Friday, September 1, 2017

Trump Seems Hell-Bent on Bringing Back an Economic Horror We Haven't Seen Since the 1970s

By Linette Lopez

If President Donald Trump is able to enact the trade policy he wants, the US economy could be blasted to a very uncomfortable part of its past — a period during the 1970s when it suffered from something called stagflation.

Stagflation is a cocktail of persistently low economic growth, high unemployment, and inflation. For average Americans, that means prices are rising but a weak economy means incomes can't keep up.

Wall Street has been thinking about this since Trump was elected.

"The classic stagflationary episode occurred between 1967/68 and the early 1980s," Victor Shvets, a strategist at Macquarie, wrote in a note to clients last year. "The US economy had effectively moved into stagflation around five years before global oil prices were raised in 1973. It was a period of persistently high and volatile inflation, high unemployment and volatile industrial production."

You see how this could be a problem.

You may have caught a report this week by the news website Axios describing the president throwing a mild tantrum about trade policy while chatting with advisers in the Oval Office a few weeks ago. It appears that the National Economic Council director, Gary Cohn; the US trade representative, Robert Lighthizer; the senior trade adviser Peter Navarro; the chief strategist at the time, Steve Bannon; and the White House chief of staff, Gen. John Kelly, were all there.

It was Kelly's first week as chief of staff.

"Tariffs. I want tariffs," Trump exclaimed to his advisers, according to Axios' Jonathan Swan.

As unsettling as it might be to imagine him calling for this while stomping his foot like Veruca Salt, it's worse to think about the real consequences of what Trump is asking for.

Tariffs invariably push prices higher. Tariffs on steel, for example — the import from China that Trump seems obsessed about — would affect the price of anything made of imported steel.

Wages, however, can stay exactly where they are. That's where stagflation comes in.

Read the rest here.


  1. Yeah, it's tariffs on Chinese trinkets that will cause stagflation. Trillions in money printing fueling the Wall St. and Realtor booms, trillions in easy access, unproductive student loans, trillion dollar deficits and the trillions squandered in unproductive wars and other government economic development programs have nothing to do with it. It's the tariffs, see.

    1. I'd call it cause and effect. Tariffs would play an insignificant role in stagflation risk. Just look at the tariffs slapped on our goods all over the world. Do those economies all suffer from stagflation? No. Blaming the next economic crisis on Trump is ridiculous. Those seeds have already been sown.