The Mystery of Inflation : Throughline Gas. Meat. Flights. Houses. The price of things have gone up by as much as nine percent since last year. The same amount of money gets you less stuff. It's inflation: a concept that's easy to feel but hard to understand. Its causes are complex, but it isn't some kind of naturally-occurring phenomenon — and neither are the ways in which governments try to fight it.

The Mystery of Inflation

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WILLIAM RANSBY: It's outrageous. I mean, if I was to fill my truck up, which I'm not, and this transfer tank, that's over $600.


It's a hot day in July and people are lining up at the Food 4 Less gas station in Lemon Grove, Calif., a small city just east of San Diego, to fuel up.

RANSBY: See, normally those two would have been $61.

ARABLOUEI: That's William Ransby (ph). He's filling up three, 5-gallon gas cans for his work equipment. He's a contractor.

RANSBY: 87.01 for 15 gallons.


Today, he feels like he's getting a deal. At $5.79 a gallon, that's just under the California average, which was still a little over $6 when we met up with William.


ABDELFATAH: His company is footing the bill today. He can't afford to put gas in his personal car.

RANSBY: I just use enough fuel to get me to and from work, and I stay at home.

ARABLOUEI: And when he does put gas in his own car, he's dipping into money he doesn't have.

RANSBY: I use a combination of credit cards and cash. You know, if I don't have enough cash, then I'll use my credit card. But I prefer to use cash. That way, I'm not going into debt any further. You know, that's the toughest thing is staying out of debt.

JUNE PYHALA: Yeah, that's scary. It's very scary.

ABDELFATAH: June Pyhala (ph), a stockroom worker also getting gas, knows all about that. As prices rise, her paycheck just isn't getting her as far as it used to. And she's worried.

PYHALA: I see people in their 70s and 80s having to go back to work after they've been retired for 10, 15 years, you know. I wanted to retire at 62. Now - and then I would say, well, all right, 65. Now, maybe 67 (laughter). You know, so, you know, I don't know, maybe never. I don't know. Depends on how long this inflation really lasts, you know.


ARABLOUEI: Inflation - the word itself can sound like an incantation, something nebulous and hard to pin down. But it's also something many of us feel every single day at the gas pump or the grocery store.

ABDELFATAH: For millions of Americans like June and William, it means that their money doesn't go as far. It means that they can't pay their bills or meet their family's needs.

ARABLOUEI: It means that the meat you buy for dinner is a few dollars more expensive this year than it was last year, that filling your gas tank now might completely break your budget.

ABDELFATAH: Inflation is like this ethereal force that actually changes the way we live our lives, yet very few of us actually understand why it happens and what we can do about it. And that - that can feel terrible, like it's totally out of our control.


JEROME POWELL: One way to say it would be we - I think we now understand better how little we understand...


POWELL: ...About...


POWELL: ...Inflation.

UNIDENTIFIED PERSON #1: ...Very reassuring.


ARABLOUEI: That was Jerome Powell, the head of the U.S. Federal Reserve, a person paid to think about inflation, saying he doesn't really know how it works.

JOHN COCHRANE: Different people have different meanings. So...

ABDELFATAH: And this is John Cochrane. He's a senior fellow at Stanford University's Hoover Institution, and he's also known as The Grumpy Economist.

COCHRANE: Ah, "The Grumpy Economist" is the name of my blog. I'm not really a grumpy person.

MEG JACOBS: There are varying views and understandings of inflation at any moment and certainly at this moment.

ARABLOUEI: Meg Jacobs is a historian at Princeton University.

JACOBS: I've written recently about the energy crisis of the 1970s, and I'm working on a book now about the Great Depression and World War II.

ABDELFATAH: What you believe to be the cause of inflation probably depends on how you view the world, what you think the causes of economic success and failure are for the country. Meg and John, they have very different views.

COCHRANE: There is, of course, lots of political spin on this question.

ABDELFATAH: John says the root cause of the inflation we're experiencing right now is big government spending, especially during the pandemic. Pretty much, too many people have too much money to spend.

COCHRANE: The wildly overdone stimulus, printing and borrowing money and sending people checks.

ARABLOUEI: Meanwhile, Meg says current inflation is a result of Russia's invasion of Ukraine, ongoing pandemic supply chain issues and corporations raising prices in an opportunistic way to bring in record-breaking profits.

JACOBS: That's where all of this sort of greedflation (ph) kind of stuff comes in.

COCHRANE: So it shows up - one thing is inflation is always chaotic.

ARABLOUEI: OK. It's here. It's chaotic. So how do we fix it?

JACOBS: I think that there are real differences of how we understand the proper course of action. And I think that those differences stem from a genuine uncertainty about what is going on exactly in the economy, as well as real policy differences.


UNIDENTIFIED REPORTER #1: The countdown is on to the Fed decision.

UNIDENTIFIED REPORTER #2: The Fed is raising interest rates, and this affects all of us.

UNIDENTIFIED REPORTER #3: It's a proven solution. Higher interest rates make it more expensive to borrow money.

UNIDENTIFIED REPORTER #4: The hope is by raising interest rates, they'll slow the economy.

UNIDENTIFIED REPORTER #5: Don't fight the Fed.


ARABLOUEI: For the past few generations, the Fed - the U.S.'s central bank - has been the main institution responsible for dealing with inflation. And what it usually does is raise interest rates, which makes borrowing more expensive and as a result, drives down demand, usually causing a recession, which causes prices to drop, in theory, restoring balance to the economy. And then we start all over again. The Matrix reloads.

ABDELFATAH: But does it have to be this way? Do we have to recession our way out of this? Have we always done it this way?

ARABLOUEI: The answer is no. The U.S. has tried different ways to deal with inflation for over a century - sometimes successfully, sometimes not.

ABDELFATAH: In this episode of THROUGHLINE from NPR, we're going to go back and meet everyone from an army of militant housewives to a president trying to do his best FDR impression in a moment of oil crisis to a Fed chair who wasn't afraid to shock the country. In the process, we'll learn the incredible, sometimes surprising ways the U.S. has tried to solve the mystery of inflation.

STEFAN RUSSELL: Hey, this is Stefan Russell from Mobile, Ala., and you're listening to one of my favorite shows, THROUGHLINE from NPR.

UNIDENTIFIED PERSON #2: Part 1 - hold the line.


UNIDENTIFIED ACTORS: (Chanting) Keep prices down. Pay no more than the ceiling. Keep prices down. Pay no more than the ceiling. Keep prices down...

ABDELFATAH: It's a balmy April day in Queens, N.Y. The year is 1945.

UNIDENTIFIED ACTORS: ...(Chanting) No more than the ceiling. Keep prices down. Pay no more than the ceiling...

ABDELFATAH: Thirty women pushing strollers are chanting, holding up signs and reminding people in the busy Queens shopping district to honor price caps, basically price controls set by the government.

UNIDENTIFIED ACTOR #1: Please take the pamphlet. Here you go. Please take the pamphlet. Here you are.

UNIDENTIFIED ACTOR #2: Every cent you pay above the price ceiling price can dynamite price control.

ABDELFATAH: During and after World War II, inflation was a problem. Food, clothes and other necessities were rising in price. And in order to get this under control, the government set maximum prices for everyday goods.

UNIDENTIFIED ACTOR #3: Watch the extra pennies. They are booby traps.

ABDELFATAH: And these women in Queens, chanting and handing out pamphlets, were trying to make sure no businesses charged more than the price controls allowed.

UNIDENTIFIED ACTOR #4: We'll be here every Thursday. If you see high prices, tell us. We'll keep your name confidential.


JACOBS: These sort of volunteer housewives would march in with the authority of the federal government behind them and inspect. They were called snoopsters. They were called a kitchen Gestapo.

ABDELFATAH: Kitchen Gestapo - maybe a little over-the-top, but that's what the opponents of price controls called them.

JACOBS: All of these sort of negative connotations. But largely, the program was successful because who wants to be subject to profiteering?

ABDELFATAH: Armed with a grocery list of government-sanctioned prices, these voluntary housewives were essentially the foot soldiers of a new federal department called the Office of Price Administration, aka - the OPA.


UNIDENTIFIED PERSON #3: It's just a Christmas wonderland, this pricing office of the OPA in Washington. And this...

ABDELFATAH: Established in 1941 by President Roosevelt's administration, the OPA was created in response to the U.S.'s rapidly changing economy, an economy that had just recovered from the Great Depression and was now entering a boom period sparked by World War II.

JACOBS: So you had people with lots of jobs, high pay, chasing after fewer goods because the market had shifted to military production.


FRANKLIN ROOSEVELT: You do not have to be a professor of mathematics or economics to see that if people with plenty of cash start bidding against each other for scarce goods, the price of those goods goes up.

ABDELFATAH: The U.S. government more or less forced many big industries to change their production from consumer goods to military equipment. Think car companies making tanks instead of Cadillacs. To fulfill these government contracts, tons more jobs were created. But since all the production was going to the war, there was less stuff for the workers to buy with that money. Lots of demand and very little supply equals inflation.


ROOSEVELT: If the vicious spiral of inflation ever gets under way, the whole economic system will stagger. Prices and wages will go up so rapidly that the entire production program will be in danger.

ABDELFATAH: Speaking directly to the public on the radio during his now famous Fireside Chats, President Roosevelt connected the war against inflation with the war against Germany and Japan.


ROOSEVELT: I realize that it may seem to you to be over-stressing these economic problems at a time like this when we are all deeply concerned about the news from far distant fields of battle, but I give you the solemn assurance that failure to solve this problem here at home, and to solve it now, will make more difficult the winning of this war.

ABDELFATAH: And Roosevelt laid out what he and his administration saw as a solution.


ROOSEVELT: We must fix ceilings on prices and rents.

ABDELFATAH: The Office of Price Administration established set prices for everyday items - from nylon stockings - $1.25 a pair - to milk - $0.15 a quart - to eggs - $0.61 a dozen.

JACOBS: Price lists were transparent. They were printed in newspapers, retailers and merchants were required to hang them in their stores. In the case of shopping, grocery lists, you know, the OPA printed them up in, like, 14 different languages and distributed them directly to the housewives.

UNIDENTIFIED ACTOR #1: You, the women of America, now have what everyone has been asking for - top legal prices for market basket items. When you go shopping, you will know the correct top price. You are an active and necessary partner in the business of holding down the cost of living.

ABDELFATAH: As time went on, the OPA grew bigger and bigger, employing more people and controlling more prices.

JACOBS: So it was really big. It had more economists, I believe, than in the Treasury Department. They had about 60,000 employees in a very short period of time.

ABDELFATAH: And in order for the OPA to institute price controls, they needed to also institute something else - rations.

JACOBS: So every household received a rationing booklet, and every time you went to go buy a piece of meat, you would have to surrender your ration coupon.

ABDELFATAH: Basically, in order to be able to set caps on the prices of things, you needed to be able to limit how much of that thing people could buy. Because if you say, for example, steak can only cost $0.32 a pound but allow people to buy as many pounds as they want, well, then you haven't solved the supply issue because you'll run out of steaks. So rationing was an important part of the OPA's work. And they created propaganda to tie rationing to patriotic duty.


JACOBS: Twenty million housewives signed what were called homefront pledges...

UNIDENTIFIED ACTOR #2: I will pay no more...

UNIDENTIFIED ACTOR #3: I will pay no more...

UNIDENTIFIED ACTOR #4: I will pay no more than top legal prices.

JACOBS: ...Where they would promise not to pay more than government price ceilings.

UNIDENTIFIED ACTOR #3: I will accept no rationed goods...

UNIDENTIFIED ACTOR #4: ...Without giving up...

UNIDENTIFIED ACTOR #2: ...Ration stamps.

JACOBS: If you violated these price ceilings, you could be subject to fines. Now, how did you get fined? You got fined if someone registered a complaint against you.

Nearly a quarter of a million volunteers who sat on these little OPA's, as they were called, about 5,000 sort of local community boards where you could say, you know, the guy down the street, he's charging too much for his radio.

ABDELFATAH: And these volunteers would take that complaint and report the guy selling radios to the OPA, who would get him to lower his prices or slap him with a fine. It can sound a little Big Brother, but these OPA volunteers felt they were preserving an American way of life.

UNIDENTIFIED ACTOR #5: If these selfish individuals are allowed to operate unhampered and unchecked, they will wreck our economic structure and run our cost of living up to unheard heights.


ABDELFATAH: But the reality was rations often meant that people had to go without things. They might go to the store and find out there was no more meat left that day. Still, on the whole, more people got what they needed.

JACOBS: The percentage of protein consumed went up higher for the bottom proportion of the population than the top. That is, those at the bottom were eating more meat than they had been before the war. And OPA was responsible for that.

ABDELFATAH: And ultimately, it worked. The OPA's policies kept inflation at bay. Before price controls and rationing, inflation was rising by more than 20%, but once they were put in place, prices stabilized. Of course, not everyone was a fan.

COCHRANE: Suppose you're a business and, you know, you need some - you need a ball bearing, and your whole business is going to fall apart. Well, with price controls - and price controls mean shortages. When there - there's only so much to go around. And how do you get it? Well, your whole business is shut down if you can't get ball bearings.


ABDELFATAH: By the time the war ended in 1945, the opposition to price controls had really intensified. The National Association of Manufacturers led a public relations campaign against the OPA. It took out entire pages in newspapers to get their message across, blaming price controls for the lack of available goods.

UNIDENTIFIED ACTOR #5: Would you like some butter or a roast of beef? Well, here's why OPA ceilings make them hard to get. OPA means low production. Low production means black markets. Black markets mean needlessly high prices.

ABDELFATAH: As the country transitioned from war to peace, the economy had to adjust. Industries were going back to making things like cars instead of tanks. Workers had to be retrained. And so a battle emerged about whether price controls were still necessary.

With housewives and most Democrats on one side...

UNIDENTIFIED ACTOR #6: I speak for thousands of housewives who want prices kept under control. Let the National Association of Manufacturers sweat it out.

ABDELFATAH: ...And Republican-backed industries on the other.

UNIDENTIFIED ACTOR #7: If my family needs meat, I'm going to get it wherever I can.

JACOBS: And what happens then is everyone from meatpackers to dress manufacturers to car manufacturers say, OK, well, you know, if you want us to keep making everything in a civilian economy where we're not guaranteed government contracts, then you need to let us charge what we think we need to earn in order to make profit, in order to invest, in order to expand our production.

And if you don't, we're going to try to make you.

ABDELFATAH: And some businesses decided to up profits by basically skimping the consumers.

JACOBS: Was the butcher sort of adding an extra piece of fat there and actually degrading the value of your piece of meat?

ABDELFATAH: Candy bars weighed less, but cost the same. Shoes and clothing were shoddier. Yet, despite the efforts of industry, most Americans were in favor of extending price controls because they wanted prices to stay low. So when the government tried to extend price controls, the meatpackers decided to play hardball.

JACOBS: To make sure that that doesn't happen, the packers withdraw their meat from market and basically starve the public into submission.

ARABLOUEI: Wow. So they held steaks as hostage?

JACOBS: Yeah. They took the heart right to the bellies of American consumers.

ABDELFATAH: Suddenly, meat shortages got worse, and the meatpackers blamed price controls. Within months, the American public started to turn against the OPA.

UNIDENTIFIED HOUSEWIFE #1: I am just one of the many thousands of harassed housewives trying to feed a family and keep them healthy during these days of no meat.

ABDELFATAH: The meatpackers and manufacturers had won.

UNIDENTIFIED HOUSEWIFE #2: The angry voice of the unorganized housewife who is helpless at this moment will have her day being heard in the forthcoming elections.

ABDELFATAH: And in the 1946 midterms, the Republican Party promised to bring back the meat.

JACOBS: Republicans ran on a platform simply - that simply said had enough. And the idea was, you know, have you had enough of all these wartime controls? Wouldn't you like to get rid of them, go back to life as it is, and then you'll be able to buy everything you want to buy?

ABDELFATAH: The message worked. Republicans won and took over Congress for the first time since 1930. Prices for everyday items shot up. Wholesale meat prices soared 89%, and by 1947, the rate of inflation was a whopping 20%.


ABDELFATAH: The U.S. experiment using large-scale government price controls to respond to inflation was over. Coming up, another U.S. president tries it again in a moment of economic crisis and ends up losing it all.

JESSICA: Hi, this is Jessica from Dover, Mich., and you're listening to THROUGHLINE from NPR.

ARABLOUEI: Part 2 - inflation bonanza.


ABDELFATAH: August 15, 1971, was just like any other Sunday.


ABDELFATAH: As evening fell, millions of Americans sat back on their couches, kicked up their feet and turned the dials on their TVs to NBC to catch that week's episode of "Bonanza." "Bonanza" was one of the most popular primetime TV shows of the 1960s and early '70s. It followed a ranching family in the Wild West, and in 1971, around 20 million people watched it every week, a giant audience. Which is why on this August night, in the midst of the war in Vietnam, President Nixon preempted the broadcast with an urgent message.


UNIDENTIFIED ANNOUNCER: We interrupt this program for a special news bulletin.

RICHARD NIXON: Good evening. This Sunday evening is an appropriate time for us to turn our attention to the challenges of peace. One of the cruelest legacies of the artificial prosperity produced by war is inflation. Inflation robs every American, every one of you. The time has come for decisive action, action that will break the vicious circle of spiraling prices and costs.

JACOBS: He wants to take the wind out of the sails of inflation.


NIXON: I am today ordering a freeze on all prices and wages throughout the United States for a period of 90 days.

JACOBS: It was a really closely guarded secret, and not even everyone in the White House knew he was going to be doing this, to say, I'm going to impose wage and price controls.

ARABLOUEI: Imagine sitting there enjoying your favorite TV show, and suddenly there's Richard Nixon's nervous face on your screen telling you about something called price controls. It would have come out of left field. But here's the thing. The fact that he was there making that announcement was out of left field for Nixon, too. Nixon was a conservative. He was for less government involvement in that economy, yet here he is talking about a major governmental intervention. And when you look into his past, this move gets stranger.

JACOBS: So Richard Nixon's first job, or one of his early jobs, was to serve in the tire rationing department in the Office of Price Administration.

ARABLOUEI: You heard that right. Richard Nixon once worked for the OPA.

JACOBS: Which he claims he left to go join the Navy because he was disgusted by what he perceived to be the subversion of the capitalist system by OPA.

ARABLOUEI: When Nixon got out of the Navy in 1946, he immediately ran for Congress. His whole campaign railed against the government interventions of the 1940s, interventions he had once been paid to enforce, like price controls and the OPA.

JACOBS: And he wins.


NIXON: Government didn't build the cities of America. The government didn't train the best skilled labor force that the world has ever seen in America. Private enterprise did.

JACOBS: I'm against sort of overweening government intervention.


NIXON: We've tried the big government way. Now let's try the private enterprise people way in order to get progress for America. That's my solution.


JACOBS: Until he's not.


UNIDENTIFIED PERSON #2: We had lines that used to start 4 o'clock in the morning. Now, this station didn't open till 7.

UNIDENTIFIED PERSON #3: How much have you got left in there?

UNIDENTIFIED PERSON #4: None. It's empty.

UNIDENTIFIED PERSON #2: And as far as the eye could see, there was a never-ending line of automobiles. It got so bad during the month of February that I honestly broke down twice and cried.

ABDELFATAH: When Richard Nixon became president in 1969, the U.S. was already experiencing high inflation. But in the 1970s, it got a lot worse. Lots of things got more expensive, like food and clothes. And gas prices got so high that some people went on strike to protest them. People wanted the government to do something about it. So President Nixon, under pressure, instituted price controls, but not the way FDR did.


NIXON: The wage-price freeze will not be accompanied by the establishment of a huge price control bureaucracy.

JACOBS: There are no, you know, 20 million housewives signing pledges. There are no OPAs. There are no dollars-and-cents shopping lists.


NIXON: I am relying on the voluntary cooperation of all Americans to make this freeze work.

JACOBS: There is no rationing, and that's a big one. So to do price controls without rationing is kind of a nightmare.

ABDELFATAH: That's because if you set a control on prices but don't cap how much a consumer can buy, then some people will buy more than their share. And then supply will go down, causing more inflation. This is why rationing was a key part of the OPA's price control program back in World War II.

COCHRANE: If there's not enough gas to go around, it's going to be rationed. And it's either rationed by price or by time. If you want gas, you're either going to have to pay money for it or you're going to have to spend an hour sitting in line.


ARABLOUEI: President Nixon wasn't fully committed to price controls. And because of that, they didn't really work.

JACOBS: They are not super enthusiastic in how they're applied. They're not super useful. They take them on. They put them off. They take them on. They put them off.

ARABLOUEI: Prices got higher, and lines got longer - not the outcome Nixon probably hoped for.

JACOBS: They're really ineffectual.

COCHRANE: And it was a disaster.

JACOBS: You just had this situation where consumers grew angrier and angrier and super cynical.

ARABLOUEI: And the rest of Nixon's presidency would only increase that cynicism.


UNIDENTIFIED PERSON #5: The president of the United States, as you know, who said he was getting elected to end the war, turned out to be very far from the truth.

UNIDENTIFIED REPORTER #6: Good evening. The biggest White House scandal in a century - the Watergate scandal - broke wide open today.

UNIDENTIFIED PERSON #6: Who can you trust if you can't trust the president?

JACOBS: And all of that sort of erodes faith that government, you know, can actually control the situation.


NIXON: I shall resign the presidency, effective at noon tomorrow. Vice President Ford will be sworn in as president at that hour in this office.


ABDELFATAH: The government's lies during the Vietnam War and Nixon's disastrous presidency had shaken many Americans' faith in their government. But it wasn't just a crisis of trust, it was a reckoning. People started to wonder, is the government really here for us? Can we trust what it says? And how much power should it have? After Nixon's failed experiment with price controls, the U.S. economy experienced ups and downs throughout the 1970s.

Jimmy Carter, a Democrat, became president in 1976. And by 1979, with inflation again surging, the nation and its attitude towards government had changed.

JACOBS: By the summer of '79, Americans are back on the gas lines, and guess what? They're furious.


UNIDENTIFIED PERSON #7: And I will not take the blame for this thing. I will not take the crap and the harassment from these customers.

JACOBS: People could get violent. People shot other people on gas lines.


UNIDENTIFIED PERSON #8: This is unreal. Isn't this disgusting? Why doesn't anybody contact the president? Why is he letting this happen to us?

JACOBS: Carter, kiss my gas was a popular bumper sticker.


UNIDENTIFIED PERSON #9: After two hours of pumping, that's 1,500 gallons gone. At that time, there is no sense keeping the pumps open because there's nothing left to sell.

COCHRANE: I think the nation was really sick of inflation. It was clear that we got to do something about it.


UNIDENTIFIED PERSON #9: ...My off day, went down there and tell everybody we had no gas. Forget about it. And everybody still - they don't listen.


ARABLOUEI: President Carter was under pressure, and he had to shake things up, do something drastic. So he appoints a guy named Paul Volcker to head up the U.S. Federal Reserve.

UNIDENTIFIED ACTOR #5: (As Paul Volcker) We can't always be looking at the worst. If we're going to balance these risks of inflation and recession, we have to run not too scared. So it is a question of bringing about a balance.

ARABLOUEI: Volcker, heard here in a reenactment, was a shrewd economist with an Ivy League education. He told Carter he would do whatever it took to bring down inflation. The Fed only has so many tools in its toolbox to wrangle the economy. One of them is controlling interest rates. Volcker thought that by raising interest rates, the Fed could cool down the economy and conquer inflation. Raising interest rates would make borrowing money more costly. That meant when people went to get loans from the bank to buy, say, a home, it was much more expensive, so they might not make that purchase. And that applied not just to people, but to companies, too.

ABDELFATAH: Now, this strategy had a downside. It would likely raise unemployment and tip the country into a recession. But that was a sacrifice Carter was willing to make by appointing Volcker. He was desperate to deal with inflation and maybe, just maybe, save his hopes for reelection in the process. But it was too late for Carter to convince voters he could bring down inflation.

ARABLOUEI: Enter former Hollywood actor and governor of California, Ronald Reagan.


RONALD REAGAN: One of the things is that people keep looking to government for the answer, and government's the problem.

ARABLOUEI: His message was simple - the government cannot solve your problems. The government is the problem. And that message found an audience.


REAGAN: There's very little that government can do as efficiently and as economically as the people can do themselves. And if government would shut the doors and sneak away for about three weeks, we'd never miss them.

ABDELFATAH: In 1980, Americans elected Ronald Reagan as their new president. With his warm, reassuring smile, Reagan delivered a simple message.


REAGAN: For those who've abandoned hope, we'll restore hope, and we'll welcome them into a great national crusade to make America great again.

COCHRANE: We want to go back to a growing economy, but I think it takes some pain to get there.

ARABLOUEI: And the pain was going to come from Paul Volcker...

UNIDENTIFIED ACTOR: (As Paul Volcker) Now, I'm not saying that unemployment will not rise.

ARABLOUEI: ...Who was still running the Fed and continuing to raise interest rates by restricting money growth.

UNIDENTIFIED ACTOR #8: (As Paul Volcker) I am saying the greater threat over a period of time would come from failing to deal with inflation rather than efforts to deal with it.

ARABLOUEI: He dialed up the rates fast - from 11% to...

JACOBS: To, like, 20%.

ABDELFATAH: Twenty percent - the highest the Fed had raised the interest rate ever, of all time. It was designed to dramatically cool down the economy and bring inflation under control. This strategy came to be known as the Volcker Shock.


UNIDENTIFIED PERSON #2: There's no jobs to be found. The country is going to the pits. The American dream is just floating right out the window.

ARABLOUEI: What did it do to, like, the average person? What did - what kind of impact did it have on people in the economy?

JACOBS: They lost their jobs.


UNIDENTIFIED PERSON #3: People that live from one payday to the next, like we do, suffer in the short term.

UNIDENTIFIED PERSON #2: The way things are going, it just - it's impossible.

UNIDENTIFIED PERSON #3: We can't survive two or three years while the economy readjusts and realigns and people sit down and think about our problems for a solution. We've got to do something now.

COCHRANE: There was a very deep recession.

ABDELFATAH: Almost 10 million Americans were out of work. But Volcker believed in what he was doing. He thought the pain of a recession outweighed the dangers of runaway inflation.

COCHRANE: And Reagan supported Volcker and the continued high interest rates, knowing that it was necessary to kind of change the whole mentality - but very, very difficult politically. There was, you know, people protesting in Washington, and stop this and, you know, stop strangling the economy just 'cause there's a little inflation around.

ABDELFATAH: The shock worked. In 1980, when Reagan was elected, inflation was at 13.5%. By 1983, it had dropped to 3.2%.


REAGAN: Like a sapling in springtime, our economy sprang back after a long winter and reached for the sun.

COCHRANE: The '80s were a boom for economic growth.

JACOBS: The market rallies, and there's a huge turnaround...

COCHRANE: And the sensible regulation movement of the Reagan era certainly helped that boom of economic growth.

JACOBS: ...Which allows Reagan to then run in 1984 on the campaign, it's Morning in America.


HAL RINEY: It's morning again in America.

REAGAN: We came together in a national crusade.

RINEY: And with inflation at less than half of what it was just four years ago, they can look forward with confidence to the future.

REAGAN: Greatness lies ahead of us.


ARABLOUEI: The free market, anti-government economic ideology of Ronald Reagan had won.

JACOBS: And basically, let's let it rip and let's let American businessmen do what they do best. And none of this government interference.

COCHRANE: I call it not free market economics. I call it incentive economics. You just can't get around that people respond to incentives. And when you take away their incentives, they don't respond - that all of the growth and vitality - amazing growth in certainly my lifetime and even some of yours - comes entirely from private sector innovation. And without that, we're all dead in the long run.

ABDELFATAH: With Reaganomics, government-led solutions to economic problems - things like rationing and price controls - fell out of favor, relics from a bygone era. The Volcker Shock cost millions of people jobs and caused widespread economic pain. But the strategy of the Federal Reserve raising interest rates to pull the economy out of inflation was largely seen as a success.

JACOBS: It's not that the Federal Reserve didn't exist. The Fed had existed for more than half a century. But this idea of using the Fed as a frontline defense against inflation really was an innovation.

ARABLOUEI: Coming up, the Fed gains even more power and becomes the keeper of the economy.


OKILA MAKUA: This is Okila Makua from Denver, Colo. You're listening to THROUGHLINE from NPR. Thank you.


UNIDENTIFIED PERSON #2: Part three - the great silence.


BILL CLINTON: Clearly, wise leadership from the Fed has played a very large role in our strong economy. That is why today I am pleased to announce my decision to renominate Alan Greenspan as chairman of the Federal Reserve Board.

ARABLOUEI: This is President Bill Clinton at the White House in 2000 announcing that Alan Greenspan would continue to lead the Federal Reserve.


CLINTON: For the past 12 years, Chairman Greenspan has guided the Federal Reserve with a rare combination of technical expertise, sophisticated analysis and old-fashioned common sense.

ARABLOUEI: Bill Clinton and Alan Greenspan did not always get along. They didn't necessarily share the same ideology about economics. Greenspan was a traditional fiscal conservative. He was appointed by President Reagan. While Clinton was a Democrat, a political animal who had made boosting the economy part of his bid for reelection. But Clinton ultimately respected the independence of the Federal Reserve, mostly because during his administration, the American economy saw remarkable growth.


ALAN GREENSPAN: I think it's certainly fair to say that the overall performance of the American economy has continued to surpass most forecasters expectations.

ARABLOUEI: This is Greenspan testifying before Congress on the economic growth experienced in the U.S. in the second half of the 1990s.


GREENSPAN: The current cyclical upswing is now approaching 6 years in duration, and the economy has retained considerable vigor.

ARABLOUEI: If you grew up in the 1990s like me, you might remember it as a great time economically. That's because it kind of was.


GREENSPAN: With few signs of imbalances and inflationary tensions that is - that have disrupted past expansions.

ARABLOUEI: Basically what he's saying here is that there was an amazing economic expansion in the 1990s without inflation. Greenspan's Federal Reserve played a major role in this success because he continued the tradition set by his predecessor, Paul Volcker, of acting aggressively to control monetary policy. Generally, when the economy slowed, he would push the Fed to lower interest rates. When the economy grew, the unemployment rate went down, triggering fear that inflation would happen. Then he would raise interest rates, albeit slightly.

JACOBS: I think that the '90s and the sort of Clinton era growth that was seen to be sort of spectacular and sort of in alliance with people like Alan Greenspan. And that, I believe, sort of elevated them because, you know, no one was talking about interest rates that were 20%.

ARABLOUEI: Twenty percent, like in the early '80s during the Volcker shock. The late 1990s were like the Goldilocks zone of macroeconomics. There was good economic growth, low interest rates and low inflation. It was in these years of prosperity under Alan Greenspan's leadership that the Fed's influence continued to grow. They were increasingly seen as the first option in the fight against everything from unemployment to inflation.

JACOBS: So it's easier to sort of like them as sort of, you know, your frontline defense as long as you don't have to call them in.

ARABLOUEI: Until you do.


UNIDENTIFIED REPORTER #1: The Dow tumbled more than 500 points after two pillars of the street tumbled over the weekend. Lehman Brothers, a 158-year-old firm, filed for bankruptcy.

UNIDENTIFIED REPORTER #2: Now it's official. We are in a recession.

UNIDENTIFIED PERSON #3: It is definitely a very, very difficult time and it's not going to get better quickly.

UNIDENTIFIED REPORTER #3: So in just six months, three of the five biggest independent firms on Wall Street have now disappeared.

UNIDENTIFIED REPORTER #4: But the question now - when will it end?

ARABLOUEI: In 2007, the economy crashed and the country went into a severe recession. Companies closed. Millions lost their jobs. People lost their savings. Alan Greenspan retired just a few years before, and the person who succeeded him as Fed Chairman, Ben Bernanke, was the one who had to deal with the worst economic event in generations.


BEN BERNANKE: We came extraordinarily close to a complete collapse of the global financial system, not just the United States, but of the whole global financial system.

ARABLOUEI: So the Federal Reserve was called in to save the day. They acted quickly to help the Treasury Department bail out major financial firms who were in danger of collapsing. This was a very unpopular policy because it looked like the government was essentially bailing out the Wall Street bankers whose risky investing caused the collapse in the first place.


BERNANKE: We took strong steps to try to prevent the financial system from melting down, essentially. The reason we did it was because we knew from history that the financial system is so critical to the functioning of our economy that the collapse of the financial system would have been catastrophic.

ARABLOUEI: Whether the Fed needed to make this move to bail out Wall Street is a hotly-debated topic. It's the issue that we most think of when it comes to the Fed and the 2008 financial crisis. But it further solidified the Fed's role as the government's primary agency for dealing with economic crisis. And so when it came to helping the U.S. get out of the recession, the Fed used interest rates, the tool it had relied on as an economic break-the-glass-in-case-of-emergency superpower during the Reagan years.


UNIDENTIFIED REPORTER #5: And Bernanke actually says, you know, maybe monetary policy, the level of interest rates is in the right place. They had kept them at 2%. And within a matter of weeks, he's moving to slash interest rates.

UNIDENTIFIED ACTOR #6: Federal Reserve lowered a key interest rate by a half percent Wednesday, the latest move by the government to try to keep the country from plunging into a deep recession.

ARABLOUEI: Eventually, the interest rate made it down to zero, and even after the economy stabilized and started to improve, the Fed kept it low.

COCHRANE: So the conventional view is that if the Fed were just to leave interest rates alone, you would get this - you would get a spiraling inflation or deflation. And that was widely predicted in 2008 when interest rates hit zero.

ARABLOUEI: But it didn't happen. Traditional economic theory would say that if interest rates are really low and there's economic growth, then inflation is inevitable. But for over a decade after the 2008 recession, despite very low interest rates, inflation never really spiked.

COCHRANE: Interest rates were zero, and absolutely nothing happened. Inflation batted around 1.7 to 2%. Nothing happened. So that great silence is very troubling to the conventional theories that say there should have been some horrible thing happening.

ARABLOUEI: Many policymakers viewed this as a success for the Fed, so naturally, they continue to want the Fed to keep taking the lead on dealing with issues of economic importance like recessions and inflation. A housing crisis? Have the Fed bail out the banks. Inflation? The Fed can just raise interest rates. Given the fact that there was economic growth, low unemployment and low inflation, it seems rational why people would believe the Fed was the answer. But the fact that low interest rates didn't bring on inflation on some level defied traditional economic logic.

COCHRANE: So the foundations of monetary economics were actually very deeply troubled by those 10 years of total quiet when everyone said, oh, God, don't worry. We're not having inflation.


JUDY WOODRUFF: We're going to get the latest U.S. government report on inflation tomorrow, and once again, many economists believe the spike in prices is going to be quite high compared with a year ago.

MIKA BRZEZINSKI: We learned moments ago that last month, consumer prices rose 9.1% compared to this time last year.

GEORGE STEPHANOPOULOS: Rising at the fastest rate in four decades.

ARABLOUEI: The good times would not roll.


JOE SCARBOROUGH: Worst inflation since 1981. I mean, we are going back to the days of Paul Volcker, baby. That's not good news for anybody.

ARABLOUEI: 2022. High inflation is back, and this time, unlike World War II or the 1970s, widespread price controls aren't really on the table. The only strategy seems to be what's happening right now, the Fed raising interest rates to slow demand.

COCHRANE: Basic question - if the Fed raises interest rates, by what mechanism and how much will this lower inflation? That - as a matter of scientific understanding, we're really sketchy on that basic question.

JACOBS: I think one of the challenges of today is the Fed has become so enshrined as the inflation fighter of choice that, you know, what we're not open to is, well, is this really a situation where the Fed and raising interest rates is going to help us the most? Or are there other policy innovations that we need to look to?

COCHRANE: Remember, all the Fed can do is create a little bit of a recession and hope that that slows inflation down. And that's where we're headed right now, and if that's all we do about it, it's going to be a very painful process.

ARABLOUEI: Back in Lemon Grove, Calif., at the gas station, the debates about monetary policy seem like a world away. But the reality is rising interest rates probably means some of the most intense impacts will likely be felt by many of the people here.

RANSBY: Raising interest rates just means people are going to spend that much more money. It might not be necessarily on gas, but it'll be an interest rate.

PYHALA: I wish I could do something, you know, especially with the gas prices. It's just - it's killing me, you know.

RANSBY: You know, this is - you're putting people out of a job and making them become more reliable on the government.

PYHALA: They got to have some control over these oil companies. They're making record profits off of our backs, you know.

RANSBY: So now they're sitting at home. Who's going to pay the bills? Who's going to pay their rent? How are they going to survive?

ARABLOUEI: That's it for this week's show. I'm Ramtin Arablouei.

ABDELFATAH: I'm Rund Abdelfatah, and you've been listening to THROUGHLINE from NPR.

ARABLOUEI: This episode was produced by me...

ABDELFATAH: And me, and...









AMIRI TULLOCH: Amiri Tulloch.


ABDELFATAH: Fact-checking for this episode was done by Kevin Volkl.

ARABLOUEI: Thanks to Anya Steinberg, Tessa Hall (ph), Amy Moore, Annie Downs, Mayra Sierra, Tim Kloeben (ph), Claire Trageser, Laura Finkbeiner, Tamar Charney, Kylee Sunderlin (ph) and Casey Morrell for their voiceover work. Thanks also to Kimberly Sullivan, Lyndsey McKenna, Tamar Charney and Anya Grundmann.

ABDELFATAH: And special thanks to Darian Woods.

ARABLOUEI: This episode was mixed by Josh Newell.

ABDELFATAH: Music for this episode was composed by Ramtin and his band, Drop Electric, which includes...

ANYA MIZANI: Anya Mizani.

NAVID MARVI: Navid Marvi.

SHO FUJIWARA: Sho Fujiwara.

ARABLOUEI: And finally, if you have an idea or like something you heard on this show, please write us at or hit us up on Twitter at @throughlinenpr.

ABDELFATAH: Thanks for listening.

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