rly 1960s, annual price increases are now at only a third or a fourth of the level of the late 1970s. In some walks of life there have been price decreases--not always welcome, for example by California homeowners whose homes are worth less now than in the late 1980s. (Of course, this same decrease is welcome news to first-time homebuyers.) Nevertheless, inflation reminds in the background of our economic life. Presidents of both parties are anxious when the Federal Reserve Board increases interest rates at the first sign of a boom, lest inflation be re-ignited.
So dominant has been the part that inflation played in the American economy in the past generation that it has come to be viewed somewhat as the Depression was viewed by an earlier generation. Jimmy Carter was widely viewed as an unsuccessful President--and lost his bid for re-election in 1980--largely because of the runaway inflation of the time. On the other side of the coin, admirers of Ronald Reagan claim as one of his most important domestic achievements the "beating" of inflation, which indeed dropped sharply during his term in office.
The remainder of this discussion will be devoted to an examination of the patterns of inflation in the 1970s and 1980s, and to an evaluation of the role of Reagan's economic policies with respect to inflation. Did Reagan-era policies, in fact, play a substantial role in the reduction of inflation? Or was he the beneficiary (and Carter the victim) of outside forces beyond any president's control?
In order to evaluate inflation, we must first know how much there was, when and why it happened, and why after peaking in 1980, it dropped off sharply in the years that followed. From 1967 through 1977, the Consumer Price Index (CPI), the broad measure of the prices paid by Americans for a broad range of consumer goods, nearly doubled, from 33.4 in 1967 to 60.6 in 1977. (The specific
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