[PEN-L:32341] stagflation

["Devine, James" <jdevine@xxxxxxx>]

Title: stagflation

[was RE: [PEN-L:32334] Re: Archetypes ]

Joanna:
Uh, is that the short way of saying "unemployment + inflation"?

that's right, but it's a bit more complicated. The word "stagflation" arose in the US during the 1970s and the very early 1980s because the dominant theory of the time fell apart. The "Philips Curve" told us that as unemployment rose, inflation would fall (or vice-versa). But three times in the 1970s, unemployment rose and the same time, inflation got worse. Thus, stagnation (slow growth of GDP, high unemployment) got married to inflation as a single concept, stagflation. An ugly word to describe an ugly phenomenon.

Since the early 1980s, by and large the US has enjoyed the opposite, i.e., disinflation. Both unemployment and inflation seemed to trend downward. Of course, all was not well: this trend corresponds to increasing weakness of organized labor, widening gaps between the rich and poor (including between rich and poor workers), and also unemployment that seems to be more powerful at deterring wage increases than it used to be.

Jim