The U.S. economy might be headed for a bout of high inflation and slow growth, but economists expect it to be far less severe than the malaise of the 1970s.
1970s stagflation was bad because economists had no idea such a thing could even happen. If people have jobs, they have money, and that increases demand for goods and prices go up. If people don’t have jobs, demand for goods goes down and prices go down. There shouldn’t be a situation where prices go up and unemployment goes up with it.
Naturally, this was a bad case of the economics of spherical chickens in a vacuum. If the price of a specific, key commodity (like oil) goes up, then that can cause everything else to rise in price at the same time employers are cutting jobs.
Oil went up in the 1970s because OPEC decided it should. It was hard for the US to strongarm them into dropping prices again. What’s different this time is that there’s a very clear answer to what is causing prices to rise, and the US 100% controls it. It’s tariffs. Drop tariffs and it all goes away. At most, you might need to negotiate with other countries to drop reciprocal tariffs once they’re in place, but most of them are going to be receptive because tariffs hurt in both directions.
Which, of course, won’t happen unless Trump goes away.
1970s stagflation was bad because economists had no idea such a thing could even happen. If people have jobs, they have money, and that increases demand for goods and prices go up. If people don’t have jobs, demand for goods goes down and prices go down. There shouldn’t be a situation where prices go up and unemployment goes up with it.
Naturally, this was a bad case of the economics of spherical chickens in a vacuum. If the price of a specific, key commodity (like oil) goes up, then that can cause everything else to rise in price at the same time employers are cutting jobs.
Oil went up in the 1970s because OPEC decided it should. It was hard for the US to strongarm them into dropping prices again. What’s different this time is that there’s a very clear answer to what is causing prices to rise, and the US 100% controls it. It’s tariffs. Drop tariffs and it all goes away. At most, you might need to negotiate with other countries to drop reciprocal tariffs once they’re in place, but most of them are going to be receptive because tariffs hurt in both directions.
Which, of course, won’t happen unless Trump goes away.