This Times article on the economy's lower-than-expected growth raises the specter of stagflation. Since the S word has been popping up in a variety of places lately, I think it might be worth a quick definition, as I sure as hell didn't know what it meant a year ago.

Stagflation occurs when the economy has high inflation combined with economic stagnation, unemployment, or recession. So the basic force at work is that prices, through inflation, are rising, but buying power isn't, either because folks don't have jobs, we're in a recession, or the economy's standing still.

It's thought to occur when the economy suffers a nasty shock (i.e, a jump in the price of oil) that the central bank is unable to effectively counter. Often times, there really isn't an effective counter, as hiking interest rates (as the Fed is scheduled to do next week) in order to calm inflation slows down an already too-slow economy, while doing the opposite speeds economic growth but also accelerates inflation. Tough stuff.

As for whether or not we're actually entering another period of stagflation, you'll have to ask some of the economists in the blogosphere -- it seems unclear. The question, in large part, is whether or not oil prices have as severe an effect on the economy as they're reputed to (James Surowiecki, for instance, has a piece in this week's New Yorker arguing that they don't) and whether or not they're going to drop back down in the near future. As a bit of a pessimist on the subject, I think we're in for a bumpy ride (and high gas prices), but I could be -- and hope I am -- wrong.

You need to be logged in to comment.
(If there's one thing we know about comment trolls, it's that they're lazy)

Connect
, after login or registration your account will be connected.
Advertisement