There’s a difference between stagflation of the 1970s and what’s happening now.
In the economics of spherical chickens in a vacuum, stagflation should be impossible according to the Keynesian models. If people have jobs, they have money, and that causes inflation. If people don’t have jobs, then they don’t have money, and inflation should come down. They’re counter-cyclical. A situation where you have high unemployment and high inflation shouldn’t happen.
What they missed then was a single commodity–oil having a manipulated price due to OPEC–causing both high unemployment and high inflation.
The really big problem was what to do about it. The US wasn’t able to strongarm OPEC into dropping oil prices. If the Fed were to raise interest rates, that would bring inflation down, but make unemployment even worse. Drop interest rates, and unemployment comes down, but inflation goes through the roof. What the Fed ultimately did under Volcker was to say fuck it, we’re raising interest rates until inflation is under control, then back it off to bring unemployment under control. It was tough medicine, but it did work. Probably saved capitalism at a time when the Soviet Union still could have won the cold war. Not that the hardcore libertarian capitalists ever gave him credit for it.
The difference now is that we have a very clear reason why it’s happening: Trump’s tariffs. Unlike the situation with OPEC, the US has complete control over that factor. There would need to be negotiations with other countries to drop reciprocal tariffs, but since tariffs hurt in both directions, most are going to be amenable.
All we have to do is get rid of the insane idiot in charge of things.
Stagflation.
Learn about it. Educate yourself and prepare accordingly.
This is gonna suck immensely. For all of us. Unless you’re on the top line of our K shaped economy. Ask your parents or grandparents about it.
There’s a difference between stagflation of the 1970s and what’s happening now.
In the economics of spherical chickens in a vacuum, stagflation should be impossible according to the Keynesian models. If people have jobs, they have money, and that causes inflation. If people don’t have jobs, then they don’t have money, and inflation should come down. They’re counter-cyclical. A situation where you have high unemployment and high inflation shouldn’t happen.
What they missed then was a single commodity–oil having a manipulated price due to OPEC–causing both high unemployment and high inflation.
The really big problem was what to do about it. The US wasn’t able to strongarm OPEC into dropping oil prices. If the Fed were to raise interest rates, that would bring inflation down, but make unemployment even worse. Drop interest rates, and unemployment comes down, but inflation goes through the roof. What the Fed ultimately did under Volcker was to say fuck it, we’re raising interest rates until inflation is under control, then back it off to bring unemployment under control. It was tough medicine, but it did work. Probably saved capitalism at a time when the Soviet Union still could have won the cold war. Not that the hardcore libertarian capitalists ever gave him credit for it.
The difference now is that we have a very clear reason why it’s happening: Trump’s tariffs. Unlike the situation with OPEC, the US has complete control over that factor. There would need to be negotiations with other countries to drop reciprocal tariffs, but since tariffs hurt in both directions, most are going to be amenable.
All we have to do is get rid of the insane idiot in charge of things.
I’m pretty old and had not heard of it. From Wikipedia:
Good info. Thanks. But I think he meant to ask the oldies about stagflation.