History's playbook for taming the beast of inflation

Gas. Meat. Flights. Houses. The cost of living is up. Inflation is rearing its head again. And as it rises higher, inflation risks devastating economies and draining savings accounts. So what can be done about it? This week, we explore the history of inflation in the U. S., how the government has responded, and who pays the price. This episode originally aired in 2022. Guests: John Cochrane, senior fellow at Stanford University's Hoover Institution Meg Jacobs, senior research scholar, Princeton School of Public and International Affairs Support shows like Throughline with NPR+. Sign up today at plus.npr.org http://plus.npr.org See pcm.adswizz.com https://pcm.adswizz.com for information about our collection and use of personal data for sponsorship and to manage your podcast sponsorship preferences. NPR Privacy Policy https://www.npr.org/about-npr/179878450/privacy-policy

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• 0:00Speaker 00

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• 0:25Rund Abdelfatah?

  Inflation is back, rearing its ugly head.

• 0:29Speaker 02

  Inflation's heating up again.

• 0:30Speaker 03

  To its highest level in almost three years.

• 0:34Speaker 04

  And we've got to get it back down.

• 0:36Rund Abdelfatah?

  Since President Trump ordered strikes on Iran, and Iran retaliated by shuttering tanker traffic through the Strait of Hormuz, prices all over the country are up.

• 0:46Speaker 04

  Many families are struggling with costs. I just drove by a gas station today and it said 7.25 a gallon.

• 0:52Speaker 05

  Yesterday, you could afford to fill the car with gas. Today, you can't.

• 0:55Rund Abdelfatah?

  And that means transportation by truck, train, or plane has become more expensive, too.

• 1:01Speaker 02

  Grocery prices, for example, jumped about seven tenths of a percent last month alone.

• 1:06Speaker 06

  I'm not buying this. I can't afford it.

• 1:08Speaker 05

  People are tired of getting ripped off on food prices. Oh, I'd love to have some beef.

• 1:14Rund Abdelfatah?

  It isn't just food. It's housing, health insurance, mortgage rates. The cost of living rises with inflation, and that means our money goes less far. No one is happy about that.

• 1:27Speaker 04

  Consumers are just to the point where, give us a break. You're stuck and your dollars are buying less and less.

• 1:35Speaker 06

  And it's happening at a time when the nation's main inflation-fighting institution, the Federal Reserve, is getting a shakeup in leadership.

• 1:42Rund Abdelfatah?

  A new chair has been sworn in. It's now Kevin Worsch's Federal Reserve. So as the US wades back into a period of rising inflation, as the Fed and the government grapple with how to fix it, and while we all wait to see what Worsch will do now that he's in charge, we thought it might be useful to offer up this episode that first aired in 2022. The countdown is on to the Fed decision.

• 2:06Speaker 00

  The Fed is raising interest rates, and this affects all of us. It's a proven solution. Higher interest rates make it more expensive to borrow money.

• 2:14Speaker 04

  Raising interest rates, they'll slow the economy.

• 2:17Speaker 06

  Don't fight the Fed.

• 2:18Rund Abdelfatah?

  Back then, a historic inflation took hold, one that could have crashed the economy. And the Fed needed to decide what to do. Historically, there have been two approaches. On the one hand, a hardcore government intervention. The other one supports loosening regulations. But here's the challenge. Inflation is complicated. Even the people in charge don't fully understand what causes it.

• 2:44Speaker 04

  One way to say it would be, I think we now understand better how little we understand about inflation. That's not very reassuring. No, honestly, this was unpredicted. I was looking at our.

• 2:55Rund Abdelfatah?

  That's former Federal Reserve Chair Jerome Powell four years ago, at the moment when inflation hit its peak. It was a very candid moment for Powell. Remember, he's a person who was not only paid to think about inflation, but he was seen as America's chief inflation fighter. And here he was acknowledging a fundamental truth. Inflation is mysterious.

• 3:20Speaker 06

  Different people have different meanings, so.

• 3:22Rund Abdelfatah?

  John Cochrane is a senior fellow at Stanford University's Hoover Institution. He's also known as The Grumpy Economist.

• 3:31Speaker 06

  The Grumpy Economist is the name of my blog. I'm not really a grumpy person.

• 3:37Rund Abdelfatah?

  There are varying views and understandings of inflation at any moment. Meg Jacobs is a historian at Princeton University. I've written about the energy crisis of the 1970s, and I'm working on a book now about the Great Depression and World War II. What you believe to be the cause of inflation probably depends on how you view the world, what you think the causes of economic success and failure are for the country. And Meg and John didn't agree what caused the inflation, let alone what to do about it.

• 4:10Speaker 06

  There's, of course, lots of political spin on this question.

• 4:15Rund Abdelfatah?

  Back then, John blamed inflation on big government spending, especially during the pandemic.

• 4:21Speaker 06

  The wildly overdone stimulus, printing and borrowing money and sending people checks.

• 4:27Rund Abdelfatah?

  Meanwhile, Meg focused on Russia's invasion of Ukraine, ongoing pandemic supply chain issues, and corporations raising prices in an opportunistic way to bring in record-breaking profits. That's where all of this greedflation kind of stuff. Comes in.

• 4:46Rund Abdelfatah?

  Even today, there's no consensus on why exactly we hit that 40-year high of inflation. And that matters because, once again, Americans are caught in a policy debate about how our government should or should not respond to an overheating economy. This is a live argument. In the last few decades, the Fed, the US's central bank, has been the main institution responsible for dealing with inflation. When it's been too high, what the Fed usually does is raise interest rates, which makes borrowing more expensive. So, demand goes down, usually causing a recession and prices drop, in theory, restoring balance to the economy. And then, we start all over again.

• 5:32Rund Abdelfatah?

  That's been the Fed's playbook. But that hasn't been the US's only playbook over the past century.

• 5:40Rund Abdelfatah?

  In this episode of Throughline from NPR, Ramtin and I go back in time to meet an army of militant housewives, a president trying to do his best FDR impression in a moment of oil crisis, and a Fed chair who was unafraid to shock the country. In the process, we'll learn the incredible, sometimes surprising ways the US has tried to tame the beast of inflation.

• 6:15Speaker 04

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• 7:40Speaker 06

  Part one, Hold the Lion.

• 8:01Rund Abdelfatah?

  It's a balmy April day in Queens, New York. The year is 1945.

• 8:11Rund Abdelfatah?

  Thirty women pushing strollers are chanting, holding up signs and reminding people in the busy Queens shopping district to honor price caps, basically price controls set by the government.

• 8:23Speaker 03

  Please take the pamphlet. Here you go. Please take the pamphlet. Here you are.

• 8:27Speaker 00

  Every cent you pay above the price ceiling price can dynamite price control.

• 8:32Rund Abdelfatah?

  During and after World War II, inflation was a problem. Food, clothes, and other necessities were rising in price. And in order to get this under control, the government set maximum prices for everyday goods. Watch the extra pennies. They're booby traps. And these women in Queens, chanting and handing out pamphlets, were trying to make sure no businesses charged more than the price controls allowed.

• 8:58Speaker 03

  We'll be here every Thursday. If you see high prices, tell us. We'll keep your name confidential.

• 9:07Speaker 06

  These sort of volunteer housewives would march in with the authority of the federal government behind them and inspect. They were called snoopsters, they were called a kitchen Gestapo.

• 9:17Rund Abdelfatah?

  Kitchen Gestapo. Maybe a little over the top, but that's what the opponents of price controls called them.

• 9:25Speaker 06

  All these sort of negative connotations, but largely, the program was successful because who wants to be subject to profiteering?

• 9:34Rund Abdelfatah?

  Armed with a grocery list of government sanctioned prices, these voluntary housewives were essentially the foot soldiers of a new federal department called the Office of Price Administration, AKA, the OPA.

• 9:51Speaker 06

  It's just a Christmas wonderland, this pricing office of the OPA in Washington.

• 9:56Rund Abdelfatah?

  Established in 1941 by President Roosevelt's administration, the OPA was created in response to the US's rapidly changing economy, an economy that was still recovering from the Great Depression and that was now entering a boom period sparked by World War II.

• 10:13Speaker 06

  So you had people with lots of jobs, high pay, chasing after fewer goods because the market had shifted to military production.

• 10:24Speaker 04

  You do not have to be a professor of mathematics or economics to see that if people with plenty of cash start bidding against each other for scarce goods, the price of those goods goes up.

• 10:41Rund Abdelfatah?

  The US government more or less forced many big industries to change their production from consumer goods to military equipment. Think car companies making tanks instead of Cadillacs. To fulfill these government contracts, tons more jobs were created. But since all the production was going to the war, there was less stuff for the workers to buy with that money. Lots of demand and very little supply equals inflation.

• 11:07Speaker 04

  If the vicious spiral of inflation ever gets underway, the whole economic system will stagger. Prices and wages will go up so rapidly that the entire production program will be in danger.

• 11:24Rund Abdelfatah?

  Speaking directly to the public on the radio during his now famous fireside chats, President Roosevelt connected the war against inflation with the war against Germany and Japan.

• 11:35Speaker 04

  I realize that it may seem to you to be overstressing these economic problems at a time like this, when we're all deeply concerned about the news from far distant fields of battle. But I give you the solemn assurance that failure to solve this problem here at home, and to solve it now, will make more difficult the winnings of this war.

• 12:06Rund Abdelfatah?

  And Roosevelt laid out what he and his administration saw as the solution.

• 12:12Speaker 04

  We must fix ceilings on prices and rents.

• 12:17Rund Abdelfatah?

  The Office of Price Administration established set prices for everyday items, from nylon stockings, $1.25 a pair, to milk, $15 a quart, to eggs, $0.61 a dozen.

• 12:29Speaker 06

  Price lists were transparent. They were printed in newspapers. Retailers and merchants were required to hang them in their stores. In the case of shopping, grocery lists, you know, the OPA printed them up in like 14 different languages and distributed them directly to the housewives.

• 12:47Speaker 05

  You, the women of America, now have what everyone has been asking for: top legal prices for market basket items. When you go shopping, you will know the correct top price. You are an active and necessary partner in the business of holding down the cost of living.

• 13:08Rund Abdelfatah?

  As time went on, the OPA grew bigger and bigger, employing more people and controlling more prices.

• 13:14Speaker 06

  So it was really big. It had more economists, I believe, than in the Treasury Department. They had about 60,000 employees in a very short period of time.

• 13:26Rund Abdelfatah?

  And in order for the OPA to institute price controls, they needed to also institute something else: rations.

• 13:34Speaker 06

  So every household received a rationing booklet, and every time you went to go buy a piece of meat, you would have to surrender your ration coupon.

• 13:43Rund Abdelfatah?

  Basically, in order to be able to set caps on the prices of things, you needed to be able to limit how much of that thing people could buy. Because if you say, for example, steak can only cost 32 cents a pound, but allow people to buy as many pounds as they want, well, then you haven't solved the supply issue because you'll run out of steaks. So rationing was an important part of the OPA's work. And they created propaganda to tie rationing to patriotic duty.

• 14:12Speaker 06

  20 million housewives signed what were called "homefront pledges." "I will pay no more..."

• 14:21Speaker 03

  "I will pay no more..." "I will pay no more than top legal prices."

• 14:25Speaker 06

  Where they would promise not to pay more than government price ceilings.

• 14:32Speaker 03

  "I will accept no rationed goods..." "without giving up ration stamps."

• 14:38Speaker 06

  If you violated these price ceilings, you could be subject to fines. Now, how did you get fined? You got fined if someone registered a complaint against you.

• 14:54Speaker 06

  Nearly a quarter of a million volunteers, who sat on these little OPAs, as they were called, about 5,000 sort of local community boards, where you could say, you know, "The guy down the street, he's charting too much for his radio."

• 15:10Rund Abdelfatah?

  And these volunteers would take that complaint and report the guy selling radios to the OPA, who would get him to lower his prices or slap him with a fine. It can sound a little big brother, but these OPA volunteers felt they were preserving an American way of life.

• 15:26Speaker 03

  If these selfish individuals are allowed to operate unhampered and unchecked, they will wreck our economic structure and run our cost of living up to unheard heights.

• 15:44Rund Abdelfatah?

  But the reality was, rations often meant that people had to go without things. They might go to the store and find out there was no more meat left that day. Still, on the whole, more people got what they needed.

• 15:56Speaker 06

  The percentage of protein consumed went up higher for the bottom proportion of the population than the top. That is, those at the bottom were eating more meat than they had been before the war. And OPA was responsible for that.

• 16:14Rund Abdelfatah?

  And ultimately, it worked. The OPA's policies kept inflation at bay. Before price controls and rationing, inflation was rising by more than 20%. But once they were put in place, prices stabilized. Of course, not everyone was a fan.

• 16:33Speaker 06

  Suppose you're a business and you need a ball bearing and your whole business is going to fall apart. Well, with price controls, and price controls mean shortages. When there's only so much to go around, and how do you get it? Well, your whole business is shut down if you can't get ball bearings.

• 16:51Rund Abdelfatah?

  By the time the war ended in 1945, the opposition to price controls had really intensified. The National Association of Manufacturers led a public relations campaign against the OPA. It took out entire pages in newspapers to get their message across, blaming price controls for the lack of available goods.

• 17:11Speaker 00

  Would you like some butter or a roast of beef? Well, here's why OPA ceilings make them hard to get. OPA means low production. Low production means black markets. Black markets mean needlessly high prices.

• 17:26Rund Abdelfatah?

  As the country transitioned from war to peace, the economy had to adjust. Industries were going back to making things like cars instead of tanks. Workers had to be retrained. And so a battle emerged about whether price controls were still necessary. With housewives and most Democrats on one side...

• 17:46Speaker 03

  I speak for thousands of housewives who want prices kept under control. Let the National Association of Manufacturers sweat it out.

• 17:56Rund Abdelfatah?

  And Republican-backed industries on the other...

• 17:59Speaker 04

  If my family needs meat, I'm gonna get it wherever I can.

• 18:03Speaker 06

  And what happens then is everyone from meat packers to dress manufacturers to car manufacturers say, "Okay, well, you know, if you want us to keep making everything in a civilian economy where we're not guaranteed government contracts, then you need to let us charge what we think we need to earn in order to make profits, in order to invest, in order to expand our production.

• 18:38Speaker 06

  And if you don't, we're going to try to make you."

• 18:44Rund Abdelfatah?

  And some businesses decided to up profits by basically skimping the consumers.

• 18:50Speaker 06

  Was the butcher sort of adding an extra piece of fat there and actually degrading the value of your piece of meat?

• 18:58Rund Abdelfatah?

  Candy bars weighed less but cost the same. Shoes and clothing were shottier. Yet, despite the efforts of industry, most Americans were in favor of extending price controls because they wanted prices to stay low. So when the government tried to extend price controls, the meat packers decided to play hardball.

• 19:17Speaker 06

  To make sure that that doesn't happen, the packers withdraw their meat from market and basically starve the public into submission.

• 19:28Speaker 04

  Wow, so they held steaks as hostage?

• 19:31Speaker 06

  Yeah, they took the heart right to the bellies of American consumers.

• 19:37Rund Abdelfatah?

  Suddenly, meat shortages got worse, and the meat packers blamed price controls. Within months, the American public started to turn against the OPA.

• 19:47Speaker 03

  I am just one of the many thousands of harassed housewives trying to feed a family and keep them healthy during these days of... No meat.

• 19:56Rund Abdelfatah?

  The meatpackers and manufacturers had won.

• 19:59Speaker 03

  The angry voice of the unorganized housewife, who is helpless at this moment, will have her day being heard in the forthcoming elections.

• 20:11Rund Abdelfatah?

  And in the 1946 midterms, the Republican Party promised to bring back the meat.

• 20:18Speaker 06

  Republicans ran on a platform that simply said, had enough. And the idea was, you know, have you had enough of all these wartime controls? Wouldn't you like to get rid of them? Go back to life as it is, and then you'll be able to buy everything you want to buy.

• 20:38Rund Abdelfatah?

  The message worked. Republicans won and took over Congress for the first time since 1930. Prices for everyday items shot up. Wholesale meat prices soared 89%. And by 1947, the rate of inflation was a whopping 20%.

• 21:05Rund Abdelfatah?

  The US experiment using large-scale government price controls to respond to inflation was over.

• 21:16Rund Abdelfatah?

  Coming up, another US president tries it again in a moment of economic crisis and ends up losing it all.

• 21:35Rund Abdelfatah?

  Hi, this is Jessica from Door, Michigan.

• 21:38Speaker 06

  And you're listening to Throughline from NPR. Stay tuned for the following announcements and messages from our sponsors. This week on Up First, we're in the final days before the midterm elections. And this is one of the wonderful things about politics, one of the wonderful things about humanity. We have all this data. We have all this information. And nobody really knows what's going to happen. We're going to follow it day by day, through Election Day and beyond. And you can listen to Up First every morning on the NPR app or wherever you get your podcasts. Pelosi. Whether you love her, one of the best speakers,

• 22:15Speaker 04

  House of Representatives have had.

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  Or hate her.

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  That crazy Nancy, she is crazy.

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  She's a force to be reckoned with. We're not letting anything stand in our way. From KQED, part of the NPR network, The Speaker. How Nancy Pelosi Changed the Face of Power. Find it wherever you get your podcasts.

• 22:35Speaker 06

  On a new episode of Your Turn with Alison Aubrey, two dream analysts explain the power of dreams as a guide for self-exploration. Sometimes dreams really contain the secret that we need to overcome difficulties, get unstuck, see a different way and move forward.

• 22:52Rund Abdelfatah?

  All this and more on Your Turn. Available on the NPR app or wherever you get your podcasts.

• 23:02Rund Abdelfatah?

  Part two, Inflation Bonanza.

• 23:09Rund Abdelfatah?

  August 15, 1971,

• 23:13Rund Abdelfatah?

  was just like any other Sunday.

• 23:23Rund Abdelfatah?

  As evening fell, millions of Americans sat back on their couches, kicked up their feet and turned the dials on their TVs to NBC to catch that week's episode of Bonanza. Bonanza was one of the most popular primetime TV shows of the 1960s and early 70s. It followed a ranching family in the Wild West. And in 1971, around 20 million people watched it every week. A giant audience, which is why, on this August night, in the midst of the war in Vietnam, President Nixon preempted the broadcast with an urgent message.

• 24:01Speaker 04

  We interrupt this program for a special news bullet. Good evening. This Sunday evening is an appropriate time for us to turn our attention to the challenges of peace. One of the cruelest legacies of the artificial prosperity produced by war is inflation. Inflation robs every American, every one of you. The time has come for decisive action. Action that will break the vicious circle of spiraling prices and costs.

• 24:29Speaker 06

  He wants to take the wind out of the sails of inflation.

• 24:33Speaker 04

  I am today ordering a freeze on all prices and wages throughout the United States for a period of 90 days.

• 24:41Speaker 06

  It was a really closely guarded secret and not even everyone in the White House knew he was going to be doing this, to say, "I'm going to impose wage and price controls."

• 24:57Speaker 04

  Imagine sitting there enjoying your favorite TV show and suddenly there's Richard Nixon's nervous face on your screen telling you about something called "price controls." It would have come out of left field. But here's the thing, the fact that he was there making that announcement was out of left field for Nixon too. Nixon was a conservative. He was for less government involvement in the economy. Yet here he is talking about a major governmental intervention. And when you look into his past, this move gets stranger.

• 25:28Speaker 06

  So Richard Nixon's first job, or one of his early jobs, was to serve in the tire rationing department in the Office of Price Administration.

• 25:37Speaker 04

  You heard that right. Richard Nixon once worked for the OPA.

• 25:42Speaker 06

  Which he claims he left to go join the Navy because he was disgusted by what he perceived to be the subversion of the capitalist system by OPA.

• 25:54Speaker 04

  When Nixon got out of the Navy in 1946, he immediately ran for Congress. His whole campaign railed against the government interventions of the 1940s. Interventions he had once been paid to enforce, like price controls and the OPA.

• 26:09Speaker 06

  And he wins.

• 26:11Speaker 04

  Government didn't build the cities of America. The government didn't train the best skilled labor force that the world has ever seen in America. Private enterprise did.

• 26:20Speaker 06

  I'm against sort of overweening government intervention.

• 26:24Speaker 04

  We've tried the big government way. Now let's try the private enterprise people way in order to get progress for America. That's my solution.

• 26:34Speaker 06

  Until he's not.

• 26:39Speaker 06

  We had lines that used to start four o'clock in the morning. Now this station didn't open until seven.

• 26:46Speaker 04

  None. It's empty. And as far as the eye could see, there was a never-ending line of automobiles. It got so bad during the month of February that I honestly broke down twice crying.

• 26:58Rund Abdelfatah?

  When Richard Nixon became president in 1969, the US was already experiencing high inflation. But in the 1970s, it got a lot worse. Lots of things got more expensive, like food and clothes, and gas prices got so high that some people went on strike to protest them. People wanted the government to do something about it. So President Nixon, under pressure, instituted price controls, but not the way FDR did.

• 27:26Speaker 04

  The wage-price freeze will not be accompanied by the establishment of a huge price-control bureaucracy.

• 27:33Speaker 06

  There are no, you know, 20 million housewives signing pledges. There are no OPAs. There are no dollars-and-cents shopping lists.

• 27:42Speaker 04

  I am relying on the voluntary cooperation of all Americans to make this freeze work.

• 27:49Speaker 06

  There is no rationing, and that's a big one. So to do price controls without rationing is kind of a nightmare.

• 27:55Rund Abdelfatah?

  That's because if you set a control on prices but don't cap how much a consumer can buy, then some people will buy more than their share, and then supply will go down, causing more inflation. This is why rationing was a key part of the OPA's price-control program back in World War II.

• 28:13Speaker 04

  If there's not enough gas to go around, it's going to be rationed. And it's either rationed by price or by time. If you want gas, you're either going to have to pay money for it, or you're going to have to spend an hour sitting in line.

• 28:29Speaker 04

  President Nixon wasn't fully committed to price controls, and because of that, they didn't really work.

• 28:35Speaker 06

  They are not super enthusiastic in how they're applied. They're not super useful. They take them on, they put them off, they take them on, they put them off.

• 28:46Speaker 04

  Prices got higher and lines got longer. Not the outcome Nixon probably hoped for.

• 28:53Speaker 06

  They're really ineffectual.

• 28:54Speaker 04

  And it was a disaster.

• 28:56Speaker 06

  You just had this situation where consumers grew angrier and angrier and, uh, super cynical.

• 29:03Speaker 04

  And the rest of Nixon's presidency would only increase that cynicism.

• 29:13Speaker 04

  The President of the United States, as you know, who said he was getting elected to end the war, turned out to be very far from the truth. Good evening. The biggest White House scandal in a century. The Watergate scandal broke wide open today.

• 29:33Speaker 06

  Who can you trust if you can't trust the President? And all of that sort of erodes faith that government, you know, can actually control the situation.

• 29:49Speaker 04

  I shall resign the presidency effective at noon tomorrow. Vice President Ford will be sworn in as President at that hour in this office.

• 30:03Rund Abdelfatah?

  The government's lies during the Vietnam War and Nixon's disastrous presidency had shaken many Americans' faith in their government. But it wasn't just a crisis of trust. It was a reckoning. People started to wonder, is the government really here for us? Can we trust what it says? And how much power should it have? After Nixon's failed experiment with price controls, the US economy experienced ups and downs throughout the 1970s. Jimmy Carter, a Democrat, became President in 1976. And by 1979, with inflation again surging, the nation and its attitude towards government had changed.

• 30:45Speaker 06

  By the summer of 79, Americans are back on the gas lines. And guess what? They're furious. And I will not take the blame for this thing. I will not take the crap and the harassment from these customers. People could get violent. People shot other people on gas lines.

• 31:02Rund Abdelfatah?

  This is unreal. Isn't this disgusting? Why doesn't anybody contact the President? Why is he...

• 31:07Speaker 06

  Letting this happen to us. Carter Kiss My Gas was a popular bumper sticker. After two hours of pumping, that 1,500 gallons is gone. At that time, there is no sense keeping the pumps open because there's nothing left to sell. I think the nation was really sick of inflation.

• 31:27Speaker 06

  It was clear that we got to do something about it. They went down there and told everybody we had no gas. Forget about it. And everybody stood, they don't listen.

• 31:40Speaker 04

  President Carter was under pressure and he had to shake things up, do something drastic. So he appoints a guy named Paul Volcker to head up the US Federal Reserve. We can't always be looking at the worst. If we're going to balance these risks of inflation and recession, we have to run not too scared. So it is a question of bringing about a balance. Volcker, heard here in a reenactment, was a shrewd economist with an Ivy League education. He told Carter he would do whatever it took to bring down inflation. The Fed only has so many tools in its toolbox to wrangle the economy. One of them is controlling interest rates.

• 32:20Speaker 04

  Volcker thought that by raising interest rates, the Fed could cool down the economy and conquer inflation. Raising interest rates would make borrowing money more costly. That meant when people went to get loans from the bank to buy, say, a home, it was much more expensive. So they might not make that purchase. And that applied not just to people, but to companies too.

• 32:42Rund Abdelfatah?

  Now, this strategy had a downside. It would likely raise unemployment and tip the country into a recession. But that was a sacrifice Carter was willing to make by appointing Volcker. He was desperate to deal with inflation and maybe, just maybe, save his hopes for reelection in the process. But it was too late for Carter to convince voters he could bring down inflation.

• 33:08Speaker 04

  Enter former Hollywood actor and governor of California, Ronald Reagan.

• 33:13Rund Abdelfatah?

  One of the things is that people keep looking to government for the answer and government's the

• 33:16Speaker 04

  His message was simple. The government cannot solve your problems. The government is the problem. And that message found an audience.

• 33:28Speaker 02

  There's very little that government can do as efficiently and as economically as the people can do themselves. And if government would shut the doors and sneak away for about three weeks, we'd never miss them.

• 33:37Rund Abdelfatah?

  In 1980, Americans elected Ronald Reagan as their new president. With his warm, reassuring smile, Reagan delivered a simple message. For those who've abandoned hope, we'll restore hope and we'll welcome them into a great national crusade to make America great again.

• 33:56Rund Abdelfatah?

  We want to go back to a growing economy.

• 33:59Speaker 06

  But I think it takes some pain to get there.

• 34:02Speaker 04

  And the pain was going to come from Paul Volcker.

• 34:05Speaker 06

  Now, I'm not saying that unemployment will not rise.

• 34:09Speaker 04

  Who was still running the Fed and continuing to raise interest rates by restricting money growth?

• 34:14Speaker 06

  I am saying the greater threat over a period of time would come from failing to deal with inflation rather than efforts to deal with it.

• 34:24Speaker 04

  He dialed up the rates fast.

• 34:28Speaker 04

  From 11% to...

• 34:30Speaker 06

  To like 20%.

• 34:32Rund Abdelfatah?

  20%. The highest the Fed had raised the interest rate ever of all time. It was designed to dramatically cool down the economy and bring inflation under control. This strategy came to be known as the Volcker Shock.

• 34:57Speaker 04

  There's no jobs to be found. The country is going to the pits. The American dream is just floating right out the window.

• 35:06Speaker 04

  What did it do to the average person? What kind of impact did it have on people in the economy?

• 35:14Speaker 06

  They lost their jobs.

• 35:16Speaker 04

  People that live from one payday to the next, like we do, are suffering the short term. The way things are going, it's impossible. We can't survive two or three years while the economy readjusts and realigns and people sit down and think about our problems for a solution. We've got to do something now.

• 35:34Speaker 06

  A very deep recession.

• 35:36Rund Abdelfatah?

  Almost 10 million Americans were out of work. But Volcker believed in what he was doing. He thought the pain of a recession outweighed the dangers of runaway inflation.

• 35:47Speaker 06

  And Reagan supported Volcker and the continued high interest rates, knowing that it was necessary to kind of change the whole mentality. But very, very difficult politically. There were, you know, people protesting in Washington and stop this and, you know, stop strangling the economy just because there's a little inflation around.

• 36:06Rund Abdelfatah?

  The shock worked. In 1980, when Reagan was elected, inflation was at 13.5%. By 1983, it had dropped to 3.2%.

• 36:19Speaker 04

  Like a sapling in springtime, our economy sprang back after a long winter and reached for the sun.

• 36:27Speaker 06

  The 80s were a boom for economic growth. The market rallies and there's a huge turnaround. And the sensible regulation movement of the Reagan era certainly helped that boom of economic growth. Which allows Reagan to then run in 1984 on the campaign "It's Morning in America."

• 36:50Speaker 04

  It's morning again in America. We came together in a national crusade. And with inflation at less than half of what it was just four years ago, they can look forward with confidence to the future.

• 37:04Speaker 04

  Greatness lies ahead of us.

• 37:17Speaker 06

  The free market, anti-government economic ideology of Ronald Reagan had won. And basically, let's let it rip and let's let American businessmen do what they do best and none of this government interference. I call it not free market economics, I call it incentive. Of economics, you just can't get around that people respond to incentives. And when you take away their incentives, they don't respond. That all of the growth and vitality, amazing growth, in certainly my lifetime and even some of yours, comes entirely from private sector innovation. And without that, we're all dead in the long run.

• 37:56Rund Abdelfatah?

  With Reaganomics, government-led solutions to economic problems, things like rationing and price controls, fell out of favor, relics from a bygone era. The Volcker shock cost millions of people jobs and caused widespread economic pain. But the strategy of the Federal Reserve raising interest rates to pull the economy out of inflation was largely seen as a success.

• 38:21Speaker 06

  It's not that the Federal Reserve didn't exist. The Fed had existed for more than half a century. But this idea of using the Fed as a frontline defense against inflation really was an innovation. Coming up, the Fed gains even more power and becomes the keeper of the economy.

• 38:56Speaker 06

  This is Okela Mukua from Denver, Colorado. You're listening to Throughline from NPR. Thank you.

• 39:03Speaker 00

  Stay tuned for the following announcements and messages from our sponsors. This election season, let the NPR Politics podcast save your time and your sanity. We'll help you understand key races, which polls you can safely ignore, and what might happen if power shifts in Congress. Our short daily episodes come out every afternoon, so you can spend less time scrolling through each chaotic news cycle. Make NPR Politics your hub for midterm election coverage. Follow our podcast on the NPR app or wherever you get your podcasts.

• 39:35Speaker 06

  Speakers, the House of Representatives have ever had. Or hate her. That crazy Nancy, she is crazy. She's a force to be reckoned with. We're not letting anything stand in our way. From KQED, part of the NPR network, The Speaker. How Nancy Pelosi Changed the Face of Power. Find it wherever you get your podcasts.

• 39:56Speaker 06

  Happy fall. Yes, the days are getting shorter and colder, and the rain can be a drag. But this is also the perfect time of year to get cozy. Life Kit has lots of ideas so you can embrace the change of seasons, with episodes on everything from making soup to exercising outdoors. Listen to the Life Kit podcast in the NPR app or wherever you get your podcasts.

• 40:22Speaker 06

  Part three, The Great Silence.

• 40:29Speaker 05

  Clearly, wise leadership from the Fed has played a very large role in our strong economy. That is why today I am pleased to announce my decision to renominate Alan Greenspan as chairman of the Federal Reserve Board.

• 40:42Speaker 06

  This is President Bill Clinton at the White House in 2000, announcing that Alan Greenspan would continue to lead the Federal Reserve.

• 40:51Speaker 05

  For the past 12 years, Chairman Greenspan has guided the Federal Reserve with a rare combination of technical expertise, sophisticated analysis, and old-fashioned common sense.

• 41:01Speaker 06

  Bill Clinton and Alan Greenspan did not always get along. They didn't necessarily share the same ideology about economics. Greenspan was a traditional fiscal conservative. He was appointed by President Reagan, while Clinton was a Democrat, a political animal, who had made boosting the economy part of his bid for reelection. But Clinton ultimately respected the independence of the Federal Reserve, mostly because during his administration, the American economy saw remarkable growth. I think it's certainly fair to say that the overall Performance of the American economy has continued to surpass most forecasters' expectations. This is Greenspan testifying before Congress on the economic growth experienced in the US

• 41:46Speaker 06

  in the second half of the 1990s. The current cyclical upswing is now approaching six years in duration, and the economy has retained considerable vigor. If you grew up in the 1990s like me, you might remember it as a great time economically. That's because it kind of was. With few signs of imbalances and inflationary tensions that have disrupted past expansions. Basically, what he's saying here is that there was an amazing economic expansion in the 1990s without inflation. Greenspan's Federal Reserve played a major role in this success because he continued the tradition set by his predecessor, Paul Volcker, of acting aggressively to control monetary policy.

• 42:29Speaker 06

  Generally, when the economy slowed, he would push the Fed to lower interest rates. When the economy grew, the unemployment rate went down, triggering fear that inflation would happen. Then he would raise interest rates, albeit slightly. I think that the 90s and the sort of Clinton-era growth that was seen to be sort of spectacular and sort of in alliance with people like Alan Greenspan, and that, I believe, sort of elevated them because, you know, no one was talking about interest rates that were 20%. 20%, like in the early 80s during the Volcker shock. The late 1990s were like the Goldilocks zone of macroeconomics.

• 43:12Speaker 06

  There was good economic growth, low interest rates, and low inflation. It was in these years of prosperity under Alan Greenspan's leadership that the Fed's influence continued to grow. They were increasingly seen as the first option in the fight against everything from unemployment to inflation. So it's easier to sort of like them as sort of, you know, your frontline events as long as you don't have to call them in. Until you do.

• 43:42Speaker 06

  The Dow tumbled more than 500 points after two pillars of the street tumbled over the weekend. Lehman Brothers, a 158-year-old firm, filed for bankruptcy.

• 43:53Speaker 06

  It's official, we are in a recession. It is definitely a very, very difficult time, and it's not going to get better quickly. So in just six months, three of the five biggest independent firms on Wall Street have now disappeared. But the question now, when will it end? In 2007, the economy crashed, and the country went into a severe recession. Companies closed, millions lost their jobs, people lost their savings. Alan Greenspan retired just a few years before, and the person who succeeded him as Fed Chairman, Ben Bernanke, was the one who had to deal with the worst economic event in generations.

• 44:33Speaker 04

  We came extraordinarily close to a complete collapse of the global financial system, not just the United States, but of the whole global financial system.

• 44:43Speaker 06

  So the Federal Reserve was called in to save the day. They acted quickly to help the Treasury Department bail out major financial firms who were in danger of collapsing. This was a very unpopular policy because it looked like the government was essentially bailing out the Wall Street bankers whose risky investing caused the collapse in the first place.

• 45:05Speaker 04

  We took strong steps to try to prevent the financial system from melting down, essentially. The reason we did it was because we knew from history that the financial system is so critical to the functioning of our economy that the collapse of the financial system would have been catastrophic.

• 45:22Speaker 06

  Whether the Fed needed to make this move to bail out Wall Street is a hotly debated topic. It's the issue that we most think of when it comes to the Fed and the 2008 financial crisis. But it further solidified the Fed's role as the government's primary agency for dealing with economic crisis. And so when it came to helping the US get out of the recession, the Fed used interest rates, the tool it had relied on as an economic "break the glass in case of emergency" superpower during the Reagan years.

• 45:53Speaker 04

  And Bernanke actually says, you know, maybe monetary policy, the level of interest rates is in the right place. They had kept them at 2%. And within a matter of weeks, he's moving to slash interest rates. The Federal Reserve lowered a key interest rate by a half percent Wednesday, the latest move by the government to try to keep the country from plunging into a deep recession.

• 46:14Speaker 06

  Eventually, the interest rate made it down to zero. And even after the economy stabilized and started to improve, the Fed kept it low. So the conventional view is that if the Fed were just to leave interest rates alone, you would get this, you would get a spiraling inflation or deflation. And that was widely predicted in 2008 when the interest rates at zero. But it didn't happen. Traditional economic theory would say that if interest rates are really low and there's economic growth, then inflation is inevitable. But for over a decade after the 2008 recession, despite very low interest rates, inflation never really spiked. Interest rates were zero, and absolutely nothing happened. Inflation batted around

• 46:57Speaker 06

  1.72%. Nothing happened. So that great silence is very troubling to the conventional theories that say there should have been some horrible thing happening. Many policymakers viewed this as a success for the Fed. So naturally, they continued to want the Fed to keep taking the lead on dealing with issues of economic importance like recessions and inflation. A housing crisis? Have the Fed bail out the banks. Inflation? The Fed can just raise interest rates. Given the fact that there was economic growth, low unemployment, and low inflation, it seems rational why people would believe the Fed was the answer. But the fact that low interest rates didn't bring

• 47:39Speaker 06

  on inflation on some level defied traditional economic logic. The foundations of monetary economics were actually very deeply troubled by those 10 years of total quiet when everyone said, oh, don't worry, we're not having inflation.

• 48:01Speaker 06

  We're going to get the latest US government On inflation tomorrow. And once again, many economists believe the spike in prices is going to be quite high compared with a year ago. We learned moments ago that last month, consumer prices rose 9.1% compared to this time last year. Rising at the fastest rate in four decades. The good times would not roll.

• 48:26Speaker 04

  Worst inflation since 1981. I mean, we are going back to the days of Paul Volcker, baby. That's not good news for anybody.

• 48:39Rund Abdelfatah?

  2022, runaway inflation was back worldwide. In the U.S., then Chair Powell stuck to the recent playbook. He pulled the interest rate lever nine times, and prices did come down eventually. But now, fast forward to 2026. Here we are again, thanks in large part to U.S. tariff policies and the war in Iran. Prices are rising. Affordability is a main issue, and everybody is talking about inflation. And now, we have a new Fed chair, Kevin Warsh. At his confirmation hearing, he promised senators that he'd bring new thinking, new tools, and what he called "a new inflation framework" to the job.

• 49:24Rund Abdelfatah?

  Soon, we'll find out what he means, possibly as early as next month, when the new Fed chair meets with 18 of his colleagues to vote on what to do about this stubborn inflation, which won't give up its hold on the U.S. economy.

• 49:52Rund Abdelfatah?

  That's it for this week's show. I'm Randa Abdel Fattah, and you've been listening to Throughline from NPR. Throughline was created by me and Ramtin Arablouei. This episode was produced by me and Lawrence Wu. Julie Kane. Victor Ivez.

• 50:07Speaker 00

  Anya Steinberg. Yolanda Sangwe. Casey Minor. Christina Kim. Devon Kadyama. Amiri Tala. Jennifer Etienne. Irene Noguchi. Sarah Wyman.

• 50:18Rund Abdelfatah?

  Julia Redpath. Kiana Mulholland. Fact checking for this episode was done by Kevin Vogel. Thank you to Anya Steinberg, Tessa Hall, Amy Moore, Annie Downs, Myra Sierra, Tim Kloblan, Claire Tragaser, Lara Finkbeiner, Tamar Charney, Kylie Sunderland, and Casey Morrell for their voiceover work. Thanks also to Kimberly Sullivan, Lindsay McKenna, Tamar Charney, and Anya Grunman. And special thanks to Darian Woods, Scott Horsley, and Rafael Nam. This episode was mixed by Josh Newell. Music for this episode was composed by Ramtin and his band, Drop Electric, which includes Anya Mizani. Navid Marvi. Cho Fujiwara.

• 51:02Rund Abdelfatah?

  And finally, if you have an idea or liked something you heard on the show, please write us at [email protected]. And if you're open to us giving you a call back, leave your number, too. We might feature your idea in an upcoming episode. Also, make sure to follow us on Apple, Spotify, or the NPR app. That way, you'll never miss an episode. Thanks for listening.

• 51:31Rund Abdelfatah?

  Stay tuned for the following announcements and messages from our sponsors.

• 51:35Speaker 06

  This week on Here and Now Anytime, in the closing days of the midterm elections, we're in Iowa and Arizona, two states where independent voters will decide who controls Congress for the next two years. Even though we're in a red district, we will get out the Democratic and independent vote. We will. Here and Now Anytime, listen on the NPR app or anywhere you listen to podcasts.

• 52:00Speaker 04

  Pelosi. Whether you love her. One of the best speakers the House of Representatives have ever had. Or hate her. That crazy Nancy, she is crazy. She's a force to be reckoned with. We're not letting anything stand in our way. From KQED, part of the NPR network, The Speaker: How Nancy Pelosi Changed the Face of Power. Find it wherever you get your podcasts.