The Problem of Stagflation: Reflections on the Microfoundation of Macroeconomic Theory and Policy

The Problem of Stagflation: Reflections on the Microfoundation of Macroeconomic Theory and Policy

The Problem of Stagflation: Reflections on the Microfoundation of Macroeconomic Theory and Policy

The Problem of Stagflation: Reflections on the Microfoundation of Macroeconomic Theory and Policy

Excerpt

In the 1970s a new term was coined in economics--stagflation. It was used to describe a relatively new phenomenon in the industrial economies, declining economic activity accompanied by rising prices. Most previous recessions had been associated with declining prices.

This phenomenon led to a number of competing explanations of its root causes and, more important, posed a dilemma for policy makers, who could no longer use standard macroeconomic policies to reduce unemployment without the risk of accelerating inflation. It became clear then that past economic policy prescriptions did not apply and that new methods for dealing with stagflation were required.

In this study Professor Gottfried Haberler, one of our leading economic scholars, discusses and analyzes what the main paradigms of macroeconomic policy--monetarism, Keynesianism, and the school of rational expectations--have to say about the baffling problem of stagflation.

In his wide-ranging study Professor Haberler discusses the striking contrast between the vigorous recovery of the U.S. economy and the sluggishness of European economies. This contrast is largely due to great structural advantages of the United States over Europe, such as a huge internal free trade area and, equally important, the fact that transportation, communications, and electric power are in the hands of efficient, competitive private enterprise. In Europe the Common Market has fallen far short of achieving its goal of creating a free trade area, and transportation, communications, and electric power are reserved for national, public enterprises that, whatever their technological prowess, are impervious to competition and incapable of efficient operation across national borders.

Among Professor Haberler's important policy conclusions is that monetary and fiscal restraint should be assisted by micromeasures designed to bring the economy closer to the competitive ideal so as to minimize the pains of disinflation and adjustment. In Europe this type of policy is called supply-oriented policy, which is a much broader concept than supply-side economics as used in the United States . . .

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.