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Ask Money

No stagflation this time around

Scott Jagow Apr 19, 2007
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Ask Money

No stagflation this time around

Scott Jagow Apr 19, 2007
HTML EMBED:
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TEXT OF INTERVIEW

SCOTT JAGOW: Some economists watching the current state of the economy see a couple of disturbing signs. It takes them back to the 1970s. Our economics correspondent Chris Farrell joins us. Chris, what are they doing, breaking out the old disco albums?

CHRIS FARRELL: Oh absolutely, and, you know, getting out the bellbottoms and you know . . . What they’re doing is reaching back into the past, the 1970s, to try and understand what’s going to happen tomorrow. And one word keeps coming up. I read it again and again in the Wall Street research: Stagflation.

JAGOW: It’s such an ugly word.

FARRELL: Isn’t it? Stagflation! And it really is bad. It’s really the worst of both worlds. You have slow, stagnant economic growth. And you have inflation, high and rising inflation.

JAGOW: Well how big of a threat is stagflation right now?

FARRELL: Well to a large extent I think the stagflation concern is an exercise in historical imagination. I mean there’s some sort of fun things that you can talk about. For example, anchovies.

JAGOW: Anchovies?

FARRELL: If we go back to the early 1970s: Bad anchovy harvest off the coast of Peru and a lot of economists and policymakers and even members of the Fed would talk about that this lack of anchovies — which by the way anchovies very important to fertilizer, very important to farming — that the lack of anchovies was a shock to the system that helped contribute to high and rising prices. So the question I have, the price of corn. With ethanol we see the price of corn going up, food is getting more expensive, the Fed is worried about high and rising prices . . . So you can start having fun, you know, drawing these historical analogies, and that’s when I say, OK let’s calm down. Stagflation in the 1970s? Double-digit inflation, double-digit interest rates, double-digit unemployment. We’re nowhere near that right now. I don’t think it’s a big threat. We have a Fed that is obsessed about inflation. We will not get stagflation in this economy.

JAGOW: Well Chris were you a hipster dude in the ’70s?

FARRELL: Hey I was a hipster wannabe, but I’m afraid I never managed to cross the line. But I did enjoy the movie Saturday Night Fever.

JAGOW: OK Chris, thanks a lot.

FARRELL: Thank you.

JAGOW: Our economics correspondent Chris Farrell. In Los Angeles, I’m Scott Jagow. Thanks for listening.

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