Inflation’s Bleak Prospects. . .in 1978

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It’s the small, slow changes of life, the ones that occur a little each day, that are the hardest to see but, in the end, pack the hardest punch. Whether it’s the extra 50 calories a day we eat or the extra $50 a month we invest, the change is nearly invisible at first, but life-changing in the end. And so it is with inflation.

My grandmother was an avid reader of all things political. I have several of her books, and the other day I began reading Before the Fall: An Inside View of the Pre-Watergate White House, by William Safire. The interesting part of the book for our purposes wasn’t what Mr. Safire, one of President Nixon’s speech writers, had to say, but a 1978 news clipping I found inside the book that my grandmother evidently used as a book mark. The title of the article was “Inflation’s Bleak Prospect: Cars for $89,000 in 2023.” Here are some of the article’s bleak predictions:

If you have a wheelbarrow, keep it. You may need it to haul cash to the supermarket or clothing store to pay for the necessities of life in the not too distant future.

In 1978, most folks didn’t carry four or five credit cards (my parents didn’t have any, except for a Sears card). How about the price of an education:

The price of knowledge will climb to unprecedented heights. A four-year college education, now costing $16,000, will cost $51,000 in 1998 and $88,000 in 2008.

While Georgetown University is not the least expensive education, tuition for one year currently costs $41,393 plus various fees, books, room and board. Here is what the article said about buying a home:

The middle class dream of owning a home, already jolted by record high interest rates and housing costs, may be further dashed. A home now selling for $48,000 will cost $64,224 in five years, $85,968 in 1988 and $660,720 in 2023.

Ahh, the good old days. Here is the real kicker:

These projections were made by economists at Columbus-based Midland Mutual Life Insurance Co. And they are conservative. They are based on a 6 percent level of inflation, not the more than 10 percent annual rate in the U.S. in recent months.

Inflation of 10 percent! This article reminded me that the U.S. has not always enjoyed low inflation and low interest rates. More importantly, we shouldn’t assume that modest inflation and 4 percent mortgage rates are here to stay.

Published or Updated: March 22, 2012
About Rob Berger

Rob founded the Dough Roller in 2007. A litigation attorney in the securities industry, he lives in Northern Virginia with his wife, their two teenagers, and the family mascot, a shih tzu named Sophie.

Comments

  1. So using your tution example to get $16,000 up to about $35,000 requires an inflation rate of 2.75%.

    So that 6% they were predicting was out to lunch and goes to show that people that use a 4% inflation rate in their retirement calculations are just out to lunch.

    Thanks for the interesting article.

    CD

  2. DR says:

    You raise a good point about how and to what extent one should factor predictions of inflation into retirement analysis. I thought the example of the cost of an education was interesting in that a four-year education has gone from $16,000 to $140,000 ($35,000/year) since 1978 (although there are less expensive alternatives to Georgetown). Of course, how many of us will be funding a four-year education in retirement?

  3. Great, great post. Vast majority of people take the last 5-10 years and assume that the exact same situation will continue indefinitely into the future. This includes economic “experts” every bit as much as regular people. In reality the exact opposite is true. Whatever is out of whack in the past ~10 years will likely be fixed in the following ~10 and an entirely different set of “existential” crises will emerge. And it’s certainly true in investing. Worst thing you could do is invest with a rear-view mirror perspective. The great decade of 1990s for stocks was followed by miserable 2000s. Miserable 1990s for gold were followed by incredible 2000s gold bull market. Bonds have been booming for both 1990s and 2000s (and 1980s for that matter). You guess what the coming decade will bring.

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