The Long Shadow of Inflation: Wages vs Prices - A Personal Account from the 1970s to 2020s

Introduction

Back in the 1970s, the economy was hit by a significant surge in inflation. For many, especially those with modest incomes, this period was marked by a struggle to keep up with the rising costs of goods and services. Many wondered whether wages would eventually catch up to rising prices, and if not, what the long-term consequences would be. This article explores the aftermath of the 1970s inflation and whether prices and wages returned to a more stable equilibrium by the late 20th and early 21st centuries.

The 1970s - The Rise of Inflation

The decade of the 1970s was marked by a drastic increase in the general price level, also known as inflation. This period saw gas prices soar, with a gallon jumping from 49 cents to 99 cents. For a young entrepreneur like myself, who ran a lawn mowing business with my brothers, these price hikes were particularly noticeable. The increased cost of gasoline directly affected our business operations, as travel to and from jobs became more expensive.

Even after the initial price spike, prices did not revert to their pre-inflation levels. Instead, wages gradually caught up, albeit slowly over time. For my family’s business, it meant that we had to charge a little more for our services, primarily due to the increased cost of fuel. It was a bittersweet victory - on one hand, it was a reflection of a growing economy, but on the other, it brought a sense of deprivation, as we felt bad asking for the extra dollar or two.

Wages and Price Stagnation

While prices did not return to pre-inflation levels, it's important to recognize that the 1980s marked the beginning of the explosion of wealth inequality. Wages for the lower and middle classes stagnated, making it difficult for many to improve their financial situation. By the late 1990s, wages for the middle classes began to stagnate, and the trend continued into the 2000s.

The globalization and economic policies of the Reagan era set the stage for these changes. While democratic administrations tried to implement policies to address wealth inequality, conservative forces managed to thwart most attempts. This resulted in a situation where the only group seeing long-term gains in terms of wages were those in the upper classes.

Personal Account

My personal experience during this period is a testament to the long-term impacts of inflation. In just three years, I saved enough money from mowing lawns to buy a used car. However, this was not the norm. The broader economy saw significant changes, where individuals with only high school educations could no longer achieve lifelong employment, purchase homeownership, or enjoy the perks of the "American dream."

The craze of "creative financing" in the 1980s further underscored the deep-rooted issues. Home and car prices skyrocketed, increasing by more than a factor of ten, while wages barely moved. This inequality and the economic hardship faced by many is reflected in the ongoing political discussions about manufacturing jobs being "brought back," not because anyone wants to work on assembly lines, but because these jobs once offered a path to a better life.

Conclusion

The experience of the 1970s left a lasting impact on my life and the lives of many others who lived through it. The stark reality is that prices did not "go back to normal," nor did wages catch up to them. Instead, the 1980s and beyond marked an era of increasing economic disparity and a loss of the American dream for many. As we reflect on past economic policies and their long-term effects, it's crucial to consider the lessons learned and how to build a more equitable future.

Keywords

inflation, wages, prices, economic inequality, 1970s