Talk of stagflation is all the rage.  Sort of.  Most of the articles I read about the subject focus primarily, if not exclusively on inflation.

Where’s the ‘stag’ part?  The word ‘stagflation’ is a handy portmanteau that came about in the 1970s when, for the first time in modern history, we experienced stagnant economic growth coupled with high and persistent inflation.  Those two circumstances were thought to be mutually exclusive.  In fact, they represent the worse of both worlds.  Normally, if the economy is stagnant, there’s no inflation.  Alternatively, if there’s inflation, it was always assumed that it was because the economy was overheating and growing too quickly.

In the second half of 2021, it seems everyone is piling on the stagflation narrative.  Nouriel Roubini of NYU was talking about the circumstances being right for stagflation more than a year ago already, but it was only around the middle of 2021 that a narrative like his began to gain traction.

Lynchpin is Inflation

The lynchpin of the story is inflation.  Everyone has a view on whether it is transitory or not, even as no one can really deny that we’ve already experienced more inflation for longer in the past 7 or 8 months than in any period in modern history.  I’m more worried about stagnant growth, yet far fewer people seem inclined to openly share that concern. Continue Reading…