Stagflation

 I am not an economist, because I suck at math. I do enjoy trying to understand economics, especially in the way that pre-20th century economists did - as a form of moral philosophy combined with empirical observation. 

Krugman gives a really clear explanation of what stagflation was and is. In some ways, it's simply an economic dynamic whereby inflation becomes entrenched. Prices rise because that's what prices are doing and you see a continued upwards spiral as firms try to keep pace with not only current costs but future ones as well. Firms don't want to raise prices in a way that could jeopardize their market share, but they are also not in business to lose money. 

We've been in a state recently where firms have been reluctant to raise prices, because they assumed the tariffs were transient posturing. As it becomes clear that they are not, they are going to pass those costs along to consumers. Entrenched inflation is when the cycle of raising prices becomes the norm. It's not clear that tariffs would create entrenched inflation, but deportations could, especially in food and construction.

There is also the role of energy costs that Krugman and most economists seem to elide. (UPDATE: Krugman posts about the energy costs!) For me and my innumerate analysis, oil and energy spikes create broad based inflation because everything requires energy to move around the world markets. If we think those spikes are the new normal, then producers will build those into inflation. Yet, in 1990-1 we saw an inflationary spike in oil prices surrounding the Gulf War but that did not lead to entrenched inflation. Energy costs can be an accelerant for inflation, but the entrenchment is something else and that is stagflation.

Krugman also describes the 2021-23 inflationary spike surrounding supply constraints that occurred after Covid. Like the 1990-1 spike or even the 2008 energy spike, this inflation came and went.

However, we are also seeing rising electricity prices. The reason seems to be a combination of natural gas exports and especially the great demands from data centers. The Department of Energy predicts that data centers will use more electricity than all households next year. 

We were in Wyoming and Cheyenne is having a boom from data centers, because Wyoming is a combination open coal pit and an oil and natural gas well. Let's leave aside the potential environmental costs from all this - though they are huge - we are looking at a supply crunch in energy - not oil, but electricity.

At the same time, Trump is killing subsidies for solar and wind, which might help ease the price crunch. Presumably, in the longer term, the lower price of solar will continue to make it viable, but in the short term, people's electricity bills are going to spike. Add in EVs, and the whole thing is the same sort of supply crunch we saw post-Covid.

This means that there are several places were we should see prices rise directly because of Trump's policies:

- Food, as undocumented (and even documented) immigrants are removed from the labor force.
- Energy, as rampant speculation in data centers gobbles up electricity
- Imported goods, because of tariffs.
- All manufactured goods, because of tariffs on inputs like steel and general inflationary pressures.

Meanwhile, we are cutting SNAP and health care subsidies that will impoverish poorer Americans. This should lead to reduced overall demand even as prices continue to rise.

And THAT is stagflation and THAT is bad.