In 1967, the average price of a three-bedroom house was $17,000. A brand new Cadillac convertible went for $6,700 and a new Volkswagen $1,497; a Hershey chocolate bar sold for a nickel; a pound of sirloin for 89 cents. Two decades later, the prices of these products had quadrupled.
The upsurge in inflation started when Lyndon Johnson decided to fight the Vietnam War without raising taxes enough to pay for it. By 1968, the war was costing the United States $3 billion dollars a month, and the federal budget skyrocketed to $179 billion. With hundreds of thousands of Americans in the military service and even more working in defense related industries, unemployment fell, wages rose, and government deficits increased. Inflation was further fueled by a series of crop failures and sharp rises in commodities, especially oil.
High inflation had many negative effects on the American economy. It wiped out many families' savings. It provoked labor turmoil, as workers went on strike for higher wages. It encouraged speculation in tangible assets--like art, precious metals, and real estate--rather than productive investment in new factories and technology. Above all, certain organized interest groups were able to keep up with inflation, while other less powerful groups, such as welfare recipients, saw the value of their benefits decline significantly.
Inflation reduced the purchasing power of most Americans. For over a decade, real family wages remained flat. By the end of the 1970s, wages had climbed just $36 over 1973 levels. Yet, inflation raised the prices of virtually all goods and services. Health care and housing, in particular, experienced price rises far above the inflation rate. The consequences were a sharp increase in the number of Americans unable to afford health insurance, and a dramatic increase in the cost of housing, which resulted in an increase in homelessness.
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