the years of high inflation illustrates why not to let standards slip, and what is required if they do.


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I am fascinated by inflation. I’m fascinated by it the way I am fascinated by tornados, or by the trees that tower within easy reach of my house. Inflation is something huge and powerful that could take away what I have without my being able to prevent it. The difference is, inflation is a man-made disaster. It is the legal act of theft that the federal government or Federal Reserve could embark upon, or merely allow, at any moment it chooses.

A book that recently drew me in is “The Great Inflation and Its Aftermath” by Robert J. Samuelson, a timely account of the high inflation of the 1960s through 80s. I say “timely” because the book was written just before the massive financial institution meltdowns started coming to light last year, and before government started taking the steps that seem to flirt with the peril of inflation once more.

There are differences. The cause of the 70s-era inflation was not the short-term creation of a large amount of cash under the premise of a rescue operation, as today. The cause instead was good intentions. Economists claimed government could achieve and hold low unemployment. Politicians listened; the unemployment of the 1930s was a fresh memory. But the resulting monetary expansion simply incited hiring by tricking employers with the illusion of increasing demand.

The inflation, once it proved incendiary, also proved difficult to stop. Economists didn’t want to concede. Politicians, more importantly, didn’t want to lose popularity over the recession that would be needed to stabilize the money supply. They pressured the Federal Reserve to keep inflating.

In all of this, I find lessons that seem timely even in ways that go beyond money policy. One lesson is that watering down the value or quality of anything has the danger of beginning an insidious slide. Today, in fact, it is likely you are facing some version of this very danger in your shop: the pressure to compromise on a value-added discipline because resources (including staff) have been cut. That compromise, once made, is hard to reverse. Meanwhile, the significance of safeguarding the care and quality lies in the fact that the disciplines that do survive will be all the more valuable once business activity rebounds.

But there is a complementary lesson, too. The status quo can be changed back. Mr. Samuelson credits Fed Chairman Volcker and President Reagan for ending the double-digit inflation—the former by contracting the money supply and the latter by not pressuring him to do otherwise, despite a serious recession. Both men elected for levels of economic suffering and lost popularity that their predecessors had seen as unacceptable.

In a similar way, your own process, team or business might be stuck. It might even have grown content with the lower position or standards to which it has slid. Yet it’s not too late to change, and the way to change is simple. It might involve letting go of outmoded beliefs. Certainly it also will involve pain. But the trick is to see the pain as endurable—and to see the reward that will be won by moving the status quo back again to a better place.