In any case, between signs of an economic slowdown and growing evidence that tariffs as well as deportations are pushing up prices, I’m definitely hearing more buzz about the possibility of stagflation -- a term that, I recently learned, was coined in Britain in the 1960s. So this seems like a good time to write a primer about what stagflation is, how it affects people’s lives, why it is a particularly hard problem for policymakers to address -- and why the risks of long-term stagflation, which we have avoided for many decades, are once again looking serious.
 

A history lesson in stagflation

The stagflation we all remember, or at least the one economists like me can’t stop talking about,  took place in the 1970s. Oil shocks pushed up prices, while at the same time sapping growth. Policymakers faced a terrible dilemma: raise interest rates to fight inflation, and you risk driving unemployment even higher; ease up to support jobs, and inflation just keeps climbing. For a time, it looked like there was no way out.

It’s worth noting, however, that not every inflationary episode with sluggish growth really deserves the label. The early 1980s recession, for example, wasn’t stagflation so much as a deliberate and brutal squeeze engineered by Paul Volcker to break inflation’s back. And the much-discussed inflation surge of 2021–22 didn’t meet the definition either: growth was strong, wages were rising, and the job market was historically tight.

The logic of stagflation

Stagflation happens when the economy is hit by what economists call a supply shock -- something that makes it more expensive or harder to produce goods and services. That could be a spike in oil prices, a breakdown in global supply chains, or, yes, tariffs that raise the cost of imports. In such cases, inflation doesn’t come from “too much money chasing too few goods,” the old monetarist mantra, but from too few goods, period. And that’s a problem interest rate hikes can’t fix.
 

Why Bidenomics didn’t cause stagflation

Contrary to right-wing talking points, the inflation of 2021 wasn’t caused by stimulus checks or child tax credits. Yes, demand was high --  but inflation largely stemmed from snarled supply chains, shipping backlogs, and shifts in consumer spending patterns during the pandemic. And crucially, growth remained strong and the labor market resilient. That’s the opposite of stagflation: people had jobs, wages were rising, and inflation eventually subsided without mass unemployment.
 

Looking ahead: the stagflation threat today

Now, however, the story looks different. Tariffs, mass deportations, and an increasingly erratic trade policy are raising costs for businesses and consumers alike. Combine that with a White House that seems determined to politicize economic data, treating official statistics as just another campaign prop,and you have the makings of a crisis not just in economics, but in governance. If investors and households can’t trust the numbers, they’ll assume the worst.
 

Which brings us to Part II, coming next week. There I’ll turn squarely to Trumponomics, and to the question on everyone’s mind: is the new policy regime setting us up for another lost decade of stagflation? Along the way, I’ll also suggest some ways to track the true state of the economy if,  as seems all too likely, the administration continues trying to suppress or distort inconvenient facts.
 

Because if we learned anything from the 1970s, it’s that pretending a problem doesn’t exist doesn’t make it go away. It just makes the eventual reckoning worse.