In the late 1970s, many U.S. policymakers decided that income inequality had gotten too low. Strong union contracts had enabled many workers to earn more than their labor was worth, while excessive taxation of business was depressing productive investment. As a result, demand for goods had come to outstrip supply, leading to rising prices, which led to higher interest rates — which further discouraged supply-expanding investment — in a vicious, stagflationary cycle.
