Economics 101. Stagflation.

[cafter]

What may cause stagflation:
here one example of what may cause stagflation: central banks typically use tools like changing interest rates to help the economy. they lower rates to boost the economy and raise rates to control inflation. But in stagflation... this strategy do not work well because when both high inflation and high unemployment happening together. it is like trying to fix two problems at once, which is really hard for central banks to balance.

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[karabiber]

In the majority of countries with stagflation, the justice mechanism is in the hands of a certain group of people. There is no confidence in the economy with stagflation and since there is no confidence in the judiciary and justice, there is no investment from different countries. Those who become rich in the country flee abroad. There is a shortage of euros and dollars. High interest rates are given to attract investment and to make banking work and the economy grinds to a halt.

Since the autocracy does not change, investment does not come again. In such an economy, nobody opens businesses and unemployment peaks along with inflation. I think there is only one way to end stagflation and that is the independence of the judiciary and the equal distribution of justice. Because contrary to popular belief, the economy is not an area that grows or shrinks in line with monetary policies. The economy is all about trust in the law on the contrary.

[kryptqnick]

Okay, I have a question here.
In the past, let's say even a couple of centuries ago, humanity was still battling natural forces, unable to produce enough for everyone. If there was a drought, a flood, or something else, it was a catastrophe because the already limited resources got even more scarce, resulting in even more people dying. But starting from the industrial revolution, we did a major breakthrough which allowed to finally overcome the issue of not producing enough. Growth was very important to finally reach a point of abundance.
Now, the thing is, we've reached that point. Globally, we produce enough food to feed everyone, enough clothes, enough medicine. Perhaps not enough housing, but also a lot of vacant housing and all the resources needed to build more. But we're still stuck in thinking that slower growth is a bad thing, and no growth is terrible.
Isn't the issue no longer about how much we produce, but how we use and distribute what we produce? So doesn't it mean that we could, hypothetically, significantly improve the lives of people without any economic growth necessary? So couldn't at least some issues be resolved by focusing on redistribution and rethinking priorities?

[Wind_FURY]

They are creative with terminologies, inflation and stagflation. I remember how politicians try to mislead citizens with recession and technical recession which is reflected recession but they want to avoid it and reduce its severity by using a creative term, technical recession.

Why they don't use a term hyper inflation but use stagflation? Because hyper inflation sounds very bad while stagflation is not and looks to be a new term, need time for citizens to discover and accept it.

Bad economic policies, gold standard removal and other reasons like oil price increases are some factors that come together with governments to print more money into their economies then cause inflation in some countries or hyper inflation in some special nations.

I believe the term "technical recession" is as old as the study of modern economics itself. If there's a recession for two consecutive quarters = it's a Technical Recession. The politicians actually are changing the official definition by not recognizing it, also telling the bureaucracy to "cook the numbers".

The term Stagflation, although a newer term, was first used during 1965. But that doesn't mean that it isn't real. We will probably hear more of the term for the last quarter of 2023 - first quarter/second quarter of 2024.

[wxa7115]

Okay, I have a question here.
In the past, let's say even a couple of centuries ago, humanity was still battling natural forces, unable to produce enough for everyone. If there was a drought, a flood, or something else, it was a catastrophe because the already limited resources got even more scarce, resulting in even more people dying. But starting from the industrial revolution, we did a major breakthrough which allowed to finally overcome the issue of not producing enough. Growth was very important to finally reach a point of abundance.
Now, the thing is, we've reached that point. Globally, we produce enough food to feed everyone, enough clothes, enough medicine. Perhaps not enough housing, but also a lot of vacant housing and all the resources needed to build more. But we're still stuck in thinking that slower growth is a bad thing, and no growth is terrible.
Isn't the issue no longer about how much we produce, but how we use and distribute what we produce? So doesn't it mean that we could, hypothetically, significantly improve the lives of people without any economic growth necessary? So couldn't at least some issues be resolved by focusing on redistribution and rethinking priorities?

Your assessment of the situation is correct, if a company projected to grow 10% and it only grows 9% this is treated as a tragedy and it is not surprising its stock price fell many points just because of it, and this is despite the fact the company still grew, it was simply not as fast as the CEO expected.

So no growth is treated as the worst thing it could happen, but this is because of our current economic model in which governments print money at will, and in that case if your company is not in perpetual growth then you are in fact losing money, so before we can concentrate on the issue of a better wealth distribution, the whole economic system will have to change, and we are still far from this happening at all.

[Darker45]

Where I'm from, a stagflation of sorts must have already come. The prices of fuel are rising pretty high and fast. Very basic necessities are getting more and more expensive. Food as basic as rice, onion, tomato, and others are rising in prices inexplicably high.

Although unemployment numbers are improving a bit, investment is plunging. Moreover, debt is rising. Debt-to-GDP ratio is already breaching a level that is worrisome. Economic policies are a bit haphazard. Even the country's top economic managers don't understand where the policies implemented are coming from and how they're crafted.

[ancafe]

No offense - but the global economy doesn't care about people who work for a "bowl of rice". It's rude and unpleasant, but it's a fact. You just have to realize that these are different levels of the economy.  This layer of the earth's population does not affect the "wallets" of the big economy....
And in some sense, the presence of poor regions, countries and people is even "good" for the global economy, these people do not create problems like the middle class, for example, who have more rights, money, and the ability to express their opinions and demand something. Unfortunately, this is the way the world works.

That is the fact and this statement has nothing to do with what is produced by a bad economy because everyone must try to get out of every economic problem that occurs on their own. But you also have to remember that the government has the right and responsibility to protect and prosper society even though the facts say otherwise, for poor people being able to get rice to eat is more than enough compared to talking about stagflation, recession or inflation. It's no use for them to know the causes of these three things because what they know is that making money nowadays is very difficult and most people turn a blind eye to the problems that occur and even try to oppress weak people.

Life today is on the verge of moralization and many people have never been sensitive to the problems faced by poor communities. On the other hand, the guarantee of the right to life facilitated by law seems to have disappeared because each person and the government are busy thinking about their own lives. Therefore, each individual must work better to get out of problems like this and help other people if we have the opportunity or have much better finances.

[Pablo-wood]

However, judging by analytics, this very stagflation is receding in the US and EU, at least by the indicator of declining unemployment and slowing inflation.
China is even experiencing deflation, but it is "interesting" - prices are falling not because of the strengthening of the yuan, but due to a decrease in purchasing power and demand of domestic consumers.

It is interesting to know what is the situation in other countries/regions ?

The US and EU are developed nations with a high sensitive democratic leadership so the level of unemployment and inflation shouldn't be as pronounced as it is in developing nations as for China their weak global economy and and decline in demands from other international market has been their weak spot which has affected their production strength as well as their investments.

For my own country Nigeria it is nothing other than poor leadership and undemocratic power tussle. I wish there was a global leadership overseeing the affairs of countries like this to help the mismanagement of funds and poor decision making but unfortunately there can never be. The only hope is if there will be a repetition of what played out in Garbon in Nigeria where the Military will take over power maybe stagflation could recede to a large extent

[Frankolala]

The current leaders are not looking or thinking of a way to improve the economy from facing Stagflation. Instead they are negleting their responsiblity on how to reduce inflation and they keep on printing money and pour into the society to decieve themselves that all is well.

They are very greedy,that they are after power and winning territories for their own selfish benefits. The third world countries are already suffering from stagflation because there is high rate of inflation,high rate of unemployment and poor productive power. Mismanagement is another factor that leads an country to Stagflation. The price of oil is really a key factor that determines the state of the country economy.

[Gyfts]

Okay, I have a question here.
In the past, let's say even a couple of centuries ago, humanity was still battling natural forces, unable to produce enough for everyone. If there was a drought, a flood, or something else, it was a catastrophe because the already limited resources got even more scarce, resulting in even more people dying. But starting from the industrial revolution, we did a major breakthrough which allowed to finally overcome the issue of not producing enough. Growth was very important to finally reach a point of abundance.
Now, the thing is, we've reached that point. Globally, we produce enough food to feed everyone, enough clothes, enough medicine. Perhaps not enough housing, but also a lot of vacant housing and all the resources needed to build more. But we're still stuck in thinking that slower growth is a bad thing, and no growth is terrible.
Isn't the issue no longer about how much we produce, but how we use and distribute what we produce? So doesn't it mean that we could, hypothetically, significantly improve the lives of people without any economic growth necessary? So couldn't at least some issues be resolved by focusing on redistribution and rethinking priorities?

GDP growth matters because the population is growing. If GDP growth shrinks or remains stagnant with a growing population, that means lower quality of life because the amount of goods and services produced are distributed more thinly.

If you wanted to focus on redistribution, you could. That would involve taking wealth from the highest generators and giving it to those that generate less.

Historically, wealth redistribution has always resulted in a net reduction in GDP. It's not as practical as it may seem.

[kryptqnick]

I appreciate your responses, thank you for taking the time to write them.

So no growth is treated as the worst thing it could happen, but this is because of our current economic model in which governments print money at will, and in that case if your company is not in perpetual growth then you are in fact losing money, so before we can concentrate on the issue of a better wealth distribution, the whole economic system will have to change, and we are still far from this happening at all.

That's a good point from the perspective of businesses battling inflation, I didn't take that into account.

GDP growth matters because the population is growing. If GDP growth shrinks or remains stagnant with a growing population, that means lower quality of life because the amount of goods and services produced are distributed more thinly.

If you wanted to focus on redistribution, you could. That would involve taking wealth from the highest generators and giving it to those that generate less.

Historically, wealth redistribution has always resulted in a net reduction in GDP. It's not as practical as it may seem.

Thank you for pointing out population growth. I guess I didn't think about it because my country's been experiencing a negative population trend for a long time. But looking at this data, there's no population growth or very low population growth (below 1.5%) in the majority of the world, including European countries, China, India, and the US. So it has to be accounted for from the long-term perspective, so some growth is perhaps required, but a year or two of no growth or very low growth shouldn't be significantly bad regarding population growth.
As for redistribution, could you mention some examples of it leading to GDP reduction? Because what I see it research that says that increase in income inequality leads to GDP reduction, but that's a very different thing because wealth redistribution is meant to reduce income and wealth inequality.

[Yamane_Keto]

expanded economy is one of the things that should be judged on one thing. The economy is interconnected and linked to each other. We have economic sanctions that make concepts such as globalization and economic integration difficult. Therefore, it is difficult to say that the cause of stagflation is one cause, and there are factors, and each factor will affect them. .

The government's experiments in combating inflation by raising interest rates address a certain type of inflation, but the inflation that occurs is caused by different factors. treating inflation by simply raising interest rates and continuing with policies of raising interest led to the occurrence of stagflation. Instead of being a temporary stagnation, it became an increase in product prices due to fluctuating energy prices, problems. All supply chains lead to this result. The beginning of the reform will be after stopping raising interest rates.

[Gyfts]

I appreciate your responses, thank you for taking the time to write them.

So no growth is treated as the worst thing it could happen, but this is because of our current economic model in which governments print money at will, and in that case if your company is not in perpetual growth then you are in fact losing money, so before we can concentrate on the issue of a better wealth distribution, the whole economic system will have to change, and we are still far from this happening at all.

That's a good point from the perspective of businesses battling inflation, I didn't take that into account.

GDP growth matters because the population is growing. If GDP growth shrinks or remains stagnant with a growing population, that means lower quality of life because the amount of goods and services produced are distributed more thinly.

If you wanted to focus on redistribution, you could. That would involve taking wealth from the highest generators and giving it to those that generate less.

Historically, wealth redistribution has always resulted in a net reduction in GDP. It's not as practical as it may seem.

Thank you for pointing out population growth. I guess I didn't think about it because my country's been experiencing a negative population trend for a long time. But looking at this data, there's no population growth or very low population growth (below 1.5%) in the majority of the world, including European countries, China, India, and the US. So it has to be accounted for from the long-term perspective, so some growth is perhaps required, but a year or two of no growth or very low growth shouldn't be significantly bad regarding population growth.
As for redistribution, could you mention some examples of it leading to GDP reduction? Because what I see it research that says that increase in income inequality leads to GDP reduction, but that's a very different thing because wealth redistribution is meant to reduce income and wealth inequality.

It's entirely debatable whether income inequality leads to reduced economic growth. We would need to first define what income inequality looks like because disparity in income has always existed. At its core, disparity in income is income inequality and thus it's impossible for a free and fair economy to allow everyone to earn the same income. It assumes equal skill level for every participant in the workforce. If a physician has a different and more valuable skillset than a delivery person, income disparity must exist in a free market society. Presumably, taking away wealth from the physician and handing it to the delivery person is what solving wealth inequality would look like, and I don't see why that would do anything but reduce incentive to generate wealth hence lowering GDP.

You can point to any country that's condensed the welfare state into a centralized entity through high taxes and look at their GDP growth. It's always been stagnant. Israel in the late 90's and early 2000's struggled with growth and high inflation because they had taken wealth from high income earners and put them into generous social welfare programs that gave a disincentive for Israelis entering the labor market. It wasn't until the their Finance Minister reduced the social welfare state that labor participation increased and their economy began to grow. Of course, this was off the back of liberalization of their monetary policy -- reducing tariffs and opening the country to free markets and such. Point being, they tried a wealth redistribution approach and it didn't work.

[Wind_FURY]

Incoming Bank Of England deputy governor said, "Risks of August BOE inflation forecast to the upside". She also said, "U.K. economic activity is weak".

It would have probably more efficient of her to use one sentence, "U.K. risks of going into Stagflation".

Plus another inflationary event. That's not good for countries going into a techncial recession, https://www.livemint.com/market/commodities/oil-sizzles-at-10-month-high-on-saudi-russia-output-cuts-opec-upbeat-on-demand-brent-over-91bbl-11694526378060.html

Saudi Arabia, and Russia will cut outputs of Crude. Fuel prices will surge.

[slapper]

Few people can ignore the word "stagflation" these days, and you've done a great job of explaining why. This unusual economic monster has puzzled researchers for decades. Check the central banks. Old tools are almost useless due to stagflation. Lowering interest rates? That may raise pricing. Raising them? Congratulations, you increased unemployment

I want to emphasize technology and robotics, which are generally disregarded. When technology develops quickly, firms deploy tools instead of people, reducing jobs. Automation makes things more efficient, which should lower prices. Unfortunately, firms don't cut prices with cost savings. Inflation and unemployment defy most economic models

[DrBeer]

However, judging by analytics, this very stagflation is receding in the US and EU, at least by the indicator of declining unemployment and slowing inflation.
China is even experiencing deflation, but it is "interesting" - prices are falling not because of the strengthening of the yuan, but due to a decrease in purchasing power and demand of domestic consumers.

It is interesting to know what is the situation in other countries/regions ?

The US and EU are developed nations with a high sensitive democratic leadership so the level of unemployment and inflation shouldn't be as pronounced as it is in developing nations as for China their weak global economy and and decline in demands from other international market has been their weak spot which has affected their production strength as well as their investments.

For my own country Nigeria it is nothing other than poor leadership and undemocratic power tussle. I wish there was a global leadership overseeing the affairs of countries like this to help the mismanagement of funds and poor decision making but unfortunately there can never be. The only hope is if there will be a repetition of what played out in Garbon in Nigeria where the Military will take over power maybe stagflation could recede to a large extent

Good clarification, I agree about the EU and China. By the way, the Chinese crisis, with its development and the growth of problems in the Chinese economy, will allow neighboring countries to "intercept" not all but many directions, gaining customers who previously bought in China. China is now trying to build around itself a yuanized environment of satelite-donor countries, which clearly does not allow us to hope for their development.

Regarding military coups, I will say this - almost all such coups never bring positive economic changes. Probably the best way is the change of power by the people of the country and the transfer of powers to adequate managers (I mean the government). Yes, and the most important thing is to fight corruption. unfortunately it is a very big and complicated problem that destroys the economy of any country

[Smartvirus]

Plus if you didn't pay attention in your Economics class in school, it's currently the best time to learn about it because it's probably going to come sooner than expected. So let's discuss.

I probably didn’t pay much attention to my economic classes but, am surely paying much attention now.

Blame Oil Price Shocks
One theory states that stagflation is caused when a sudden increase in the cost of oil reduces an economy's productive capacity.

Because transportation costs rose, producing products and getting them to shelves became more expensive and prices rose even as people were laid off from their jobs.

I think my country has made this make with the drastic rise in oil price following the removal of the subsidy on the petroleum products. This pushed price to almost triple the formal price at an instant without any warning. This has result in citizens having to pack their vehicles and seek alternative means of movement.
The gist of transportation has gone up as well and with majority of the citizens living within the minimum wage range, it makes life extremely difficult for most people and consequently affects production.

Blame Poor Economic Policies
Another theory is that the confluence of stagnation and inflation is the result of poorly made economic policy. Harsh regulation of markets, goods, and labor in an otherwise inflationary environment are cited as the possible cause of stagflation.

As stated above,
The policy was instantaneous, not deliberated on and we are still having to face the adversity that comes with it while hoping on a better reinvestment of the funds that would be generated from it. We just can’t tell if that would be happening.

Still, government is looking to put in place more hikes in other sectors to ensure money is being generated without looking at production. They seem to forget this money goes in circles!

[serveria.com]

Stagflation will probably be an economic term that many of us plebs will start hearing more and more of from the news as the economic situation in many regions around the world continue to worsen. Stagflation is an economic cycle, or condition, when there's slow growth, low demand, low employment, BUT high "sticky" inflation. That's where many countries are probably going.

Plus if you didn't pay attention in your Economics class in school, it's currently the best time to learn about it because it's probably going to come sooner than expected. So let's discuss.

What Causes Stagflation?
There is no real consensus among economists about the causes of stagflation. They have put forth several arguments to explain how it occurs, even though it was once considered impossible.   

Blame Oil Price Shocks
One theory states that stagflation is caused when a sudden increase in the cost of oil reduces an economy's productive capacity.

The oil crisis of the 1970s is the prime example. In October 1973, the Organization of Petroleum Exporting Countries (OPEC) issued an embargo against Western countries. This caused the global price of oil to rise dramatically, therefore increasing the costs of goods and contributing to a rise in unemployment.
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Because transportation costs rose, producing products and getting them to shelves became more expensive and prices rose even as people were laid off from their jobs.

Critics of this theory point out that sudden oil price shocks like those of the 1970s did not occur in connection with any of the simultaneous periods of inflation and recession that have occurred since the embargo.
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Blame Poor Economic Policies
Another theory is that the confluence of stagnation and inflation is the result of poorly made economic policy. Harsh regulation of markets, goods, and labor in an otherwise inflationary environment are cited as the possible cause of stagflation.

Some point to former President Richard Nixon's policies, which may have led to the recession of 1970—a possible precursor to other periods of stagflation. Nixon put tariffs on imports and froze wages and prices for 90 days in an attempt to prevent prices from rising.
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 Once the controls were relaxed, the rapid acceleration of prices led to economic chaos.

While appealing, this is an ad-hoc explanation of the stagflation of the 1970s which does not explain later periods that showed a simultaneous rise in prices and unemployment.

Blame the Loss of the Gold Standard
Other theories point to monetary factors that may also play a role in stagflation.

Nixon removed the last indirect vestiges of the gold standard, bringing down the Bretton Woods system that had controlled currency exchange rates.
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This decision removed commodity backing for the currency and put the U.S. dollar and most other world currencies on a fiat basis, ending most practical constraints on monetary expansion and currency devaluation.

https://www.investopedia.com/terms/s/stagflation.asp

Early signs of Stagflation appeared during the pandemic but now it's worsening considerably due to rising energy prices. The worst part is that I can't see any signs of stopping. With oil prices bound to increase even more, we can only guess where it will take us and if global economy is going to survive.

[Wind_FURY]

It's laughable that the people I talk to that remain in denial of the high-probability of Stagflation that's going to happen in many regions around the world.

In Europe, Christine Lagarde raised interest rates again, it's the tenth hike and she won't truly confirm when she'll stop. That will slow down most European economies. But in other parts of the world, China's Stimulus and the supply cuts for Crude Oil will cause higher fuel prices and therefore more inflation.

Stagflation will not merely be a narrative.

[serveria.com]

It's laughable that the people I talk to that remain in denial of the high-probability of Stagflation that's going to happen in many regions around the world.

In Europe, Christine Lagarde raised interest rates again, it's the tenth hike and she won't truly confirm when she'll stop. That will slow down most European economies. But in other parts of the world, China's Stimulus and the supply cuts for Crude Oil will cause higher fuel prices and therefore more inflation.

Stagflation will not merely be a narrative.

This. Interest rates affect many Europeans's family budgets in a negative fashion. Frankly, I'm confused how rising interest rates can fight inflation? People pay more for their mortgage so they need to earn more, charge more for their work or service and voila: we get more inflation! Fuel prices are soaring too, accelerating the inflation even more. Additionally, there are rumors of the next Covid wave coming soon... so hold on to your butts, gentlemen!