ECONOGAL

Stagflation last appeared in the United States of America during the 1970s. The economic condition combines high inflation rates with high unemployment. As most students of economics know, these two functions of the economy usually are inverse to each other. When they act in unison there is strain on the economy, and we call the result stagflation.

Rapidly rising prices combined with wage freezes and layoffs created hardship for most of the 1970s. As a result, Arthur Okun devised a way to measure stagflation. The Misery Index at its’ simplest equation is easy to calculate:

Misery Index= Seasonally Adjusted Rate of Employment + Annual Inflation Rate

Much like the Inflation Rate Challenge of a few years ago, I plan to track the Misery Index throughout 2025. Currently the number reads normal. Thus, the January numbers do not indicate stagflation. However, they are just at the top end of the range. The Seasonally Adjusted Rate of Employment for January 2025 was 4% and the Annual Inflation Rate in January was reported at 3%. So, the numbers bear watching. We start with the Misery Index at 7%. Again, that number reads more like a normally functioning economy, not one experiencing stagflation. But these particular rates are lagging indicators.

We may just go through another rapid period of inflation similar to that of a few years ago. This time the supply shocks most likely will stem from a combination of tariffs and agricultural woes. Drought and disease are just two factors. Most farmers will agree there is climate change. The argument stems on the cause of the changing weather. But everyone can agree the unknowns of weather patterns have a great impact on farm production.

So, I plan to revisit the Inflation Check Challenge. I will keep some of the items from before. But I am now paying $8.00 for a dozen eggs so those will be watched as well. The first check will be after the February employment and inflation numbers are out so The Misery Index can be tracked, too.

There are a lot of ifs and maybes involved in predicting which way the economy will flow. Current variables include the impact of tariffs, the severity of governmental layoffs as well as private industry slowdowns. Personally, I don’t know of anyone laid off, just of hours cut. Furthermore, how other countries react to the tariffs is unknown.

Countries enjoying unfair competitive advantage can make more concessions than those who believe historical exchanges fall into the Fair-Trade category. Politics comes into play as well as does ongoing military conflict.

Governmental cuts, whether labor or goods, will tend toward a recessionary effect. These cuts are necessary as anyone looking at the Debt Clock can see. (For those who have not checked on the clock in a while, the powers-that-be have added a DOGE component.) The Federal Deficit is near a tipping point which, if reached, will make stagflation look pleasant.

So, while I am certain we will have inflation, I think we will also experience a recession. Thus, the country will undergo stagflation once again.

We can no longer kick the can down the road. In the short-term things will be ugly. But if we do not get the deficit under control, the dollar is in danger of default. And the strength of the U.S.A. will plummet. The country came together after 9/11. Can a unified response to the fiscal mess we are in occur? I hope so, but I do have doubts.