This opinion piece in the New York Times gives a brief rundown of the 1970’s inflation and the pain it took to stop it.

IN the 1970s, with inflation rising, I often described the Federal Reserve as knowing only two speeds: too fast and too slow. At the time, the Fed’s idea was to combat recession by promoting expansion, printing money and making it easier for businesses and households to borrow “” and worry only later about the inflation that resulted. That strategy produced a sorry decade of slow productivity growth, rising unemployment and, yes, rising inflation. If President Obama and the Fed continue down their current path, we could see a repeat of those dreadful inflationary years.

Back then, as now, the members of the Fed were well aware of the harmful effects of inflation. In private, they vowed not to let it get out of hand and several times even started to do something about it. But when their anti-inflationary moves caused the unemployment rate to rise to 6.5 percent or 7 percent, they forgot their promises and again began expanding the money supply and reducing interest rates.

By 1979, reported rates of inflation, worsened by the oil shock, had reached double digits. Opinion polls showed that the public now considered inflation to be the main economic problem. President Jimmy Carter’s choice for chairman of the Fed, Paul Volcker, said that he would fight inflation more deliberately than his predecessors. The president agreed with him, as did the chairmen of the Congressional banking committees.

With the public acceptance of the importance of low inflation, support in the administration and in Congress, and a chairman committed to the task, the Fed finally set out to correct what it had too long neglected. Instead of working only to avoid unemployment, the Fed sought to bring inflation back under control. Instead of flooding the market and banks with money, the Fed tightened its reserves. And instead of keeping interest rates in a narrow, relatively low range, Mr. Volcker let the market dictate the interest rate, allowing the prime rate to go as high as 21.5 percent.

Inflation is a Tax

Inflation is a tax that hits the old and the poor especially hard.

Inflation is a tax on the old because all the money they saved over all those years is now worth significantly less simply because of high inflation.

Inflation is a tax on the poor because they don’t have the market power to readily negotiate the higher wages needed to keep up with high inflation. Their wages fall in real terms.

Good Old Days

However, real estate is a traditional inflation hedge and if, in addition, interest rates take off in future years, today may end up being the good old days.