Discussion
The Inflation Tax: 113 Years of US Purchasing Power Destruction — When It Accelerated, What Drove It, and What the Data Reveals
latentframe: I compiled 1,357 monthly CPI observations from 1913 to 2026 (BLS data via FRED). The common narrative is that inflation slowly erodes purchasing power over time. The data tells a different story. Four concentrated episodes — WWI, WWII/post-war, the Great Inflation (1968–82), and post-COVID — account for 72% of total cumulative price increase, despite spanning only 29% of the time period. The dataset includes regime classification, episode tagging, and a decomposition analysis. Full CSV available for download.
SpicyLemonZest: I'm not really convinced this data falsifies the narrative of a slow erosion. It's just the Pareto principle in action. I bet if you graphed the erosion of a hill you'd see the same pattern.
p1esk: How about other currencies?
tines: Why do wars tend to devalue the dollar?
gwbas1c: > Instead, $100 in 1914 is worth $3.05 today.Doesn't that mean $3.05 in 1914 us worth $100 today?
latentframe: Only USD for now. Would be interesting to compare — especially currencies that went through hyperinflation episodes.
znnajdla: This supports my hunch that the current Iran war creates a lethal trifecta that could potentially cause a dollar collapse. 1. Massive military overspend. 2. Petrodollar squeeze (Strait of Hormuz). 3. Allies pulling out: Europe and the Gulf diversifying both their investments and defense purchases.#1 creates oversupply of dollars and #2 and #3 lower demand. This study supports the idea that wars can indeed destroy purchasing power.
hyperpape: Why didn't you use log-scale? It seems like the obvious call.
bubbleRefuge: so long and income exceeds or keeps up with inflation growth, it doesn't matter
latentframe: Fair point on Pareto distributions. The distinction I'd draw is that these aren't random clusters — they map to specific policy regimes (wartime monetization, oil shocks + Fed accommodation, post-COVID fiscal expansion). The concentration isn't statistical noise, it's identifiable macro episodes. The dataset tags each month by regime if you want to dig in.
probablypower: This study doesn't correct for baseline exponential decay due to inflation, to better highlight the meaningful variations. By comparing based on 1914 dollars it also causes old variations to be relatively more extreme and newer inflationary events to look less extreme. You must compare apples to apples.Finally the events are quite cherry-picked. It is a conclusion looking for a result, when the statistical reason for choosing those 4 events simply isn't evident when you look at the data itself. There is no mathematical rule you could apply to your dataset that would distinctly highlight those 4 periods.
repeekad: If their goal is to show how the purchasing power of a dollar has changed, and you can buy 3% the number of cans of soup now compared to the start of the data with the same dollar, what is being over simplified?
engineer_22: It could also be a play to squeeze China or similar nation dependent on middle east oil. USA semicon production not ready, if there were signals that China was ready for a play on Taiwan maybe this is a gambit to buy some time.
thisislife2: Is China really dependent on middle-east oil? I read that they had been diversifying in preparation for an energy resource fight for some time now. For example, they've massively invested in Solar power generation, are building a 300-400 billion dollar gas pipeline from Russia, already buy a lot of oil to from Russia, and also purchased from Venezuela (thoguh how that's going now is anybody's guess). They also have a good relationship with most of the players in the middle-east and helped repair ties between the Saudis and the Iranians.
alright2565: This article over and over describes inflation as a tax or destruction, without backing those claims up. It would be a much stronger article if it focused on the main point rather than having it interspersed with the author's personal opinion of changes in the denominator of a fraction.
latentframe: Fair — the framing leans editorial in places. The core dataset and decomposition are the substance, the narrative around it could be tighter. Appreciate the feedback.
znnajdla: That would be a double whammy for America then: a devalued dollar and higher oil prices. Both cause inflation.China doesn’t seem to be squeezed when they seem to have a deal with Iran to buy in yuan.
cperciva: Note that most of this period falls before the modern inflation target was established in 1995. In the past 30 years we've had 75% accumulated annual inflation (aka prices have increased be a factor of exp(0.75) = 2.1) of which 16% (aka 21% of the total) took place during an inflation excursion (which lasted 2.5 years aka 8% of the total time period).If anything the data points at "inflation targeting works and is producing slow and steady inflation" rather than "inflation comes in concentrated bursts".
raincole: The devaluation also mostly happened during the periods that everyone calls good old times now.
skywhopper: This is a bizarre framing that totally misunderstands inflation, money, and macroeconomics.
dboreham: Quick note that "devalued dollar" is inflation, not a cause of inflation.
arkensaw: I'm trying to read this and not feel like an idiot.Can someone explain to me how post-covid is considered one of the 4 episodes?it looks to me that the dips at 1933-1936 or 1956-1958 are much more significant - are these just "regular" inflation? Are we ignoring these because we can't tie them to some specific current event?
raincole: Appeal to readers' recency bias. Covid is the most recent big change for the readers so the article has to make it more significant than it actually was. If it only talked about things happened <40years people would be 'so what?' and bounce out.
preommr: > Europe and the Gulf diversifying both their investments and defense purchases.With what? The euro, yuan? Or weapons from france?I hate to admit it, but it's much less that the US is great because it's the reserve currency, and much more that the world reserve currency is the dollar because the US is what it is.Weapons are expensive, and it only makes sense to buy them from a country that specializes in them. And a country that makes weapons at huge scale is likely to be big enough tilt the direction of the country to be all the ugly things the modern US military industrial complex is.
senderista: Mods, can we please remove this and other obviously AI-generated comments from this account?
stavros: Yeah, they must have gotten it the wrong way around.
win311fwg: Both are valid, depending on perspective. The joy of English.
silisili: I'm having trouble coming up with a valid use case of the way it's written, mind sharing?
leche: One of the goals of the Heritage Foundation is a weak dollar. They believe they can bring manufacturing back to the US this way. I don't think they're right. I do think they will continue weakening the dollar.
skywhopper: The bigger question is, why is that even the primary goal?
leche: Because Conservative politics is about returning to a past that often can no longer exist.
thisislife2: Iran is also playing its own Uno card here by saying that it would consider allowing some oil and gas shipments through the Strait if they have been bought with Chinese Yuan, than the US dollar. ( The Islamic Republic may grant safe passage to oil tankers if the cargo is traded in Chinese yuan - https://www.lbc.co.uk/article/iran-allow-chinese-ships-hormu... ).
d3ckard: This is particularly funny if you consider petrodollar to be a bad deal for US, not a good one. Ironically, if yuan becomes new petroleum currency, it might hurt Chinese long term.
vincnetas: long term in a sense of centuries? i think they can afford this.
marcosdumay: Hum... I don't think people refer to the world wars as good times.Out of them, there's one single interval that most people that talk about it refer as "the end of the good times" (but yeah, I've seen people refer as good times too) and the COVID pandemic.
johnmaguire: I've never heard the expression "to play one's Uno card." Is this a play on "to play one's Trump card"? I can understand why this phrasing could cause confusion, but want to make sure I'm not missing something.
noboostforyou: https://knowyourmeme.com/memes/uno-reverse-cardTrump attacked Iran thinking that this would somehow be good for the US, except it's weakening the petrodollar because it's pushed Iran to simply accept Yuan for oil.
lostlogin: In Uno, you're supposed to say ‘Uno’ as you play your second to last card (indicating you are close to winning).
prox: I think the internet use is usually “reverse uno (card)” which means the tables are being turned, aka what you tried is being reflected back at you.
kingleopold: money supply increased more than all those during the covid.
johnthedebs: Just noting: it's interesting to see the term "lethal trifecta" used here given the relatively recent coinage relating to LLM security: https://simonwillison.net/2025/Jun/16/the-lethal-trifecta/
tharmas: >Ironically, if yuan becomes new petroleum currency, it might hurt Chinese long term.Agreed. Which is why the Chinese do NOT want their currency to become the Petrodollar or world's reserve currency. They know that that is what destroyed US Manufacturing. China wants to maintain their manufacturing dominance. They've seen what de-industrialization has done to the US.
ImJamal: How are you connecting the petrodollar and US manufacturing? US manufacturing was destroyed because companies closed their factories in the US and used factories in China because labor was cheaper and they were less regulated.
toomuchtodo: The US was able to maintain quality of life while de-industrializing by having the petrodollar advantage.
twodave: The only thing sadder than AI-generated comments on human articles is human comments on AI-generated articles.
lvass: Because it increases US workers relative (to other countries) wage. Though with current automation levels this may be a lesser problem.
trgn: there was wage growth
tmountain: Yeah, didn't people used to make like $10/week as the median wage at the turn of the 20th century? I agree that we have big problems now, but I feel like this analysis is deeply flawed without the inclusion of wage data.
vkou: It's not, it's just the excuse they give to make otherwise intelligent people support them.
aglavine: Fiscal deficit. That is the main reason by far of Dollar's destruction. Everything else is wrong or over-thinking.
raincole: You should check your hunch against the reality, at least periodically. The US dollar has strengthened since the current US-Iran conflict started.
znnajdla: I have checked. It’s too early to tell but anyway relative price is not what matters. What matters is purchasing power. EUR purchasing power was better and improving compared to USD. And check out interest rate derivatives — the euro has actually overtaken the dollar as the #1 currency in this massive market.
unstatusthequo: I think the idea is crash the stock market to force interest rate drop to refinance the massive debt.
bloppe: That's not how bonds work
mothballed: The most notable anomalous event if you zoom back to more like 1814 instead of 1914 is that ever since the US completely decoupled from the gold standard, it switched into purely inflationary mode rather than often bouncing back. From the 1800-1900 pretty much the entire time was spent at worst 1/2 to 2x the average value. Far less variance than after the introduction of federal reserve and taking off the gold standard, where purchasing power was destroyed to something like <1/10th of the century average.
mekdoonggi: Petrodollar creates demand for dollars. This is demand that no other currency gets. That's why US production is expensive vs other countries. China labor is cheaper and it is less regulated, but the petrodollar exacerbates the problem.
dandanua: It is by design. How else can you make trillionaires?
whynotmaybe: Zimbabwe did make a 100 trillion note.
DeathArrow: Add the fact that some countries are using other currencies to trade oil and goods.Also, some countries started to use other systems beside SWIFT to transfer money.
abetusk: I think this graph shows the "apples to apples" comparison:https://www.officialdata.org/us/inflation/1800?amount=1Doing a spot check, this means $1 in in 1913 is equivalent to roughly $32.83 today.
Gud: Weapons are only expensive if you want them to be expensive.Ukraine are butchering Russians for 870 USD per dead soldier.The USA has the most expensive weapons in the world, the problem is that much of it is obsolete.
steveBK123: Slowly and then all at once, as they say
soperj: I thought that was Hemingway specifically?
anal_reactor: I really don't think that HN would ace a card game knowledge test.
znnajdla: The US is defaulting on military orders to Europe and Germany just announced a 1 trillion euro rearmament plan. Europe is manufacturing big time. The Gulf states as of yesterday are now buying from Ukraine for fucks sake.
Booktrope: Whoever wrote this article seems to think a strong dollar is fundamental to a strong economy. But, notice where it is on this timeline the only prolonged strengthening of the dollar that shows up. Yep, you've got it, the depth of the great depression. And, notice where the WWII and postwar weakening of the dollar led -- that's right, to in many ways the most prosperous economy the world has ever seen.Because we try to figure out how things like "strengthening" and "weakening" of the dollar fit in, and we actually have policies much more intelligent than, weaking of the dollar! Collapse is imminent!
cheema33: > One of the goals of the Heritage Foundation is a weak dollar. They believe they can bring manufacturing back to the US this way.Only cheap labor can bring manufacturing back to the US. Are Americans willing to work in factories for the same wages as the Chinese and Indians? I don't see it happening.
devsda: What if the "same wage" as Chinese/Indians nets you close to the same basic necessities and purchasing power as those countries.
roncesvalles: Purchasing power for what? Consumer goods? Most purchasing power calculations are completely bogus because they rarely compare goods of equal quality.
roncesvalles: I'll dig down 3 levels of "why".The endemic anti-intellectualism among white communities (especially rural and southern) has resulted in a steady decline of white people in well-paying professions in America. If you count the Jewish as a separate group, white people are likely a minority in corporate America. Combined with social upliftment of other groups ("wokism") and the opioid crisis (that has disproportionately affected hinterland communities but immigrant groups seem immune to), white people are sliding down the American totem pole. Trumpism, alt-right, anti-woke, and the general resurgence of racist rhetoric are basically just reactions to all this.These people want manufacturing because manufacturing is largely considered a "white people sport". If America becomes a manufacturing-first society, the hope is that it puts white people at the front and center of American society again.
ishouldstayaway: > white people are likely a minority in corporate America.Oh boy am I gonna need some actual data for this claim.
palmotea: > Only cheap labor can bring manufacturing back to the US. Are Americans willing to work in factories for the same wages as the Chinese and Indians? I don't see it happening.Under conditions of free trade with low-wage countries.Free trade with low-wage countries is a policy choice, but a lot of people confuse it for a natural law.
ErroneousBosh: One of the previous times the US attacked Iran, it was because Iran wanted to accept Euros for oil.
gruez: I didn't realize that such causes like 90+% income taxes, lower income inequality, single earner households, and high unionization rates are "conservative" too.
CamperBob2: No one actually paid 90% income taxes. I wish that myth would go away.
conception: Of course because that’s how marginal tax rates work.As to how much actual money was taxed at 91%, we don’t really have records for that but certainly the top 0.01% paid significantly more in taxes as a rate than they do today.
maxglute: Petro-yuan =/= reserve currency.USD reserve = print USD for everything liquidity to sustain debt financed existence where Triffin hollows out industry, and financialize everything because having stupid amount of liquidity incentivizes certain behaviors.Petro-yuan = PRC gives swap lines to trusted partners to buy oil denominated in yuan in exchange for things like resources. Hormuz ships ~1 trillion USD worth energy that needs "swapping" - incidentally PRC imports around ~2-3 trillion, more than enough to cover.So think petro-yuan = PRC gives trusted countries with resources that PRC bonds credit lines to buy yuan denominated energy (possibly at discount), in return they guarantee PRC resources or other commercial/geopolitical arrangements. It will be narrow, not like USD brrrting reserves.This benefits PRC because get to have leverage over "need" transactions (countries need energy to survive, it's no negotiate) while US keeps supporting "want" transactions by reserve debt servicing blackhole that US cannot extricate itself from until it debases / technical defaults. PRC best game plan is... assume privileged part of exorbitant privilege, while leaving US the exorbitant.
kasey_junk: The problem with that plan is that no one wants to trade hard commodities for a currency that can’t be spent. One part of the dollars appeal is that it spends the world over. The sanctioned countries frequently have more liberal access to dollars than to unsanctioned yuan.So no one is going to take up a lot of yuan trade unless that changes or they are forced to.But that puts China in a bind. Liberalizing their currency is going to require very careful and slow actions, China threads this needle now in a very fraught way. If they openly start trading oil at any real size in yuan that will break their peg as you’ll be able to trade through the oil markets.This is the main reason there isn’t more petro yuan already, it’s bad for China.
triceratops: > a currency that can’t be spentYou can spend it in China, right?
vessenes: That is the point of cheapening the dollar, BTW. The local wages can stay 'high' dollar denominated, but the euro-denominated value of those wages drops. It was for some time the strategy of the Chinese central bank; you can keep export good costs low by controlling your currency to weaker. The trick is to do that while everyone is paying you for your stuff.
bumby: I believe the idea is to support the “real” economy vs a “paper” economy. The “real” economy manufactures stuff in meat space instead of making value through abstractions like financial derivatives. The real economies are tied to a stronger middle class and national security. That’s the thesis as I understand it.
culi: A service-based economy is also a "real" economy and not a "paper" economy
bumby: I agree, depending on what services you’re speaking of. Although I don’t know that it meets the explicit aims of the heritage foundation (which was the OPs question).
roncesvalles: Even if not quite true, it doesn't change my argument since it was more about the rate of change.You can construct the definition of white collar in a way that makes it seem like it's mostly white people, but among high paying job titles within a company, absolutely I would say there are fewer than 50% non-Jewish whites.
culi: Yes it tends to strengthen during times of conflict as countries buy more dollars in response. That's kinda the whole gimmick with the petrodollar. War is good for the USBut if Iran does successfully force countries to stop using the petrodollar by only allowing countries trading in yuan through the strait, then we could actually see that reverse. IMO destroying the petrodollar is the primary clear "victory" Iran could achieve from this war
elzbardico: In my worst cynical days, I think that's exactly the plan.Erase US government debt via hyper-inflation, and let the people that will still have liquidity buy all remaining assets the middle class will be desperate to sell at pennies on the dollar.
fakedang: You can buy from China though. And China is the largest import trading partner for the majority of countries in the world. They literally don't need to do anything to prop up a "petro-yuan".
kasey_junk: You can’t largely. At least not with offshore yuan. To do that you have to go through the controlled settlement channels to get onshore yuan. That’s tightly controlled to protect the peg.So no one is going to use a controlled currency for a hard liquid commodity. So if China wants petro yuan they have to liberalize that, which will break their peg.China could have more international trade in the yuan before all of Americas recent misadventures. But that has cast consequences for their economy, and possibly the ruling elites power structures.
cjbgkagh: The petrodollar confers a huge advantage to the US, which is the whole point of it. It soaks up liquidity and allows the US to export inflation which allows it to be in the insanely profitable business of printing money. An argument could be made that this is corrupting and economically distorting to society resulting in a net negative but there is no guarantee that the same corruption would undermine China in a timely manner. I think the effect would be rather muted provided that the US remains world hegemon but if the US would lose the petrodollar and credible force projection at the same time we will shift from the current looting stages of collapse to the free for all stage of collapse. Or put another way, from a managed decline to an unmanaged decline.
d3ckard: It's not advantage, it makes for artificial demand for your currency, which completely screws up all the relevant metrics and makes you unable to actually inflate the currency when getting less competitive.It's resource curse on steroids.
d3ckard: Under normal conditions, when your economy becomes less competitive, your currency gets depreciated, increasing competitiveness.Unless of course everybody is forced to buy your currency to get an essential resource. This causes: - the currency to maintain value better - puts you in position of other countries having to maintain a trade surplus with you so they can actually purchase said resource - the oil producers end up with great amounts of your currency, which they have to spend, getting a political foothold in your country.Petrodollar almost certainly was devastating to US economy. And like most resource curses, it's like a drug - you need to stop taking it to get better, but it will hurt as hell.
BigTTYGothGF: > white people are likely a minority in corporate America.I don't see how this can possibly be true.> that has disproportionately affected hinterland communities but immigrant groups seem immune toOr this, especially in light of data such as this: https://www.cdc.gov/nchs/products/databriefs/db549.htm
MSFT_Edging: Cheap labor requires cheap rent and cheap goods. You can't have indian/chinese wages at American cost of living.How do you bring down costs? generally you'd need to restrict real estate. Lock down rent costs for both residential and commercial.
