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Is America Going Through a Repeat of 1940s-Style Inflation?

Macro

The 1940s were a turbulent decade for the U.S.

With the effects of the Great Depression still lingering and the US’s entry into World War II, the US government assumed a powerful role in the economy. From rationing to the implementation of price controls, the American economy was transformed into a command economy in order to carry out the war effort.

This resulted in increased employment, but it came with significant costs. There were widespread shortages of basic goods due to resources being diverted to help bolster the war effort. On top of that, economic freedom was heavily restricted through the enactment of price controls, minimum wage standards, big businesses being ordered to rearrange their economic activity to advance Washington’s war agenda, and heightened government spending.

This caused significant disruptions throughout the American economy, which manifested itself in the form of increased inflation. While employment levels improved significantly, this entire process incurred significant costs for the everyday American whose economic standard of living dropped markedly. 

It wasn’t until the end of World War II and the subsequent retrenchment of the US government, that things went back to normal.

Unfortunately, politicians have not learned the lessons from the Great Depression and New Deal era and are doubling down on intervention as we speak.