The Stagflation Myth
The comments below are an edited and abridged synopsis of an article by Alasdair Macleod
Describing evolving inflationary conditions as stagflation misses the point about today’s inflationary conditions. Stagflation was originally used only in the context of excessive wage increases not matched by improved trading prospects. Just in that narrow sense, today we are experiencing stagflation.
But in the wider context, inflationary conditions being described as stagflation are not stagflation at all. They are the consequences of increased money supply undermining the purchasing power of currencies—an extremely dangerous economic condition that, unless it is checked, leads to the destruction of a fiat currency.
In the UK and elsewhere, politicians are claiming that higher wages for the low paid are needed to get them back to work. Without an increase in productivity, it amounts to a recommendation in favour of stagflation. But in measuring stagnating production, politicians and economists alike are being misled by estimates of individual productivity by the OECD, which produces the basic statistics.
This article demonstrates the incorrect assumptions behind the OECD’s calculations on productivity and why it is not the function of governments to attempt to manage it. If governments are to do anything positive, it should be to cut employment taxes and stop interfering.
The reader less interested in the abuse of labour and production statistics might like to skip the section on the OECD’s approach to productivity for the brief update on the wider evolution of global hyperinflation later in the article.
Up for discussion: Introduction; the productivity myth; the OECD’s approach to productivity; and the additional consequences of monetary inflation.
