It’s been a summer of discontent, with inflation hitting Americans hard. According to the latest Consumer Price Index report, prices are not rising as quickly as previously. But that does not mean the worst is over, a lesson that Americans learned the hard way during the Great Inflation of the 1970s when price increases occasionally moderated, only to come roaring back due to a new economic shock or a reversal of Federal Reserve policy.
Today, many Americans remain desperate for advice on how to stretch their money and protect their budgets but few media pundits remember how people got through the 1970s. Back then, Americans sought wisdom from journalist and shareholder activist Wilma Soss, a product of Columbia's School of Journalism, class of 1925. Hugely popular in her day, Soss ruled the Sunday night NBC radio waves with her 10-minute nationally syndicated show “Pocketbook News.” Soss started the show in 1957 and stayed on air for almost a quarter of a century because so many people found her financial advice and wisdom helpful. Among other topics, she provided household budget-saving tips that helped individuals to cope with rising rents and grocery bills, but also explained what was happening to prices overall, and why, and how inflation could be tamed.
On few topics did Soss speak more often, or knowingly, than on inflation. She long lamented the slow decline of the gold dollar as America eased away from the Bretton Woods gold-exchange system that pegged the dollar to gold at $35 an ounce and accurately attributed the loss of America’s gold stocks to the Vietnam War and so-called Great Society programs. Gold depletion, she knew, would eventually induce America to end the system, thus depreciating the dollar in terms of other countries’ currencies and spurring domestic price inflation.
That is exactly what happened during the Nixon administration, which fought back in the worst possible way, with shortage-inducing price controls. Soss preferred the fiscal discipline necessary to reverse the gold flow. Since Nixon and other elected officials were having none of that, Americans suffered through long gas lines and insipid programs like Ford’s WIN (Whip Inflation Now), while the Federal Reserve figured out how to control the growth of a money supply no longer constrained by gold holdings.
Soss deeply understood and lamented that the federal government had incentives for causing inflation, including reducing the real burden of the national debt and increasing tax collections. The former occurred when the government repaid existing nominally-denominated debt with less valuable dollars. The latter occurred because federal income tax brackets were not indexed to inflation until 1985. So as nominal wages increased, workers paid at a higher tax rate, a phenomenon termed “bracket creep.”
Today, the federal government still benefits from inflation because it can repay its debt, which is huge, in cheaper dollars. Even if indexing keeps their tax rate the same, taxpayers still have to pay more dollars in taxes if their nominal incomes rise. (And if their nominal incomes do not rise, they cannot buy as much as previously, suffering what is called the “inflation tax.”)
Moreover, indexing remains an imperfect response to bracket creep because the government’s measure of inflation tends to underestimate the price increases actually experienced by Americans, especially poorer ones. And 13 states, including New York and New Jersey, still do not index their state income tax rates to inflation.
Soss had a more direct solution. To crush both of the federal government’s incentives to create inflation, she called for an inflation tax credit. She never got into the nitty gritty details about what such a credit would look like, but she made the gist clear: to the extent that inflation helps the government and hurts Americans, individuals ought to get tax relief. Not only is that just for citizens, but the existence of such a tax credit also would deter government officials from deliberately causing inflation.
While Wilma Soss is long gone, we need more of her pragmatic style and we desperately need common sense policy approaches to taming the inflation beast. She understood the simple truth that inflation hurts all Americans, rich, middling, and, especially, poor. Inflation is everyone’s problem and should not be flippantly dismissed as transitory, characterized as the fault of greedy sellers, or laid at the feet of an invading, foreign tyrant.
