Vietnam War: U.S. inflation and budget deficit from 1964 to 1975

The United States economy began to experience a period of higher inflation at the end of the 1960s. This trend marked the end of what was termed the 'Golden Era of Capitalism', a period following World War II in which the United States experienced historically unprecedented annual growth rates, along with low inflation and unemployment. While the causes of this inflation are debated, expansionary fiscal policy related to the Vietnam War at a time of full employment in the early 1960s likely contributed to rising price levels. Taxes were not raised to compensate for the increased costs of the war until 1968, at which point inflation had already climbed to 3.6 percent. On the other hand, military spending was small compared to overall U.S. GDP during this period, reaching a peak of 9.8% in 1968, indicating that military spending alone cannot explain the rising inflation rate. The sharp uptick after 1973 came as a result of the 1973 Arab-Israeli War in the Middle East, where Arab countries implemented an oil embargo against the United States for its support of Israel, and the price of oil rose exponentially.