The term stagflation (a trunk word made up of the terms “stagnation” and “inflation”) describes a situation in a currency area in which economic stagnation and inflation go hand in hand. This phenomenon was observed in almost all western economies in the 1970s in the wake of the oil crisis. The word stagflation is attributed to the British Treasury Secretary Iain Macleod and John Overcountry, who died in 1970 .
Causes and Effects of Stagflation
Stagflations are usually triggered by supply shocks , such as the sharp rise in energy prices due to a war in the Middle East. The sharp rise in the price of oil increases production costs. Companies respond by reducing production. If overall economic demand remains the same , prices will rise. So the situation arises that economic growth falls while unemployment and inflation rise. If inflation expectations emerge, this can also lead to a wage-price spiral , which exacerbates stagflation.
Stagflation in the 1970s
Inflation rates in the triad
Stagflation was observed in the 1970s in connection with the oil crisis . In 1973, OPEC cut oil production due to political tensions in the Middle East, thus doubling the oil price within two years (1973–75). In the western industrialized countries there was a significant increase in inflation rates , from 6% (1972) to 13% (1974). In 1979/80 there was another sharp rise in the oil price and a sharp rise in inflation. In the mid-1980s, the unity of the OPEC price cartel waned and the oil price eased. At that time there was also a sharp rise in the unemployment rate. In 1975 the US unemployment rate rose to 8.4%, almost double that of 1973 (4.9%).
Oil price shock 2006-08
From 2002 there was another sharp rise in the oil price, which peaked in 2006-08. This rise in the price of oil did not cause stagflation. Why this was the case is still unclear economically. In part, this can be explained by the fact that oil consumption per US $ 1 GDP in the United States and many other countries has halved due to increasing energy efficiency. Most economists think we were mostly lucky.
Stagflation in the economic discussion
In 1958 Alban W. Phillips discovered the statistical connection between inflation and the unemployment rate. This was interpreted in the original Phillips curve to mean that there was a simple trade-off between inflation and the unemployment rate. This simplistic view was refuted by stagflation.
According to today's mainstream economics ( monetarism , New Keynesianism ), a simple trade-off between inflation and the unemployment rate only exists if inflation expectations remain stable. If considerable inflation expectations solidify among private households, rising unemployment can go hand in hand with increased inflation (shift in the Phillips curve). The development of stagflation is also seen as a problem for the traditional instruments (via demand control) of a Keynesian based global control, since the underlying theory does not foresee the simultaneous occurrence of stagnation and unemployment. Monetarists and supply theorists recommend breaking inflation expectations to reduce inflation. Monetarian concepts increasingly replaced Keynesian concepts from the 1970s.
The heterodox Austrian school, however, sees the origin of stagflation in what they consider to be the fundamentally harmful effect of a growing amount of money , because an initially unequal distribution of the new money would distort production decisions and goods prices.
- N. Gregory Mankiw : Principles of Macroeconomics. 5th edition. South-Western Cengage Learning, Mason OH 2009, ISBN 978-0-324-58999-3 , p. 464.
- Heinz-Dieter Hardes, Alexandra Uhly: Fundamentals of economics. 9th, revised edition. Oldenbourg, Munich et al. 2007, ISBN 978-3-486-58557-5 , pp. 535-536.
- William J. Baumol , Alan S. Blinder: Macroeconomics. Principles and Policy. 12th edition, international edition. South-Western Cengage Learning, Mason OH et al. 2011, ISBN 978-0-538-45364-6 .
- Gabler Wirtschaftslexikon, Stagflation