The Psychology Of Inflation: Restraining the Psychology of Inflation
Etzicrni, director of the Canter for Policy Ttesearcli in Neto York, is a sociology professor at Columbia. University and holds a masterÛªs degree in economics.</br></br>AS ECONOMISTS begin packing up their ideas for President FordÛªs Sept. 27 ÛÏsummitÛ conference on the economy, one of the few things they can agree on is that the problem of inflation is, to a significant extent, psychological.</br></br>What fuels the dangerous upward spiral of prices, in other words, is not only the rising cost of food and oil and other forces, as vital ns these factors may be. Also at work is hie fact that several years of accelerating price increases for practically everything, from candy bars to cars, have deeply changed Americans' expectations about the economy. Specifically, what most people now expect are ever higher price tags, and, in economic matters, that has a way of becoming a self-fulfilling prophecy.</br></br>Thus the experts may argue about whether inflation will be two-digit or one, whether wholesale prices will rise less rapidly than retail quotes, whether inflation may slow somewhat in the fourth quarter. But most of this is lost on consumers. They see more inflation, and they act on what they see.</br></br>More affluent citizens have reacted by scrambling to invest in anything that looks like it might be an inflation ÛÏhedge,Û something whose value hopefully would rise more rapidly than prices of everything else. They bought gold coins and silver bars, land and stamps, objects of art and antiques, and what they expected of course happened: They drove up the prices of these objects faster than the general rise in the cost of living.