Brace Yourself: Here Comes Stagflation!

It seems increasingly likely that the American economy is sleepwalking toward stagflation. In case you’re wondering, that is not a good thing.

Stagflation means that an economy experiences excess inflation and excess unemployment at the same time. This was once thought to be impossible, but the OPEC oil price shocks of the 1970s triggered both high inflation and high unemployment, and voilà, we suddenly had a new, unhappy economic phenomenon.

If I had to guess, I think there’s a decent chance that 18 months from now, America could well have an inflation rate of 4 percent (up from last year’s 2.5 percent) and an unemployment rate of 7 percent, well above the current 4.3 percent.

How might that come about?