CHAPTER I

Stagflation, or Making the Worst of Both Worlds

1. The Nature of the Disease

The purpose of this introductory chapter is to outline very briefly the nature, the cause, and the possible cure of stagflation, a nasty economic disease with an equally nasty name. The main symptom of the disease is a state of the economy which is at one and the same time stagnant and inflationary, that is to say, suffering simultaneously from heavy unemployment and from a rapid rate of rise of money prices and so of the cost of living. The disease in its acute form has inflicted society only in recent years. For some quarter of a century after the Second World War (1945–1970) economic policy was generally discussed under the assumption that there was a choice ...

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