The Economics of Stagflation, Part I

What are the risks? And how big are they?

The widely watched Michigan Index of Consumer Sentiment took a tumble last week. This came after a disappointing jobs report on Aug. 1, when Donald Trump decided the best policy move was to shoot the messenger by firing the head of the Bureau of Labor Statistics. It was a doubly self-defeating move: the bad news moved to the top headlines, as well as undermining the credibility of any future Trump-appointed replacement.

In any case, between signs of an economic slowdown and growing evidence that tariffs as well as deportations are pushing up prices, I’m definitely hearing more buzz about the possibility of stagflation — a term that, I recently learned, was coined in Britain in the 1960s. So this seems like a good time to write a primer about what stagflation is, how it affects people’s lives, why it is a particularly hard problem for policymakers to address — and why the risks of long-term stagflation, which we have avoided for many decades, are once again looking serious.

Beyond the paywall, I’ll address the following:

1. The stagflations that were — and the stagflations that weren’t

2. The logic of stagflation

3. Why Bidenomics didn’t cause stagflation

Part II, which will be posted next week, will turn to Trumponomics and address the question of whether it will inflict stagflation on the American economy. In addition I will present some thoughts on how to track the economy if, as seems all too likely, the current administration begins suppressing and distorting data it doesn’t like.