NPR: Hold On!
How bad could economy get? Hold on!
No question the economy is at a crossroad.
So what if I give you a choice? We could have either a short, even steep, recession or a long bout of stagflation, that combination of stagnant growth and high inflation.
I’ll take the recession. Most people seem to think that’s the worst choice, but I’d rather go through a couple years of pain and be done with it than have it drag on. Most people can survive a short period of job loss with credit cards and sleeping on friends’ couches, but surviving a long slog of prices rising faster than income is not pretty.
The country had a decade of stagflation in 1970’s. Economic growth was lackluster while inflation skyrocketed at double-digit rates, peaking at a little under 15 percent. Unemployment was also ruinously high and real per capita income actually fell in three of the years of that decade. Not a pretty picture.
Worse, the cure for that bout of stagflation was, as it always is, a nasty recession. When the Fed finally crunched down on money and credit to bring down inflation, the economy tanked. Between 1981 and 1982, unemployment peaked at over 10 percent. And the economy shrank about 3 percent in 16 months.
So recession now or stagflation and recession later? I’d rather do it now. Rip that bandaid off and it will feel better soon.