What Is Stagflation, and What Causes It?
If you want to run a business, you should learn about economics, such as stagnation and inflation. Stagflation is actually connected with inflation. When the company is in critical condition, the whole staff and management level have to handle this difficult problem so that the company can grow in a good way. We will explain to you the meaning and the cause of it.
What is Stagflation?
The staff and management level should understand what it is. Stagflation is the condition of a company that is experiencing slow development, inflation, and a high rate of unemployment. This combination is a big problem for companies trying to survive. Whenever there is a crisis, companies tend to experience stagnation and inflation. The worst condition ever happened in the 1970s. In the 1970s, the world oil crisis occurred. The crisis affects the whole industry, so no wonder there are many companies that go bankrupt.
The United States was entering this crisis in mid-2022. There are many causes that make this superpower country experience economic difficulties. This term was first used in 1965 by a British politician explaining the such condition is a combination between inflation and stagnation, so it is called stagflation. Nowadays, the effect of it is very broad, such as increasing the misery index. A high unemployment rate can lead to increased criminality. Based on history, this condition will happen repeatedly. Only the causes are different.
What causes it?
You know that this situation has happened repeatedly since the 1970s. Now, you can learn what causes the problems. The details of it can be seen below.
1. Oil Crisis
We know that oil was crucial to all industries in the 1970s. Every part of our lives uses oil, such as the production and transportation of many things. What about a country not getting enough oil? This problem ever happened in the 1970s in Western countries. The Western countries were hit by an embargo after OPEC announced it. The announcement of OPEC led to an increase in oil prices. The price of oil causes an increase in the price of goods. The raising of prices affects decreasing demand. Lower demand led companies to fire many employees. There were high unemployment rates in the 1970s.
2. Poor economic policies
The next cause of it is poor economic policy related to markets, labor, and goods. The poor situation led to stagnation and inflation. In 1970, the PPOR policy resulted in a recession. Based on this history, we learned that the government is fully responsible for the economic life of its people. If they can regulate with the right policies, the people will become prosperous.
3. Strong trade organizations
Powerful organizations have the ability to control goods and the economy. They can bargain for something that influences economic growth. They can set the price of a good easily. Of course, those organizations can set prices based on their needs. They could even cause a country to experience stagnation and inflation. The government can make policies to control these kinds of organizations. It will be better to make win-win solution for everyone, such as citizens, government, and organizations.
