Stagflation.
For Americans of a certain age, it conjures memories of painfully long lines at gas stations, shuttered factories and President Gerald Ford’s much-ridiculed “Whip Inflation Now” buttons.
On Thursday, the government estimated that the economy shrank at a 1.5% annual rate from January through March. But the drop was due mostly to two factors that don't reflect the economy's underlying strength: A rising trade gap caused by Americans' appetite for foreign products and a slowdown in the restocking of businesses inventories after a big holiday season buildup.
Until about 50 years ago, economists viewed stagflation as a near-impossibility. They hewed to something called the Phillips Curve, named for its creator, economist A.W.H. “Bill’’ Phillips of New Zealand. This theory held that inflation and unemployment move in opposite directions. Stagflation, and especially chronically high inflation, became a defining feature of the 1970s. Political figures struggled in vain to attack the problem. President Richard Nixon resorted, futilely, to wage and price controls. The Ford administration issued “Whip Inflation Now” buttons. The reaction was mainly scorn.There’s “flation’’ for sure: Consumer prices shot up 8.3% in April from a year earlier, just below a 41-year high set the previous month.
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