I was reminded at this year’s high school graduation that recent high school graduates weren’t born the last time this country had significant inflation. I, on the other hand, am old enough to remember well the late 1970s and early 1980s. We had high unemployment, high inflation and high interest rates.  It was not a happy time, which President Carter summarized as a malaise. Many people called it “Stagflation.” Are we headed back to that unhappy time?

In 2011 so far, we have only one third of the 1980 conditions — high unemployment.  There are indications high interest rates and inflation may soon afflict us once again. The official inflation rate was only 1.6 percent for 2010. In March of this year, inflation was 3.2 percent. That sounds pretty good in historical terms, but I’m left with nagging doubts about whether that rate is true.  My most important source of information about prices is my wife.  She tells me that a loaf of bread costs $1.59 a loaf and a gallon of milk costs $3.59 a gallon. I remember the 1950s when my mother sent me to the neighborhood store with a quarter to buy a loaf of bread; I returned with a loaf of bread and change. I personally know that the price of gasoline has radically risen since last year.  That increase must eventually raise prices throughout our economy because the cost of products and services will necessarily increase as energy becomes more expensive. I don’t know enough about economics to understand how the government calculates inflation, but I suspect real inflation is a lot higher than the official rate.There are other indices beside Depa rtment of Labor statistics to judge the relative value of the dollar.  For instance, the price of an ounce of gold increased from $1220 per ounce on 11 June 2010 to $1,534 per ounce on June 9, 2011. One Euro was worth $1.22 on 10 June 2010. On 9 June 2011 one Euro was worth $1.44. Since oil is priced in U.S. dollars, the cost of a barrel of oil also indicates the relative value of our money. Last year on 11 June, oil cost about $73.78 a barrel. On June 3, 2011, it cost $100.22 a barrel.  Those indices indicate a real inflation rate a lot more than 3.2 percent.

If you want a very challenging study, try to understand the causes of inflation.  Every economist seems to have his or her own theory.  In simple terms, if you increase the supply of dollars and everything else is constant, prices in dollars will increase. We certainly have increased the supply of U.S. dollars lately. The Obama administration has executed Quantitative Easement (QE) I and Quantitative Easement (QE) II. As I understand it, Quantitative Easement means the Federal Reserve ceates dollars with which to buy Federal debt.  QE 1 was $1750 billion and QE 2 was $600 billion.  That means at least 350 billion more dollars are circulating now than before the original QE. There is some discussion of a QE3, but Republicans will not support it so that idea is dead.  Good.

QE2 ended in June. Now the government must borrow money on the open market from individuals and large institutions. Some people estimate that interest rates on Federal debt will increase because the risk is too great to buy U.S. debt at current low interest rates.

Then there is the stimulus program of the past two and a half years —called the American Recovery and Reinvestment Act of 2009 (ARRA). The  government authorized spending of $787 billion in February 2009 primarily to lower the unemployment rate. We were told that, if Congress passed ARRA, unemployment wouldn’t go over 8 percent. ARRA hasn’t worked out well.

Most people have become more pessimistic in the last few months that unemployment will improve significantly in the next year. If the analysis above is correct, inflation and interest rates will rise to high levels alongside high unemployment.  In my judgment, we may repeat the malaise of Jimmy Carter.

I learned early in my military career that any fool can spot problems.  Never bring a problem to your commander unless you have a recommended solution. My fix is to let capitalism work. Control our debt by reducing government so we don’t borrow so much money or print so much money.  Regulate less and generally make the environment favorable to business. That will lower unemployment.  I can say that with confidence because that fix worked after Carter’s malaise. Ronald Reagan liked private enterprise. He loosened the grip of government and lowered the cost of doing business.  Our economy rapidly recovered and nobody used “malaise” to describe the United States any more.

My fix has a cost.  Americans will suffer. I know that. What is the alternative?  Our present plan isn’t working and will lead to economic collapse.  It’s only a question of time. As I see it, we can suffer now or really suffer five or ten years from now.  In a democratic society, the people must decide.  I hope that the American people will study what’s going on and ignore any demagogue who claims that we can continue as we are now. We cannot.