STAGFLATION.

STAGFLATION. The possibility that the US economy will enter into a period of stagflation is being raised. Kids, the word takes us back to the late 70’s and early 80’s, which was the last time we had both inflation and high unemployment (the word refers to inflation and stagnation—no growth or even negative growth in GNP). There was a time in the seventies when it was thought that there was a choice between unemployment of inflation—you could have either one but not both. There was even a curve—the “Phillips Curve” which was based on historical data and was thought to reflect the trade off between unemployment and inflation. When the United States economy got both high unemployment and high inflation—“stagflation”— the idea of the Phillips Curve had to be rethought. (As the wikipedia article says, “Most economists no longer use the Phillips curve in its original form because it was shown to be too simplistic.”)