In discussing the Federal Reserve’s plan to control inflation, comparison is nearly always made between today and Paul Volcker’s successful strangling of inflation in the early 1980s. I’ve been mulling this over and I’m beginning to wonder if the comparison is really warranted. Consider:
| Year | Debt (billions) | GDP (trillions) | Ratio |
| 1980 | $908 | 2.857 | 31.78 |
| 2022 | 30,930 | 23.000 | 134.47 |
It has been demonstrated empirically that the higher the national debt, the slower GDP growth. It used to be thought that there was a sort of “cliff” at 100% but that is now known to be untrue but the inverse relationship between debt and GDP continues to hold true.
There are presently differences of opinion on whether we are in a recession or not and whether the Federal Reserve can engineer a “soft landing” (a gradual slowing in growth). It seems to me that the tremendous differences in our fiscal situation now as opposed to 40 years ago must certainly figure in the discussions
I don’t really have much confidence in anyone’s predictions.
Just from a personal level, we are planning for a major recession next year to be on the safe side.
Your point is why the right analogue is the 1946-1952; not the 1970’s. That period also featured high inflation and high levels of debt.
Unfortunately, there are few alive who remember the Truman administration.
One difference; the US was the worlds largest exporter in the late 40’s; and is now the worlds largest importer.