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Inflation Is Going to Climb, but Could New Fed Chief Make It Worse?

To understand our economy’s future, it helps to know our political past.

In 1970, President Nixon appointed respected economist Arthur Burns to head the Federal Reserve System. Prices were rising, but so was unemployment. Nixon, convinced that joblessness was the bigger of the two obstacles to his 1972 re-election bid, came up with a plan: He would pressure Burns to keep interest rates low, thereby helping ensure a robust economy during the run-up to the election.

Burns capitulated, but inflation got worse.

Nixon responded in August of 1971 by imposing wage and price controls, which suppressed obvious symptoms of inflation but did nothing to tame the underlying cause. After the controls were lifted, inflation roared until the end of the decade, creating economic dislocations and eroding investment capital. A tactic meant to reduce unemployment ended up creating a years-long inflationary recession.

Burton A. Abrams is a Research Fellow at the Independent Institute and Professor of Economics at the University of Delaware. He is the author of the new book, The Terrible 10: A Century of Economic Folly from the Independent Institute.