In case you weren’t alive in the 1970s, inflation erodes the value of money. Simply put, your paycheck is worth less today than it was last week or last month. This demoralizing and frustrating decline in purchasing power can have the psychological effect of causing consumers to spend money quickly, for fear that prices will rise. There is also increased pressure on welfare and wages to keep pace with the rising cost of living. Once this cycle gets going, it’s hard to unwind. After the 1970s, this became a much-feared cautionary tale, but since it hasn’t been a big problem for four decades, there’s a sense that such concerns are overblown now that the internet, automation, the rise of income inequality, international trade, and a global market have somehow rendered it anachronistic—or that the Federal Reserve can quickly control inflation by hiking interest rates, with no discernible downside.
Here’s hoping inflation is no longer a threat, since if the old rules still apply there’s a real chance we’re overheating now.