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ROBERT SIEGEL, host:

Columnist Robert Samuelson writes in this week's Newsweek about a memory of the 1970s: stagflation. Current economic problems, low growth coupled with rising inflation have put that word back in play in the business commentarial. And Robert Samuelson says it's a red herring.

Hi, welcome to the program. And what's wrong with stagflation applying to what's happening now?

Mr. ROBERT SAMUELSON (Columnist, Newsweek): Well, what we meant by stagflation in the 1970s was a mixture of high unemployment, relatively high inflation, slow growth, but over a long period of time. And when you just have it for a few months or even a year and then it disappears, you don't really have stagnation. You just have a mix of high unemployment and high inflation.

If you look over the period, for example, from 1969 to 1982, inflation averaged 7.5 percent during those years. Unemployment was 6.4 percent. That's stagflation. It's persistence over a long period of time of these two things we don't want.

SIEGEL: Well, let's get beyond the taxonomy of economic woes and definitions here. You warned that if the Federal Reserve does now what it did it the '70s to cope with stagflation, if there were a policy responding to that sort of problem, it would be making a big mistake. Why?

Mr. SAMUELSON: Well, what I'm saying is that in the 1970s, the Fed actually created stagflation. The Fed is supposed to be the bastion against inflation. But in fact, from the early 1960s to the late 1970s and the very early 1980s, the Federal Reserve, by being consistently too easy with money and credit, allowed inflation to rise from roughly 1.5 percent to a peak in 1979 and 1980 of more than 13 percent.

Inflation would get higher than the Fed had anticipated. And it would then put on the monetary breaks. The economy would go to into a recession. The Fed would get very upset about the recession, and so it would ease up too quickly. And as the economy came out of the recession, instead of inflation being purged from the system, it would start up again and actually get worst than it had been in their previous expansion.

And so, what I'm warning against is a repetition of that kind of policy.

SIEGEL: Does that mean that what Chairman Bernanke said today, that he will remain more concerned about growth than about inflation, strike you as the right balance at this point, do you think?

Mr. SAMUELSON: Well, I'm a little bit worried about it. He's a distinguished economist. I'm just a journalist. It may turn out in the end that he is quite right and that inflation will in fact subside spontaneously because the economy is growing slower this year, and the pressures on prices and wages will abate.

But, the sort of rationale that he gives is very reminiscent of what happened in the 1970s when, again, Fed chairman consistently invade against inflation, but pursued policies that were actually inflationary.

SIEGEL: Well, what, though - if this is not this, whatever recession we're in, whether it's just a slowdown or a true recession, what if it's not a recession that is cyclical and weeds out inefficiencies and gives rise to new, stronger growth? What if there's something in the bursting of the subprime bubble that really bespeaks more profound problems for the economy, would the Fed then be right to be much more weary of slowed growth than to many things else?

Mr. SAMUELSON: Well, that is the fear. The fear is that there is something profound and different about this cycle that makes it more worrisome than anything that we've seen recently. That could turn out to be true. But it is also a kind of convenient crutch for doing the popular thing, and the popular thing right now is to kind of try to pump up the economy.

And although recessions are unhappy events, and they hurt people, they put people out of jobs, they reduce profits, they reduce incomes, they are sometimes necessary to prevent worst eventualities and a worst recession. And what happened in the 1970s is that by trying to avoid downturns or minimize them, we got ourselves in a situation where the recessions kept getting worst and worst because the inflation kept getting worst and worst. And the housing situation is an interesting metaphor and an analogy for this.

The easy credit that was provided in the housing market in 2003, 2004, 2005 created a boom-like condition, which was very enjoyable at the time. People bought homes, the prices were rising. And yet, now, we find the aftermath of that is a severe collapse in the housing market in which new homes starts and sales are roughly at half the levels they were at the peak.

So we want to try to avoid these extreme swings of booms and busts, and we have - we ought to hope that we have milder swings.

SIEGEL: Well, Robert Samuelson, thank you very much for talking with us.

Mr. SAMUELSON: Thanks.

SIEGEL: That's columnist Robert Samuelson of Newsweek and the Washington Post.

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