What Causes Stagflation?

Theories of stagflation, a theory by contemporary Western economists on the phenomenon of capitalist countries having both economic stagnation or recession and high unemployment, and high inflation or rising prices at the same time Explanation.

Theory of economic stagflation

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Back in 1968, the United States

According to JR Hicks (1904 ), in the modern capitalist economy, there are at least two markets: one market (including most industrial product markets) is a "fixed price" market, and the price is determined by the producer; the other One market is the "elastic price" market (or speculative market), whose price is still determined by supply and demand. He pointed out that only through the analysis of these "two price systems" is it enough to explain the coexistence of inflation and unemployment in the capitalist countries, and to propose feasible countermeasures.

Hicks divided the history of inflation in the major capitalist countries after the Second World War into two phases: In the first phase (before the late 1960s), inflation was a demand-based inflation, which was mainly based on Philip The second stage is characterized by the social pressure of increasing wages, which is dominated by wages, regardless of the lack of labor. Therefore, the increase in wages during an economic recession will be equal to or close to the same as the increase in wages during an economic boom. This is inflation that coexists with economic depression, or "stagnant inflation."

In Hicks' view, in an economic system with completely elastic prices, there is an inflationary equilibrium state with a large amount of unemployment. In this equilibrium, no matter what kind of inflation rate, the actual price ratio It is still the same, so inflation is irrelevant, because in a fully flexible price system, all prices (including wages) can be freely changed, so that people can inflate inflation in every contract they conclude Consider it. However, the actual system of the second stage of inflation that has appeared since the late 1960s is not the kind of inflationary equilibrium in an elastic price system, because the pattern of wage differentials in various industries has been disrupted (due to "fair wages" "Catch-up", wage-driven inflation will generally occur), so it is not in equilibrium. Moreover, when there are two types of price markets, the price rise of the flexible price market will not be irrelevant because it is in an "inflating equilibrium" state. It will easily and even necessarily have a gradual impact on the fixed price market. In this way, inflation and unemployment will coexist indefinitely.

Hicks's argument is nothing more than a compromise between the "wage advance" and "demand pull" inflation theories, and finally it comes down to structural inflation caused by changes in market structure factors.