Who Pays to Stop Inflation?

Do you understand inflation? No? Well don’t feel bad. No one does. This is the history of the cost of trying to understand inflation and why our main strategy today may not be the band-aid we think it is.

Shit’s expensive.

Prices are climbing, wages aren’t chasing them as well as they used to, and the people that are in charge of fixing this problem keep reaching for the same response that they’ve always reached for. Raise interest rates, make borrowing cost more. Wait for people to stop spending.

We tend to treat that response, raising the interest rates, as the natural and singular fix. It seems like everyone has always been talking about inflation. I was reading an article this week about inflation and I realized that I had no idea what it was. And then I had an even more concerning realization: I don’t think anyone knows what inflation is. Or how to deal with inflation.

For most of the last century the United States fought inflation in very different ways, and the record of what worked and what failed is much different than what the current debate is willing to admit.

Raising interest rates does not always work. When it does work it can result in putting people out of jobs. Every method this country has tried, from the 1940s to today, has forced the same decision that nobody running the economy likes to talk about. Someone has to absorb the cost and the choice of who absorbs the cost has always been political.

This is the history of that choice and who has to pay for it.

The Agency that Beat Wartime Inflation

In the 1940s in neighborhoods across New York and much of the country, groups of women walked into shops with printed lists and checked the prices on the shelves against the legal ceiling.

In 1942 the federal government had asked ordinary people to police prices. The Office of Price Administration, created by Franklin Roosevelt in 1941 and given real authority by Congress early the next year, set legal ceilings on the price of nearly everything Americans bought.

Enforcing those ceilings across hundreds of thousands of stores took more inspectors than Congress would pay for so the OPA printed price lists and recruited volunteers, many of them women, to check the posted prices in neighborhood shops against the law.

Opponents in Congress and business called them ‘snoopers’ and the economist John Kenneth Galbraith, who ran the OPA’s price division, felt he had to promise there would be no “Gestapo of volunteer housewives.”

The reason for all this was war. Factories were building tanks and planes instead of cars and refrigerators, which shrank the supply of goods for ordinary people at the same time that war jobs put more money in their pockets. More money chasing fewer goods pushed prices up. So the OPA held prices down by force, freezing them on close to 90% of retail food prices, and it paired the freeze with rationing of scarce goods like sugar, coffee, gasoline, tires, and meat.

But rationing meant shortages and sacrifice and it came with a black market and a slow decline in product quality that people at the time called ‘skimpflation.’ It also meant a scarce cut of meat didn’t go to whoever could pay the most. A family of modest means, with a book of ration stamps, still got their share.

The historian Meg Jacobs has described the controlled economy as a high point for ordinary consumers, a system that protected their purchasing power and gave lower-income families reliable access to goods the open market would have priced them out of.

Measured inflation stayed low the entire time the system held.

How the controls died

The system held until the war ended and the pressure to lift it grew too strong to resist.

In mid-1946 the law authorizing price controls lapsed. Prices jumped and the cost of meat roughly doubled.

Truman and Congress put controls back on meat and the cattle ranchers and meat packers responded by holding their animals off the market.

Meat production fell more than 80% in a matter of weeks. Butcher counters were bare and the shortage was blamed on the very controls the withholding was designed to discredit.

In October Truman gave up and lifted the controls.

The politics came first and the inflation came right behind. Republicans ran the 1946 midterms on a true word slogan, “Had enough,” and swept both houses of Congress.

Fifty-four economists had warned in the New York Times that ending controls while demand still outran supply would set off a surge in prices. By the spring of 1947 inflation had reached about 20%, the second-highest 12-month reading in the modern price record.

The controls worked while they were enforced and the people who dismantled them were the ones positioned to profit from higher prices.

The half measure

The country tried controls one more time and that attempt is the one that most people remember because it failed.

As a young lawyer in 1942, Richard Nixon spent a few unhappy months at the OPA before leaving for the Navy. For years afterward he insisted controls could never work in peacetime. Then in August 1971, with inflation climbing, he reversed himself and imposed a 90-day freeze on wages and prices. The only peacetime controls in American history.

Nixon froze prices and did almost nothing else. He built no rationing system and stood up no agency with the reach of the wartime OPA. He asked businesses and workers to hold the line on their own (no kitchen gestapo to hold you accountable).

Demand kept rising underneath the freeze with nothing to check it and when the controls came off in stages over the next three years, prices climbed fast in a burst of catch-up inflation that erased the gains.

The freeze failed because Nixon kept the part that’s easy to announce and skipped the part that made the wartime program work: the enforcement and the fair sharing (rationing) of what was scarce.

The switch to interest rates

After Nixon the country stopped trying to manage prices and turned to a different approach.

Jimmy Carter appointed Paul Volcker to run the Federal Reserve in 1979. Volcker believed the way to break inflation was to raise interest rates high enough to force the whole economy to contract. Carter understood that meant a recession and heavy job losses, but it was a risk he was willing to take.

Ronald Reagan ran for the presidency in 1980 on a promise to “make America great again” (does that sound familiar?), a phrase he used to accept the Republican nomination that summer.

“For those without skills, well find a way to help them get skills. For those without job opportunities, well stimulate new opportunities, particularly in the inner cities where they live. For those who have abandoned hope, well restore hope and well welcome them into a great national crusade to make America great again!” – Republican National Convention Acceptance Speech, 1980.

At his inauguration he delivered the sentence that organized the next forty years of economic policy. “Government is not the solution to our problem; government is the problem.”

The governing idea was that markets correct themselves and that public management of the economy causes more harm than it prevents.

Volcker put the theory into practice from inside the Fed. He drove interest rates towards 20%. Borrowing nearly stopped, factories and construction sites shut down, and unemployment reached 10.8% at the end of 1982, the highest level since the Great Depression, which put roughly 12 million people out of work.

It also brought inflation down from about 13% to under 4%. The strong recovery that followed looked like proof of the whole theory. Interest rates had brought inflation down, the economy had come back, and the belief that government should stay out of prices settled into common sense.

But the cost stayed out of the story. The method worked by putting millions of people out of work, and those workers, not the businesses that set the prices, paid for stopping inflation.

The Fed becomes the answer

Alan Greenspan took over the Fed in 1987 and presided through the 1990s, a stretch of steady growth and mild inflation that commentators called the Goldilocks Economy: not too hot, not too cold.

In 1994 and 1995 he raised rates enough to cool the economy without tipping it into a recession, a soft landing that few Fed chairs before or since have managed.

Interest rates were now the accepted answer to inflation and the chair of the Fed was treated as the one person who could keep prices in line.

Then this assumption began to fail.

When the financial system collapsed in 2007-2008, the Fed cut interest rates to nearly zero to stop the fall. The standard theory held that rates near zero for years on end would push inflation up. That never happened. Rates stayed very low for more than a decade and inflation stayed quiet so quiet that the Fed spent years worried prices were rising too slowly.

Economists called it the missing inflation puzzle, because the main model of how inflation works predicted a rise that did not come. The country had spent thirty years treating interest rates as the dependable control on inflation, and here was a long stretch where the relationship, the whole approach, rested on did not appear.

And here we are again

The quiet ended in 2022.

Inflation surged worldwide after the pandemic and peaked in the United States at 9.1% in June, the largest one-year jump in four decades.

Jerome Powell’s Fed answered the only way the institution knew how: raising interest rates eleven times between March 2022 and July 2023.

Prices did come down over the following two years. Whether the rate increases did the work, or whether healing supply chains and settling energy markets did most of it, economists still can’t agree. Either way the standard response went in and inflation fell.

In early 2026 prices started climbing again and this time the causes were specific and visible.

The current administration’s tariffs work as a tax on imported goods, and estimates of what they add to the average household this year run from about $700, by the Tax Foundation’s count, to nearly $1,000 by the Tax Policy Center.

At the same time the war the United States and Israel have been fighting with Iran since February has choked off a large share of the world’s oil supply through the Strait of Hormuz, which the International Energy Agency called the largest supply disruption in the history of the oil market. Energy prices have climbed with it.

Households are living through what economists are calling an affordability crisis. (This is the cost of being alive in America).

Both of these causes are supply problems. Tariffs raise the cost of goods at the border. A war removes oil from the market. Raising interest rates reaches neither one. Higher borrowing costs cannot reopen a shipping lane or repeal the tariff. They can only shrink demand by slowing the entire economy, which does nothing about the actual source of these price increases and once again asks workers to carry the cost.

Into this the administration has installed a new Fed Chair, Kevin Warsh, confirmed in May 2026 by a narrow Senate vote of 54-45.

Warsh has called inflation “a choice,” promised a “regime change,” and said the Fed needs a new inflation framework. He has not spelled out what the framework will be. The fair question is: what in the historical record suggests that raising interest rates, under a new name, will cure an inflation caused by tariffs and a war?

The record does not supply an answer because interest rates were never built for this kind of inflation.

What actually works

There is a different way to think about this, and it begins with the distinction that the current debate usually skips.

Inflation caused by too much demand and inflation caused by too little supply are different problems that call for different cures.

When people have more money than there are goods to buy, slowing spending helps, and raising interest rates is one way to slow spending.

When the supply of goods shrinks because of a tariff, a war, or a broken supply chain, cunning demand does not put the missing goods back. It slows the whole economy and spreads the cost more widely.

The 2026 inflation is largely a supplies story and that points to a different set of responses.

The first is the plainest. Stop causing it.

The tariffs are a self-inflicted price increase, a policy the government chose and can reverse.

The second has a serious intellectual foundation.

The economist Isabella Weber argued in 2021 for targeted, temporary controls on the specific prices that push inflation through the rest of the economy, prices like energy and key foods, in place of the blanket freeze Nixon tried.

The reaction was brutal. A New Yorker profile recorded that her Guardian essay had briefly made her the most hated woman in economics and the same argument has since been taken up in Germany and the European Union.

The third response comes straight from the World War II record. When a good is truly scarce, rationing shares it on some basis other than wealth, so that the people with the most money do not take all of it while everyone else goes without.

But the real argument is about how much corporate pricing power drove the recent inflation, and that argument has not been settled.

The Kansas City Fed found that rising business markups accounted for more than half of 2021’s inflation. The San Francisco Fed found that markups across the economy stayed roughly flat and were not a main driver.

The Meat Packers of 1946 showed that firms will hold back supply and raise prices when they have the power to. That history is worth keeping in view, though the current evidence points in both ways.

The limit that makes all this credible is Nixon again. Price controls fail when a government freezes prices and skips the enforcement and the fair distribution that make the freeze hold. Targeted and temporary, with the machinery behind them, they have a record. Announced and abandoned, they collapse.

The approaches that worked asked something of the powerful and required the government to do the actual work of governing. That, more than any question of whether they succeeded, is why they were dropped.

The party that changed sides

Reagan’s words still govern the debate forty years later. The claim that the government is the problem and markets fix themselves has guided one political party for two generations.

The tax law that party passed in 2025 is projected by the Congressional Budget Office to add $4.1 trillion to the national debt over ten years. Its tariffs raise a tax that falls hardest on working families who spend most of what they earn on the goods that got more expensive.

The party that once defined itself by balanced budgets and fiscal restraint is now running enormous deficits to cut taxes at the top while raising costs at the bottom.

Meanwhile, the methods with the strongest record of stopping inflation without mass unemployment, public management of essential prices, fair rationing of what is scarce, and a willingness to confront corporate pricing power, are the ones now waved off as radical or socialist.

The people who propose these methods are treated as un-serious while the ‘serious’ choice is defined as the one approach that works only by putting people out of jobs. That choice carries a decision about who should suffer, made so long ago that it now pashes for the natural order.

Every method of fighting inflation answers a single question: Who pays? The war economy of the 1940s answered it by asking almost everyone to give up a little so the scarce things could be shared. The approach the country has used since Reagan answers it by asking the people who lose their jobs to absorb the entire cost while the people who set prices absorb none of it. We have spent decades treating that as the only responsible answer but history says it was a choice. That it was not the only one available and that it was not the fairest one. The affordability crisis in front of us now is a chance to remember that and to choose differently.