Economics 101. Stagflation. - page 3.

Stagflation will probably be an economic term that many of us plebs will start hearing more and more of from the news as the economic situation in many regions around the world continue to worsen. Stagflation is an economic cycle, or condition, when there's slow growth, low demand, low employment, BUT high "sticky" inflation. That's where many countries are probably going.

Plus if you didn't pay attention in your Economics class in school, it's currently the best time to learn about it because it's probably going to come sooner than expected. So let's discuss.

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What Causes Stagflation?
There is no real consensus among economists about the causes of stagflation. They have put forth several arguments to explain how it occurs, even though it was once considered impossible.

Blame Oil Price Shocks
One theory states that stagflation is caused when a sudden increase in the cost of oil reduces an economy's productive capacity.

The oil crisis of the 1970s is the prime example. In October 1973, the Organization of Petroleum Exporting Countries (OPEC) issued an embargo against Western countries. This caused the global price of oil to rise dramatically, therefore increasing the costs of goods and contributing to a rise in unemployment.
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Because transportation costs rose, producing products and getting them to shelves became more expensive and prices rose even as people were laid off from their jobs.

Critics of this theory point out that sudden oil price shocks like those of the 1970s did not occur in connection with any of the simultaneous periods of inflation and recession that have occurred since the embargo.
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Blame Poor Economic Policies
Another theory is that the confluence of stagnation and inflation is the result of poorly made economic policy. Harsh regulation of markets, goods, and labor in an otherwise inflationary environment are cited as the possible cause of stagflation.

Some point to former President Richard Nixon's policies, which may have led to the recession of 1970—a possible precursor to other periods of stagflation. Nixon put tariffs on imports and froze wages and prices for 90 days in an attempt to prevent prices from rising.
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Once the controls were relaxed, the rapid acceleration of prices led to economic chaos.

While appealing, this is an ad-hoc explanation of the stagflation of the 1970s which does not explain later periods that showed a simultaneous rise in prices and unemployment.

Blame the Loss of the Gold Standard
Other theories point to monetary factors that may also play a role in stagflation.

Nixon removed the last indirect vestiges of the gold standard, bringing down the Bretton Woods system that had controlled currency exchange rates.
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This decision removed commodity backing for the currency and put the U.S. dollar and most other world currencies on a fiat basis, ending most practical constraints on monetary expansion and currency devaluation.

https://www.investopedia.com/terms/s/stagflation.asp

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