stagflation

[ps501]

Stagflation is a term in macroeconomics used to describe a period of characteristic high inflation combined with economic stagnation, unemployment, or economic recession.

Stagflation is thought to occur when there is an adverse shock (a sudden increase, say in the price of oil) in a country's aggregate supply curve. The effects of rising inflation and unemployment is especially hard to counteract for the central bank. The bank has one of two choices to make each with negative outcomes. First, the bank can choose to pursue a loose money policy to stimulate the economy and create jobs by increasing the money supply (by lowering interest rates) and exacerbate the inflation problem further. Or second, pursue a tight money policy (by increasing interest rates) to try and reign in inflation at the cost of perhaps increasing unemployment further.

In the 1960s it was thought that the Phillips curve, which was associated with Keynesian economics suggested that stagflation is impossible because high unemployment lowers demand for goods and services which lowers prices. This results in low or no inflation. However, in the 1970s and 1980s, when presented with actual stagflation, it was realized that the relationship between inflation and employment levels was not a constant, but could be shifted, and that the Phillips relationship was better seen through payroll surveys (Current Employment Statistics) of employment rather than household surveys (Current Population Survey) (http://www.bls.gov/bls/proghome.htm)

By contrast, quantity theories of inflation, such as monetarism argue that inflation is due to the money supply rather than to demand predicts that inflation can occur with high unemployment if the government increases the money supply in a period of rising prices.

Stagflation occurred in the economies of the United Kingdom in the 1960s and 1970s and the United States in the Nixon administration of the early 1970s as reported by various news and financial sites. The difficulty in fitting its existence within a Keynesian framework led to a greater acceptance of monetarist theories in the 1970s and 1980s. The pendulum has, to some extent, swung back in the other direction as monetarism had increasing difficulty predicting the demand for money and the long period of low inflation and high employment of the 1990s - a kind of reverse of stagflation.

As of 2004 global stagflation is making a comeback with the price of oil over $40 a barrel, the US government slowly increasing interest rates, and employment rates stagnant. Monetarists and Keynesian economics continue to have difficulty explaining the phenomena.

[Andrew]

I don't get how Western countries can import most goods from Asian countries. This means job loss in Western countries. The service industry has grown a lot and overtaken every other industry.

I think there will be some kind of depression in the next decade or two that will cripple the world. Whether it is sparked economically or by a health issue.

Oh and to futher help your argument, Core inflation has increased. This is a very bad thing as it excludes volatile goods such as oil. (of course, inflation has been increasing due to oil).

Although Canada got ahold of its Inflation problems when they came out with monetary policies in 1992. This has greatly helped control of inflation.

Image looks better at full size.

The whole Bretton Woods gold standard was pretty messy.

And the whole dependance on oil is sad. There are alternative energy sources, yet Bush annouced that he is going to invest in coal research to help get rid of oil dependance. Coal...

Yet people who drive SUVs in USA get their gas paid by the government. (read a story on FARK)

EDIT - For original image size open the attachment.

[attachment archived by Gobalopper]

[ps501]

I actually read an article that OPEC wants the rest of the world to provide "welfare" for them if we get away from our oil dependence.

[Andrew]

Wal-Mart posted a miss today, blamed the high cost of oil.  At some point, hopefully in our lifetimes, we will have renewable energy (like wind) and fuel cells for our cars. 

What was it about walmart? Havn't heard about the oil thing with them.

As for renewable energy, a town in my province is going to be one of the first in the world to run off of renewable energy.

http://news.yahoo.com/news?tmpl=story&u=/cpress/20050421/ca_pr_on_na/pei_hydrogen_1

Several cars and a fishing boat will run on hydrogen fuel in the early stages. The goal is to eventually have several homes in the area powered by hydrogen.

So hydrogen seems to be the way.

We alreay have a wind farm at one place, think it is more of a test right now, but very soon should be putting out electricity. Planning on putting a wind farm on the opposite side of the province.

To me hybrid cars look really good (it's a start). 80 miles to the gallon for one of them. They have some great technologies like when they shut off at stop lights, because if you are siting at a red light for 1 minutes there is no need for your car to run (unless winter).

Hydrogen is touted as a fuel that could make petroleum obsolete.

It is pollution free, and the only byproduct is water.

[Egeides]

I thought you might be interested in this article I kept in mind since its parution:

http://www.kuro5hin.org/story/2004/11/21/104921/15

This website often offers interesting material, and this article seems like the equivalent of another found in The Economist, only better.

I do not like pictures of gloom and doom, as they hardly reflect the world more than Manicheism. Still, on the longer term I do not have an all-absolute faith in the present situation if we consider no change from the present trends. But while the fundamentals are important, I would not be able to get in the technicals and evaluate when and how it would go sour.

I have a kind of problem with an economy which is based on services within a same country. To pay for these national services, you need to take people from the sectors which are buying stuff from outside. It is also like getting lots of people working at giving eachother a nice treatment (service): erm, does it produce something for the country's future production? Roman games (service) did not help the economy: some say it does?... Seeing it in matter of actual energy to be used and potential energy, I would say that the potential doesn't seem to get better but rather worst. You can come with any other equations as you wish, but they will always be sub-equations of a greater equation of actual energy and potential energy. I overviewed a documentary once about the naval commercial infrastructure going down, while it is the very infrastructure which offers a potential for all-important trade. These boats cost fortunes (thus high cost to buy potential), last a long time (thus "get now, pay later"), but when they start breaking you'r stuck because they are the very base of what actually brought money to buy them... I don't know more about this specific subject, but if they really are indicative of a global trend, one wonders when the indebtment towards to potential will hit the actual capacity to maintain this level.

[Andrew]

Egeides, that article was interesting. The US debt is extremely high, and I laugh that Bush hasn't been ousted in a coup or something. The US dollar is in bad shape, letting the Canadian dollar rise to over 80 cents per USD. Although this means that America will buy more american products and less Canadian products (actually, it will promote Asian products as well, unless their dollar has increased a lot too).

Soon all products will come from Asia it seems, and Americans will be out of manufacturing jobs. It seems only service jobs will be available, although I've only recently found out that it seems that India is taking over technical support jobs.

[ps501]

What was it about walmart? Havn't heard about the oil thing with them.

http://www.marketwatch.com/news/yhoo/story.asp?source=blq/yhoo&siteid=yhoo&dist=yhoo&guid=%7BACE61E76%2D3AEB%2D43EB%2D93A7%2DDCEF456DD062%7D

It basically says that wal-mart is blaming higher than normal gas prices on their lower than expected sales.  AKA americans are spending more at the pump, and less at wal-mart.

I have a kind of problem with an economy which is based on services within a same country. To pay for these national services, you need to take people from the sectors which are buying stuff from outside. It is also like getting lots of people working at giving eachother a nice treatment (service): erm, does it produce something for the country's future production?

Well I don't believe that a service economy is sustainable.  Think about it: General Motors makes things, and employs 10,000's of people in the production, marketing and distribution of those good.  Toyota also makes things.  In Japan they employ 10,000's of people in the production, marketing, and distribution of those goods.  The average Toyota dealership in America employs.... What 100?  so with a loss of a massive company like GM 10,000's of jobs that won't be absorbed into the "services economy" 

[ps501]

http://money.cnn.com/2005/06/03/news/economy/yield_slowdown/index.htm?cnn=yes

I read this, and recall when Alan Greenspan wanted to slow the Economy in the early part of this decade, he kept raising interest rates to slow "internet" companies.  The effect was that he hurt brick and mortar companies, while the internet companies were basically exempt from the rate hikes.  How Alan Greenspan is concurned about low long term interest rates, suggesting that if he keeps raising rates, then they must go up.

I'm thinking it *is* time for Greenspan to retire and let someone take the reigns as the "2nd most powerful person"  I personally believe that if the US economy crashes as it did in the "Great Depression" it will take the rest of the worlds economy in to the crapper with it.

[Andrew]

http://www.cbc.ca/cp/business/050530/b053020.html

So sad to see.

A growing imbalance in the global economy, exacerbated by a rampant U.S. deficit as the rest of the world records surpluses, needs to be addressed soon before it gets resolved "in an abrupt, disorderly way," the governor of the Bank of Canada said Monday.

So basicly USA is screwing themselves over, and will continue to do so until the market crashes.