Shakespeare wrote that past is prologue. If that’s true, then there are plenty of lessons to be learned from the 12.5% mortgage I wrestled with on my three-bedroom home in suburban Atlanta back in the bad old days of the early 1980s.
That rate sounds like an exaggeration today, when a home loan above 4% seems outlandish. But my struggle to shoulder a mortgage with an interest rate almost double that of the one I’d had on my previous home in Chicago just three years earlier left a painful memory I’ll never shake.
The rate was actually below the market average—my employer paid to bring it down by 2 points to persuade me to relocate and become Business Week’s Atlanta bureau chief. And it wasn’t so high because I had bad credit or unstable employment, or even because I was a Black man moving to a city where my promotion party still couldn’t be held at the private club where my employer typically hosted such events.
It was because of inflation. Thanks to the OPEC oil shocks of the 1970s, which tripled energy prices, and the wage-price spiral, the consumer price index rose more than 14% in March 1980 over a year earlier. Ultimately, Federal Reserve Chairman Paul Volcker pushed up interest rates aggressively to slow the economy and break the inflationary cycle. The national malaise that set in under Jimmy Carter, with Americans turning down thermostats and waiting in gas lines, undid his presidency. The aftereffects were still reverberating when I moved to Atlanta less than a year after U.S. mortgage rates peaked at 18.4%, according to Freddie Mac.
While I couldn’t comprehend all the macroeconomic reasons behind inflation’s onslaught, the kitchen table economics of feeding a family of five during the greatest period of financial uncertainty in a generation scared the hell out of me. So money wasn’t wasted by my family in our new town. Church was our primary recreation. Babysitting duty was shared with neighbors. Friends were entertained at home. And rather than pay for costly flights, we drove 11 hours to Illinois for vacations.
I worried about inflation’s impact then, and I’m worried about it now. The similarities have been small, but they’re growing. Meat prices have been creeping up at my supermarket for months. Filling up my Honda CR-V costs about $10 more than it did last winter, and my parking lot raised its pandemic-tempered rates by 50% in September. (I thought it was a typo when I got the news; it wasn’t.) A contractor increased his quote for some renovation work on my home because his lumber prices were climbing so fast. Even some of the $1 pizza slice places near my apartment are upping their tab to $1.50.
I’m not alone in noticing the toll this drip-drip of higher costs is taking on daily life. The University of Michigan’s consumer sentiment index, released on Nov. 11, decreased to 66.8 from 71.7 in October. That’s close to where it was when I took out my Atlanta mortgage—and also when the financial crisis was gaining steam in 2008. An earlier Bloomberg survey of economists had forecast an increase in that index in October to 72.5—not a single economist had predicted as pessimistic a reading as actually occurred. And many politicians had seemingly equated business reopenings and a robust stock market as signs that America was moving back to a pre-pandemic normal.
But the people who’ve seen their grocery and gasoline bills rising for months told Michigan researchers a different story. Those consumers say inflation will increase by 4.9% over the next year, their most dire expectation since 2008, according to the Michigan data. And about half of all American families surveyed anticipate a decline in their inflation-adjusted income next year. Waning confidence reflects “an escalating inflation rate and the growing belief among consumers that no effective policies have yet been developed to reduce the damage from surging inflation,” Richard Curtin, director of the survey, said in a statement.
About 25% of consumers surveyed cited inflationary reductions in their living standards this month, Curtin said. And older consumers—those folks-of-a-certain-age like me—were among the two groups who say inflation is having the greatest impact on their lifestyles.
That shouldn’t come as a surprise because many seniors already live on—or envision a day when they will depend on—income sources that are relatively fixed. Think pensions (if they’re lucky) or Social Security payments—even with cost of living adjustments. Yes, IRA and 401(k) distributions, or personal savings, may be able to grow with the markets, but contributions pretty much stop once a person leaves the workforce. And today the average American man can expect to live 17 additional years after his 65th birthday, and the average woman three years beyond that, according to the National Center for Health Statistics. So the prospect of inflation eroding the value of their retirement income—and their quality of life—has a particularly chilling effect on seniors.
“Older Americans are likely more sensitive to inflation’s harm because inflation is hurting them more,” says Teresa Ghilarducci, director of the Schwartz Center for Economic Policy Analysis at the New School for Social Research and co-author of Rescuing Retirement: A Plan to Guarantee Retirement Security for All Americans. “Inflation for the elderly outpaces the average because elders spend relatively more on pricey medical care. Also, elders have more conservative investments than young workers and did not benefit from the pandemic stock market runup. Fears triggered by memories of the 1970s’ rampant inflation may be depressing elder consumer sentiment, but it is the real-life, on-the-ground experiences of inflation driving their pessimism and gloom.”
That’s especially true for baby boomers who still harbor memories of inflationary times past—like that 12.5% mortgage of mine. We remember the belt-tightening, the uncertainty of our ability to finance new homes or cars, and the sense that things were spinning out of control.
Carter—a highly admired man of impeccable character—went down to a landslide defeat to Ronald Reagan in 1980 not just because of public fatigue over the prolonged Iranian hostage crisis, but also because many voters considered him unable to tame the inflation monster. It didn’t matter that the causes were mostly beyond his control. When money becomes tight, Americans have a history of looking for someone to blame. For that reason alone, policymakers in Washington who ignore the festering inflation that’s fueling today’s kitchen table angst do so at their own peril.