The solution to stagflation was to switch from demand management to supply-side policies. The logic was powerful: The only way to achieve lower prices and higher output was to make economies more productive. This prescription would still be effective if today’s problems were those of the 1970s. But they are the reverse: Demand is depressed. To exit stag-deflation requires a break with current economic orthodoxy.
There is no shortage of examples of such breaks: Roosevelt’s New Deal; the creation of the Bretton Woods system; the break from Bretton Woods; Russia’s post-Soviet privatization and marketization; and China’s opening-up policy.
[ CIGI – November 25, 2016 ]
