Economic Myths: We’re Immune to Stagflation
Jim Lee’s economic analysis in APICS’ on-line newsletter (subscribe at www.apics.org) covers several myths. The first two are pretty straight forward. Myth number 3 takes a bit more brain power:
Myth #3: The stagflation of the 1970s will not be repeated because economies today are more immune to the effects of rising energy prices.
Jim does a pretty good analysis of why we experienced stagflation in the ’70s and why we might again. Bottom line is that we are more energy efficient than ever while at the same time we have been increasing our use through behavior like buying large SUVs. He sums up by saying:
The reality is that much of today’s high cost of living comes from the cost of high living. And American families are no better off today than they were in the 1970s in the face of high energy prices.
In other words, you might be “no better off” because of YOUR behavior. So–quit blaming the government or big oil!
Are you behaving badly? Did you get yourself into an economic mess? Or are you convinced that this economy is going to be run into the ground?
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It’s interesting to watch Americans scramble to get away from big cars (”gas hogs,” we used to call them). It happened in the early 1980s, and it’s happening again. When will we ever learn?
Jean- thanks for commenting. Another amazing thing is how the US auto companies are so shortsighted compared to Toyota and Honda. It’s both a producer and consumer shortsightedness that drives this. So, I have to ask the question: what do you drive?
You might extend the comparison farther, with the sequence of:
-Big tax cut (Kennedy-Johnson 1964, Bush 2001)
-Big new entitlements (Great Society, Medicaid D)
-Extended war waged on credit
-Currency strains (”run” on gold 1967-8, complaints about renminbi today)
-Tense politics in Middle East (no change there)
… all setting us up nicely for a 1-2 punch of inflation and spiking energy costs.
Stagflation? Nahhh, that’s ancient history…
Monte- thanks for commenting. Can you elaborate on the “extended war waged on credit”- I’m of the mind that the credit industry is out of control but I’d like to hear your view of how it influences today’s economy. Thanks.
Hmm, that was unclear. I had in mind Vietnam and the “war on terror” — both conducted without tax increases or other WWII-style economic controls, hence driving debt up and currency down.
Monte- thanks for the quick response. Not that I am an advocate, but what do you think about the argument that the war on terror has actually increased our tax base? (business and jobs through weapons contracts). I’m not sure of the impact or significance compared to spending and whether or not a shift occurred in the allocation of revenues during war time.