The Dreaded S Word

Robert Samuelson on Stagflation:

no politician acknowledges the self-evident implication: that recessions, though unwanted and hurtful to many, are not just inevitable; sometimes they're also necessary to prevent the larger and longer-lasting harm that would result from resurgent inflation. Interestingly, many academic and business economists who have more freedom to speak their minds suffer the same deficiency. They treat every potential recession as a policy failure when it is often simply part of the business cycle. They thus contribute to a political climate that, focused on avoiding or minimizing any recession, may perversely aggravate inflation and lead to much harsher recessions later....

Unfortunately, the Fed shows signs of overreacting to these pressures and repeating the great blunder of the 1970s. Underestimating inflation then, the Fed repeatedly shoved out too much money and credit in a vain effort to keep the economy near "full employment." Now, switch to the present. Again, the Fed has underestimated inflation.