When Linda and I bought our first house in April of 1978, I was a reporter at the newspaper making $255 a week. She was making about the same, working as a research biologist at the University of California. Against the advice of the real estate agents, who were pushing variable-rate loans, we opted for a fixed-rate 30-year mortgage at 8.75 percent, which was pretty good for those days. The monthly payment was $514.69, a number I will remember to my final breath.
At the end of that year there was a revolution in Iran, the Shah fled the country, and worldwide oil prices surged skyward, triggering a couple of years of double-digit inflation. In economic circles, that was considered a wicked thing, but for us, it was a good deal.
By the end of 1980 I was making $395 a week, up more than 50 percent from three years before. Some of that was from a promotion, but a lot of it was just step and cost-of-living increases. I don’t recall the exact numbers, but Linda’s pay also improved markedly. True, the cost of gas and groceries went up, but with the house payment staying put, we were well ahead of the game. For me, it was the first time in a decade of working that I felt that way.
Nor were we alone. Real estate prices had jumped sharply in California in the late 1970s, and many people had extended themselves considerably to buy a house. With inflation and pay raises, they were able to make the payments with cheaper dollars and began to get whole again.
Plenty of retirees benefited from inflation as well. President Nixon had gotten Congress to approve mandatory cost-of-living increases to Social Security in the early 1970s. That meant steadily fatter monthly checks, and if a retiree had paid off a mortgage, had a fixed-rate one, or was in a rent-stabilized situation, it was free money.
And if said retiree had any significant savings, it got even better. Money-market funds were created that paid interest rates of 18 percent or more while investing conservatively and safely in government bonds.
It wasn’t a sustainable situation, and plenty of people and businesses were hurt, to be sure, but by the time inflation came down in the mid 1980s, a lot of people were better off for the run-up, and the economic gain they registered had to have made some impact on the boom of the second half of that decade.
Like debt, inflation has become one of those scare words thrown about willy-nilly in public debate. No one wants the sort of inflation that requires people to push wheelbarrows full of money to the grocery store, but a brief run of it from time to time can do some good.
Thomas Jefferson believed that reasonably inflationary policies were a good thing because they helped the farmer and the merchant, who tended to be debtors by allowing them to reduce debt on more favorable terms. Hamilton opposed inflation because he felt it was harmful to creditors and big money. Which side are you on?
With a government heavily (but manageably) in debt, and with many homeowners heavily (and unmanageably) in debt, maybe a little inflation (assuming wages more or less kept pace with it) would be a good thing for America right now. It’s been a quarter-century since we had any to speak of, and it certainly doesn’t appear that the economy is benefiting from a lack of it now. Why not give it a try?
