It’s not exactly a longing for the days of disco and bell-bottoms, but the June 8 “NBC Nightly News” warned of scenario that was notorious during the late 1970s.
CNBC senior economics reporter Steve Liesman warned viewers of stagflation [1], an economic term generally defined as “a period of slow economic growth and relatively high unemployment – a time of stagnation – accompanied by a rise in prices, or inflation.”
“Well, I mean, we have a couple issues coming out,” Liesman said. “The one – the buzzword in economics right now is whether or not we’re in stagflation, which means very little growth and very little inflation [sic].”
According to Liesman, the retail sales report due out June 12 and the consumer price report due June 13 will indicate whether the economy is heading in that direction.
“That, [“NBC Nightly News” anchor] Lester [Holt], could be a real shocker as we see the price of gasoline, and as [NBC correspondent] Jim Forman mentioned – the price of other consumer goods like those made by Dow filter through to the core and be paid by consumers,” Liesman said.
But according to Business & Media Institute adviser Dr. John Lott, stagflation claims are “nuts.”
“Well, this whole thing is nuts,” Lott said. “Inflation isn’t defined by a few or even some prices that are rising. It is defined by what is happening to the entire price level. Overall, inflation is 3.9 percent over the last year. That is about one percentage point higher than during the average of the Clinton administration.”
A Nexis search revealed that during the Clinton presidency – from January 1993 through January 2000 – only one report from the three major networks (ABC, CBS and NBC) raised the possibility of “stagflation.”
That’s worth noting because unemployment, a key marker of stagflation, was at 5.5 percent in May 2008. In May 1993, unemployment was at 7.1 percent [2].
Since George W. Bush was sworn in as president, the same search of those three networks revealed it was mentioned in a news segment 18 times.
BMI adviser Dr. Gary Wolfram said the current economic climate is relative, as Americans have become used to a more robust economy.
“Well, if this were 20 years ago, it certainly would be considered a good number for employment,” Wolfram said to BMI. “But we have become used to unemployment rates at less than 5 percent and GDP [gross domestic product] growth of 3 percent. So a slowing in growth, which is consistent with a rise in unemployment, is now seen as if we are in recession.”
Wolfram blamed the Federal Reserve for the current economic problems and said “stagflation” was a media term.
“We certainly are in an inflationary period, or at least going into one,” Wolfram said. “Given all the liquidity the Fed put into the system, that would not be surprising. ‘Stagflation’ has always been a media word, not a precise economic term. We are in a slow growth period with rising inflation, and it is the result of monetary policy of the Fed.”
Following the Sept. 11, 2001, terrorist attacks, former Fed Chairman Alan Greenspan lowered the federal funds rate to an eventual 1 percent by June 2004 [3]. That is what has caused much of the malaise, according to Wolfram.
“The artificially low interest rates of the last part of the Greenspan era led to what Austrian economists call ‘malinvestment,’ and this is being worked out of the system,” Wolfram added. “That is the reason for the rising unemployment. The inflation is also due to Fed policy. But we are going through the transition with significantly less unemployment than, for example, the recession of the early 1980s.”