Stagflation: How We Got Into It - How To Get Out

Courtesy Reuters

Ten years ago a combination of rising inflation and incipient recession signaled the end of the Soaring Sixties. Yet few contemporary observers perceived that the end of the long postwar expansion was at hand, or that the coming decade would perhaps one day be labeled the Sagging Seventies.

The contrast between the two periods is indeed marked. During the great postwar boom, from 1958 to 1973, the average annual rate of growth of the gross national product, adjusted for inflation, exceeded five percent in the seven largest industrial countries, Britain, Canada, France, Germany, Italy, Japan and the United States. This growth rate was high not only compared to the period since 1973, but also historically. Yet from 1973 to 1979, the average annual growth of the same seven economies fell to only two and one-half percent. And, as growth collapsed, inflation surged. Prices in the same countries, which had advanced at only three and one-half

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