Awful inflation. Severe recessions. Never again? Maybe. Economic policy in Washington has changed since Arthur Burns presided over the Federal Reserve from 1970 to 1977.
The change may mean that the United States will not again experience the double-digit inflation that shocked the nation in 1979 and 1980. Inflation might double or triple from its current under 2 percent annual rate. But 10 or 13 percent inflation is seen as highly unlikely.
Possibly future recessions also will be less severe than the worst of the 11 in the post World War II years.
These conclusions can be drawn from monetary history. In an article in the latest Economic Quarterly of the Fed's Richmond branch, one of that bank's economists, Robert Hertzel, examines the economic thinking of the late Dr. Burns, one of the giants among modern economists. It shows how Fed thinking has shifted dramatically since then.
Bespectacled, his graying hair parted down the middle, Burns was a familiar figure to Americans in the late 1960s and 1970s. He was as well known as Fed chairman Alan Greenspan is today.
"For the public, and especially for the business community, Burns embodied opposition to inflation," notes Mr. Hertzel, who is writing a monetary history of the postwar years.
"Nevertheless, during his tenure as head of the Fed, high rates of inflation became a pervasive fact of American life. How could that have happened?"
Anybody old enough will recall those inflationary years. Consumer prices, for example, went up 8.7 percent in 1973, 12.3 percent in 1974, 6.9 percent in 1975, and even more just after Burns left the Fed.
The odd fact is that Burns, like many economists at that time, did not consider monetary policy as the driving force behind inflation.
"He believed," writes Hertzel, "that inflation emanated primarily from an inflationary psychology produced by a lack of discipline in government fiscal policy and from private monopoly power, especially of labor unions."
So Burns wasn't overly concerned by 7 percent per year growth in the nation's money supply. "He did not consider money to be a major independent influence on economic activity or inflation," notes Hertzel.
The consensus has altered. Inflation is now widely regarded by economists as a monetary phenomenon - a result of too much money being created by the Fed. The Fed's prime responsibility is seen as controlling inflation - not managing the economy.
Money is currency, checking accounts, plus some savings that can be readily used by consumers to buy goods and services. When the Fed creates more money through the banking system, consumers will spend some of it. This extra spending, if the economy is booming, will allow business to raise prices, and workers to demand higher wages and thereby raise costs.
Though inflation is today nowhere in sight, some economists are troubled by the fact that money (M-2) is again growing at a 7 percent annual rate. That growth, they suspect, will prompt more inflation after the usual lag of two or three years.
Mr. Greenspan, on occasion mentions this rapid money growth. But he is counting on trouble in Asia to slow the US economy sufficiently to keep inflation under control.
With inflation so low, it would be politically risky for the Fed to raise interest rates to slow money growth. It would hit stock markets around the world, annoy businesspeople, and probably spark hearings on monetary policy by an upset Congress.
Nonetheless, at any whiff of inflation, the Fed will act quickly to slow money growth, economists reckon.
So inflation is less likely to take off. It will be snuffed out rapidly.
Former Fed chairman Paul Volcker stopped 1970s inflation by turning to a "monetarist" policy in 1979. He set a money-growth target, rather than an interest-rate goal. Short-term interest rates rose briefly above 20 percent. This prompted a deep recession in 1981-82.
If the Fed moves quickly against renewed inflation today, it may need only a small slump to tame it.
Burns, seeing inflation as largely a non-monetary phenomenon, sought to restrain prices by campaigning in the Nixon administration for wage and price controls. He was successful. They were enacted Aug. 15, 1971.
Burns was then willing to continue an expansionary - and ultimately inflationary - monetary policy.
There is no talk today in the US of wage and price controls. Of course, there is not much inflation. But even if there was, it is unlikely there will be much pressure for those measures. That's partly because Nixon's experiment with controls didn't stop inflation. Also the US has become much more integrated in the world economy since the 1970s. Price controls would require all sorts of restraints on exports and imports.
They just wouldn't be practical.
* David R. Francis is the Monitor's senior economics correspondent.