Friday, August 22, 2008

Staggering and Stumbling from Stagflation


"Stagflation" is a term the media aren't using right now, even though it's back. An A.P. story at Yahoo is calling it "dueling economic cross-currents." Anyway, stagflation or dueling banjos or whatever you want to call it is the economic news right now.

Stagflation is the synonymous occurrence of rising prices and rising unemployment. According the economics textbooks I studied as a kid, that couldn't happen. If there was low employment and weak economic activity, prices were supposed to go down because there would be too many unsold goods and services and competition would be stiffer.

Both in the 80's and now, the "flation" part of stagflation is driven by rapidly rising commodities prices. Especially oil prices.

Ben Bernanke doesn't use that 80's word either, but that's what he was talking about today.

"Although we have seen improved functioning in some markets, the financial storm that reached gale force" around this time last year "has not yet subsided, and its effects on the broader economy are becoming apparent in the form of softening economic activity and rising unemployment," Bernanke said in a speech to a high-profile economics conference...

(snip)

The Fed, he said, would monitor the situation closely and will "act as necessary" to make sure that inflation doesn't get out of hand.

The economic news today was good though. The stock market went up almost 200 poohs, and the price of oil dropped six bucks, after it had risen six bucks yesterday. Menza menza. As long as they're selling beans at Safe-a-way, I'll be all right. A little gassy perhaps, but doin' O.K.

3 comments:

Joe said...

I wonder how much stagflation occurred during the early 1930s. Conditions several years ago gave me a feeling about impending stagflation.

Dave B, a.k.a. catboxer said...

There was none in the 1930's, because commodity prices fell along with all the other prices.

Prices fell precipitously, but there was very little money to be had, no new jobs created, and credit almost nonexistent.

The country still had abundant, cheap resources, a solid infrastructure, and a disciplined labor force, however. We can't say that now.

DB

Joe said...

That review of that economic environment is good; thanks.

We may be realizing that we have to use resources more wisely, the wise among us, anyway, if we want then to be abundant.

Part of the problem may be that the population is reaching a critical mass. I wonder if we are somewhat more attentive, to reality. But way too many people are certainly not. The resulting conflict has been so serious as to be termed civil war.