Stagflation Redux

Oil is up, prices are up, employment is shaky--the Fed is responding to all of this with higher interest rates. For those people who were around for the 1970s, the term Stagflation may be unfamiliar, but the realities of it are not. Prior to the '70s, economists believed that Inflation and Unemployment were mutually exclusive phenomena. In other words, there as thought to be a tradeoff: accept a little inflation to have not so much unemployment, and vice versa. This was known as the Phillips Curve in the academic literature. But the '70s broke the Phillips Curve, and economists were standing around scratching their heads. Suddenly there was unemployment and inflation, or stagnant inflation---now known as "stagflation." With oil prices soaring in recent days, and with the job creation numbers out today, it is looking like we could be having a repeat of '70s-style stagflation. The question everybody is asking is "Who do we blame?" Most people want to blame the government. And that works pretty well, but we can't lay it on a single person or group. Everybody is responsible. They are responsible for failing to reduce spending, and further cut taxes. They are responsible for failing to further reduce regulatory burdens on industry and small business. They are responsible for failing to reform the entitlement programs that are sucking the economy dry.

So on this April Fool's day, the only fool is the American public, for buying politicians' lies that more government makes things better. It just isn't so.