What is stagflation?

 Picture it. The 1970s. Bell-bottoms, disco, and a peculiar economic riddle called stagflation. Economists had long believed that inflation and unemployment moved like opposite ends of a seesaw: if one went up, the other went down. Then came the oil shocks, the hangover from Vietnam spending, and a central bank reluctant to squeeze the brakes. Suddenly, the seesaw broke. Prices soared. Jobs vanished. And the public, squeezed in the middle, discovered that wages bought less every week.

Now, it’s one thing to fight inflation on its own—raise interest rates, tighten credit, sit back and wait. It’s another to fight unemployment—lower rates, spend more, try to kick-start growth. But when you’ve got both together? Every tool you reach for makes the other problem worse. It took Paul Volcker at the Federal Reserve, and the political nerve to withstand years of pain, to wrestle inflation into submission by jacking up rates to levels that made mortgages unaffordable and sent businesses to the wall. The cure was almost as brutal as the disease.

Fast forward. Today, tariffs and trade wars are sold as patriotic economics. In practice, they’re little more than a tax on the people they claim to protect. They raise prices, gum up supply chains, and slow growth… a combination you might recognize. If history were a teacher, the lesson of the 1970s would be that you can’t wall off an economy from the world and expect to prosper. But memory is short. And so here we are, back on the tightrope: higher costs, uncertain growth, and the ghost of stagflation waiting in the wings.

So perhaps the real connection is this: economics isn’t a machine you can tune once and forget. It’s more like an ecosystem—pull one lever, raise a tariff, shut off a flow of oil—and the effects ripple outward in ways you don’t expect. And just as in the 1970s, the cost of ignoring that lesson is paid not in theories but in grocery bills, mortgage statements, and the uneasy feeling that the future is somehow slipping out of reach.

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  1. David Tyler Rand-McKaySeptember 17, 2025 at 7:19 PM

    Or... Think back to the 1970s. The music was loud, the trousers wide, and the economy—well, the economy was in knots. Economists had always assumed that inflation and unemployment danced to a predictable tune: when one went up, the other went down. Then came the oil embargo. OPEC turned off the tap, and suddenly the West discovered that the postwar boom had been built on the assumption of cheap, endless energy. Prices shot up, growth stumbled, and the neat models economists loved looked about as useful as a disco ball in a power cut.

    Now here’s the twist: stagflation wasn’t just about oil. It was also about governments spending freely on war and welfare, central banks reluctant to cause pain, and a workforce newly willing to demand higher wages to keep up with rising prices. Every lever you pulled to fix one problem—stimulus, wage hikes, credit easing—only made the other problem worse. And so it fell to Paul Volcker in the early 1980s to do the unthinkable: crank interest rates up to nearly 20 percent. The cure worked, but at the cost of a brutal recession.

    So, what does any of this have to do with today? Consider tariffs. A tariff is essentially an 18th-century idea in 21st-century clothes—mercantilism in a baseball cap. In the 1600s, nations slapped duties on imports to protect their own industries. Trouble was, everybody else did the same, and before long you had higher prices, angry neighbors, and slower trade. Fast forward to the present, and you’ll recognize the rhyme. Tariffs raise costs for domestic producers and consumers alike. Couple that with global supply snarls and political pressure to goose growth, and you have the makings of… stagflation, again.

    The lesson from the 1970s ought to have been clear: you can’t fence yourself off from the world economy and expect prosperity. Yet here we are, replaying an old record, ignoring the skips and scratches that history etched into it last time. And that’s the trouble with economics—it’s not a tidy machine. It’s more like a spider’s web: touch it in one corner, and vibrations run to every strand. Oil shocks, wage demands, tariffs, interest rates—they all pull on each other. Ignore that, and you end up back where the 1970s left us: standing in the checkout line, wondering why the bill is so high, and hoping next month’s pay packet stretches far enough.

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  2. David Tyler Rand-McKaySeptember 17, 2025 at 7:20 PM

    or still... The 1970s. Oil embargoes, long queues at petrol stations, and an economic puzzle so baffling it needed a new word: stagflation. Prices climbing, jobs vanishing. Textbook economics said that wasn’t supposed to happen. But then, textbooks don’t account for OPEC embargoes, wage demands, or central banks terrified of pulling the brake. Cue Paul Volcker, interest rates at 20 percent, and the deepest recession since the Depression—medicine so strong the cure nearly killed the patient.

    Now, rewind a few centuries. To medieval Europe, where kings desperate for revenue discovered tariffs. Charge a fee on cloth coming from Flanders, grain from the Baltics, spices from the Levant. Everybody did it, everyone retaliated, and merchants found their profits eaten away before the goods left the docks. By the 18th century, this mercantilist merry-go-round had Europe tangled in trade wars that were often just the warm-up act for the real thing: actual wars.

    Fast forward again. Tariffs are dusted off, sold as patriotic economics—protecting jobs, making the nation strong. But, as in the 1600s or the 1970s, they raise prices at home, gum up trade, and slow growth. And when they coincide with energy shocks or tight money? That’s when the word stagflation makes a comeback.

    The irony is that we’ve had the lesson spelled out for us. In the 1970s, the global economy ran into a wall because the world was suddenly less open, less fluid. The solution, hard as it was, came from eventually opening up: deregulation, freer flows of capital and goods, new energy sources. And yet here we are again, tugging on the same strands of the web with tariffs, isolation, and suspicion of globalization—hoping this time, somehow, the web won’t shudder.

    Which brings us back to today. You pay more for groceries, your neighbor worries about layoffs, the Fed eyes interest rates with one hand on the lever and the other on the panic button. And the ghost of the 1970s stands there, humming along, waiting for us to notice we’re dancing to the same old tune.

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