Start the conversation
Then the 1970s came with wage and price controls, an oil embargo, and one of the worst economies since the Great Depression.
Now the roots of stagflation are creeping into the U.S. economy once again.
So how does stagflation occur? More importantly - can we avoid it?
Let's take a look.
What is Stagflation?Stagflation exists, like it did in the 1970s, when an economy experiences slow growth, high unemployment and high inflation.
This is a nightmare scenario where consumers have less and less money to spend, the money they do have is less valuable, and there is no hope for economic growth.
Keynesian economists who adhere to the economic concept of the Phillips curve previously thought stagflation was impossible. The Philips curve shows the inverse relationship between unemployment and inflation, suggesting that when unemployment is low inflation is high and vice-versa. It denies stagflation by making high unemployment and high inflation mutually exclusive.
After the 1970s, many scholars adjusted their thinking.
"The belief that you can't have inflation and high unemployment is nonsense; we had 25% inflation in the U.K. in 1975, in the middle of a recession," said Money Morning Global Investment Strategist Martin Hutchinson.
Stagflation not only hit Europe, but the U.S. as well.