Ben Stein explored in his NYTimes column, "The Great Inflation Mystery, Still Unsolved," why we have not had inflation in the last seven years or so when factors widely thought to be economically important are very similar to the 1970s when we had terrible inflation of the stagflation subtype. He discussed the theories of several prominent economists and Fed chairs, plus Ronald Reagan and Bob Dylan, and found that "we do not know what causes inflation" because "economics is an extremely inexact science." I sent him the following email, which he pronounced "fantastically interesting" in a reply:
Dear Mr. Stein:
It wasn't Burns, Reagan, Volcker, Friedman, Fisher, Greenspan, Bernanke, or Dylan. It was Sam Walton who made the difference between the 1970s and the 1990s.
In the 1970s I was an officer of an energy company and participated in a mass psychology of raising prices and wages to keep up with inflation. Nixon imposed wage and price controls in 1971 and Ford had WIN buttons, but in reality there was no effective resistance to raising prices. It got so bad that capital equipment vendors quoted prices indexed to steel prices or CPI. Our big project survived a 21% prime rate, but it did not survive the uncertainty as to total cost.
In the 1990s I was an officer of a manufacturing company whose largest and fastest-growing customer was Wal-Mart, which was also the major competitive threat to every other large retailer. This time, the psychology was exactly the opposite. The whole W-M organization was a towering, seamless, impenetrable, screaming wall against raising prices. We might be able to take a little cost and quality out of the product if we were not too obvious about it, but we absolutely, positively could not raise prices. This made us tougher on our vendors and tougher on ourselves to control costs, and we looked offshore. What Wal-Mart taught us and our competitors kept prices low for all retailers.
Indeed, economics is an extremely inexact science.
Ben Stein describes himself as a lawyer, writer, actor, and economist. He was a speech writer for Nixon during the time of the wage and price controls, but I did not know that when I wrote to him. Also, he is the son of Herb Stein, an economist who was chair of Nixon's Counsel of Economic Advisors when the controls were imposed. See Herb's reflections on Nixon's 1971 wage and price controls 25 years later. Ben is one of my favorite columnists about economic and business matters. I recommend reading his whole piece.