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Hoping This ’70s Trend Won’t Return: Stagflation

Are we reliving the 1970s? No, I don’t mean peace signs, disco and bell bottoms, as my mom wore; we’re talking about the economy. Of course, we all know the pandemic changed everything. But let’s talk money. We’re starting to see inflation and possibly stagflation. Let’s break it down.

Where does inflation come from?

In the past year, the Federal Reserve decided to print a lot of money, increasing the supply of dollars in the United States. And at the same time, the government went on a spending spree of epic proportions. Remember, they sent us all money? And these policies are starting to cause inflation, or rising prices. If you ask your parents, inflation was a huge problem in the 1970s. And just like back then, our current situation is a bit unique for a simple explanation. Many economists are worried that the U.S. will repeat the same history of stagflation.

The birth of disco and stagflation

It sounds like a fancy word, but it’s pretty easy: Stagflation is when prices go up, but the economy doesn’t exactly boom. So, shouldn’t the government stop printing money now that the economy is better? The issue with scaling back is we risk another crisis that is hard to control: deflation, or falling prices. Deflation that happened during the Great Recession, and it was painful, to say the least. The government and the Federal Reserve are trying to prevent us from going through that pain. But are they making the right moves?

Bridging the gap between parties

You might think this is a partisan issue, but it isn’t. In fact, a very liberal, somewhat established economist Larry Summers — who served in both Clinton and Obama’s administrations — said he has his doubts about what we’re doing right now. He called what we’re living through “the least responsible macroeconomic policy we’ve had for the last 40 years.” And of course, he’s referring to government spending, loose monetary policy and an exploding amount of national debt: major political problems that could have consequences in Washington.

An economics experiment

If we’re not careful, we could face a perfect inflationary storm. Or maybe not; maybe I’m totally wrong. Economics is not an exact science, so we’re living through a gigantic economic experiment. And no one knows what comes next. Maybe printing money and causing inflation is the only way out of this pandemic mess. But we’re learning really fast that we don’t know what we’re doing. Whether you’re a Millennial or a Gen Z — or even older — most of us don’t remember the last time we had inflation. But we might be in for a ride for the next few years.

The next time you’re wondering why your burrito, flight, apartment or doctor’s appointment is getting so expensive, you know what it is. It’s inflation. Hopefully, this time, we have economic growth, too.

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