Could stagflation be an opportunity? Fuelled by a pandemic and a war, it is a word that strikes fear into politicians. But some say we should not be so quick to declare disaster. Politicians hope it is a thing of the past. But they fear they are wrong. Stagflation is back. An ugly word for a mix of rising prices (inflation) and slow economic growth (stagnation). It scares politicians because it is hard to solve. Higher taxes and interest rates lower inflation but slow growth. Tax cuts can boost the economy but may push prices higher. It's like trying "to ride a tandem across a tightrope", says economics journalist Faisal Islam. Stagflation hit in the 1970s when the oil price sent inflation soaring and the global economy slowed. Today, experts blame the pandemic for cutting supply chains and the war in Ukraine for raising the cost of petrol and food. The 1970s crisis ended with the worst recession since World War Two. So, are we heading for disaster? Or is this an opportunity? "In human terms", says economist Kristalina Georgieva, "people's incomes are down and hardship is up". Wages and savings are worth less. Other economists insist we are not going back in time. "If you dig below the surface", says Andrew Goodwin, "the current situation is very different". We have a weaker labour movement and independent central banks. In the 1970s, the solution was to shrink government and make it easier for businesses to grow. Now is another time for big ideas, argues economics writer Hermione Taylor. "Don't look backwards but forwards." Activist George Monbiot says the climate crisis means we must "reduce economic activity". Economist Kate Raworth believes we must kick our "addiction" to economic growth. Others argue we need safety nets to support those hardest hit. One radical idea is a universal basic income, a regular payment to everyone from the government. The future of society and our planet depends on what politicians do next. Could stagflation be an opportunity? Shock therapy Yes: Economics is not working. After the pandemic, millions left their jobs to seek a better balance between life and work. Now, we need to design a new economy that serves people and the environment.
<h5 id="question" class=" eplus-wrapper"><strong>Could stagflation be an opportunity? </strong></h5>
Yes: Economics is not working. After the pandemic, millions left their jobs to seek a better balance between life and work. Now, we need to design a new economy that serves people and the environment.
No: Stagflation is never good news. Inflation is a silent killer that destroys lives. Stagnation limits what politicians can do to help. And it could take years to recover from a major economic downturn.
Or... Whatever happens, we must not be afraid. At the height of the Great DepressionA severe worldwide economic depression that started in the US in 1929. When Roosevelt was elected, the US unemployment rate stood at over 20%. in the 1930s, US President Franklin D. Roosevelt addressed Americans: "The only thing we have to fear is fear itself."
Interest rates - The interest rate tells you how high the cost of borrowing is, or how high the reward for saving is. If it is more expensive for businesses and consumers to borrow, they will spend less and inflation will fall.
Supply chains - The system of connected suppliers and producers that bring a product to consumers. One product might come to us through several sites across the world. Covid-19 infections and restrictions disrupted these chains.
Central banks - A central bank manages its country's currency and usually handles its monetary policy.
Great Depression - A severe worldwide economic depression that started in the US in 1929. When Roosevelt was elected, the US unemployment rate stood at over 20%.
How inflation returned to shock the world
Glossary
Interest rates - The interest rate tells you how high the cost of borrowing is, or how high the reward for saving is. If it is more expensive for businesses and consumers to borrow, they will spend less and inflation will fall.
Supply chains - The system of connected suppliers and producers that bring a product to consumers. One product might come to us through several sites across the world. Covid-19 infections and restrictions disrupted these chains.
Central banks - A central bank manages its country's currency and usually handles its monetary policy.
Great Depression - A severe worldwide economic depression that started in the US in 1929. When Roosevelt was elected, the US unemployment rate stood at over 20%.