Stagflation Nation?
It's flashback time over at the Wall Street Journal this morning, where Greg Ip observes that the United States "faces an unwelcome combination of looming recession and persistent inflation that is reviving angst about stagflation, a condition not seen since the 1970s." Inflation is up over the past year (4.3 percent headline, 2.5 percent core), while growth has slowed sharply. Of course, there's stagflation, and then there's stagflation. As Ip notes, inflation rose as high as 15 percent in the '70s, and unemployment 9 percent as the economy suffered through three recessions. So today's problems are less serious by many magnitudes.
Look, I think the slow-growth part of this scenario will be kaput by midyear as the Fed rate cuts kick in and housing investment, because of its diminished importance to the economy, becomes less of a drag. But let me tell you, gang, emergency rate cuts and "fiscal stimulus" do zippo to increase productivity or the economy's long-term growth potential or our international competitiveness. Increasing incentives and decreasing penalties to working, saving, and investing are what's needed.
Tags: economy | inflation | recession | stagflation
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interest rates
"...interest rates marched up steadily -- not down as we have seen for a few years."
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Interest rates went up steadily for a reason, due specifically to Chairman Volcker's disinflationary program. It worked like a charm, although somehow people give the credit to supply-side economics....
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Silly Stagflation
I agree with you that calling this economic slowdown stagflation is silly. Our economic situation is vastly different from the 1970s. The decade of the 1970s had 'average' inflation of 7% with two years of double digit inflation (1974 & 1979). 1980 was another double digit year.
Unemployment was also high and interest rates marched up steadily -- not down as we have seen for a few years. Not to mention the fact that in the 1970s we had the first oil crisis, a war and an impeachment -- not to mention disco. All in all, having lived through both, I'm happy to be here and now
We also had U.S. corporations that were frequently uncompetitive, a factor that led to the takeover craze of the 1980s.
Feb 21, 2008 15:49:22 PM [permalink] [report comment]