Money Matters

Finance – What is “Stagflation”?

As Millennials and those younger still join the workforce and get their first paycheck, they are usually astonished by the amount of taxes taken out.  The consternation in their outcries is unmistakable.

But Millennials who have been proponents of Socialism should not be shocked at all.  How did they think all those Socialist programs are paid for?  Socialism is not only wrong and destructive, it is expensive.  The bureaucracy of government programs is never cheap.

Anyone born since 1970 is too young to remember the economic problems of the 1970s:  inflation was increasing, and the economy was stagnant.  Then-President Carter described the conditions as a “malaise”. 

The press created a label:  “Stagflation”.

The economic stagnation was due to government controls, thanks particularly to Presidents Nixon and Carter. 

President Biden’s first action was to shut down the Keystone Pipeline.  President Nixon had similarly prevented oil from being produced in the U.S., and the U.S. had become dependent on Middle East Oil. OPEC raised prices, and the U.S. economy suffered.

The solution was simple:  when President Reagan took office, he changed policy to allow the American production of oil.  OPEC ceased to be relevant, and the American economy quickly rebounded. 

Inflation has a simple cause:  more money in circulation.  The Law of Supply and Demand provides a simple, unavoidable explanation:  as the amount of anything goes up, its value compared to other things goes down.  Government spending was way up in the 1970s, again thanks to Presidents Nixon and Carter.  That spending was made possible by government debt. 

Government printed more money – and the value of the money you got in your paycheck went down.  Your paycheck was as much as ever, but it bought you less.  Your income declined. 

In the early 1980s, companies were giving out extra raises just to (barely) keep up with inflation.

President Biden is reducing America’s oil production, while increasing government spending.  He knows most voters are too young to remember the last time that happened.

When your paycheck no longer covers the bills, and the economy makes finding a job more difficult, call it for what it is:

Stagflation.

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