Stagflation 2.0 — Are Modern Economists Ready for Simultaneous Price and Unemployment Growth?

Classical economic textbooks are cracking at the seams as we watch the resurrected economic monster of the 1970s return to the global economy with new teeth and claws.

What has been considered an economic anomaly for decades suddenly becomes the new norm. Stagflation is an economic phenomenon where high inflation combines with high unemployment and slowing economic growth. A kind of economic oxymoron that, according to the orthodox Phillips curve, simply shouldn't exist. But here it is, right in front of us, like a ghost returned from the economic afterlife.

In the 1970s, economists already faced this monster when the oil crisis and monetary policy created a perfect storm. Then Arthur Burns and Paul Volcker tried to tame stagflation like lion tamers with a chrome chair and whip in hand. In the end, it took double-digit interest rates and an economic recession to put inflation back in its cage.

Today's economic landscape looks frighteningly familiar: we observe weakening global supply chains, skyrocketing energy prices, unmanageable growth of public debt, and unprecedented monetary stimulus. And technological unemployment adds a new component to this economic brew.

Economic Zombie Apocalypse

After decades of low inflation and relative stability, most economists considered stagflation buried under the monument of the "Great Moderation." Academics wrote obituaries for Keynesian theories, while central banks proclaimed themselves infallible masters of the economic cycle. Neoclassical orthodoxy captured the minds of the economic elite, and there was simply no room for stagflation in it.

But as in any good horror movie, the buried monster never stays dead forever. While economists celebrated victory over inflation, they ignored growing global imbalances. Globalization, which previously kept inflation in check through cheap production, now becomes a source of vulnerability. The pandemic, geopolitical tensions, and the energy crisis are perfect ingredients for an economic zombie apocalypse.

In a world where central banks have printed trillions of dollars, euros, and yen, it doesn't take a genius to predict inflationary consequences. But the paradox is that this same money doesn't create enough quality jobs. Instead, they inflate asset bubbles and turn the economy into a casino where only the privileged win.

Central Banks Trapped in Their Own Dogma

Central banks have found themselves in an intellectual trap. The toolkit they developed to combat economic crises assumed that inflation and unemployment should move in opposite directions. Raise rates — lower inflation but increase unemployment. Lower rates — stimulate employment but risk accelerating inflation.

But what to do when both problems attack simultaneously? It's like trying to steer a car where the gas and brake pedals are connected together. Raising rates can kill weak economic growth, while maintaining low rates will only add fuel to the inflationary fire.

Jerome Powell and his colleagues around the world pretend to be confident, but behind closed doors they are in panic. Their econometric models, which took decades and billions of dollars to create, did not foresee the scenario we are now in. It's like firefighters whose equipment is designed only for water fires, but the electrical wiring is burning — any solution will potentially worsen the situation.

In this situation, monetary dogmatism becomes dangerous. Central banks have fallen into the trap of their own rhetoric about "transitory inflation" and "soft landing." In reality, they resemble alchemists pretending they can turn paper into gold using a printing press.

Consumers Between a Rock and a Hard Place

While economists and central bankers conduct theoretical debates, ordinary people find themselves in the grip of an economic vicious circle. Imagine yourself in a situation where prices for food, fuel, and housing are rising at double-digit rates, and your job is under threat of layoff. Or worse — you've already lost your job and are forced to look for a new one in an economy that's shrinking like shagreen leather.

For the middle class, this is a scenario of slow economic execution. Savings depreciate faster than they grow in deposits, real estate becomes inaccessible, and career prospects evaporate like morning fog. Young professionals enter the labor market with expensive diplomas only to discover that there are no jobs, and if there are, they don't cover even the minimum needs.

This financial claustrophobia leads to social tension and political polarization. It's no coincidence that periods of stagflation historically coincided with the rise of populism and radical political movements. When traditional economic institutions fail, people begin to look for alternative paths — even if these paths lead into the unknown.

Are Economists Ready for the New Reality?

Academic economics has existed in its theoretical bubble for decades, creating increasingly sophisticated mathematical models that had less and less to do with reality. University classrooms continued to teach that rational expectations and efficient markets are indisputable truths, while the real world demonstrated irrationality, information asymmetry, and systemic failures.

Modern economic science began to resemble medieval astronomy with its epicycles — to support an outdated theory, scientists are forced to add more and more artificial constructions to it. The 2008 financial crisis should have been a moment of sobering for economic orthodoxy, but instead we got a cosmetic repair of old models and a new layer of academic varnish.

Stagflation 2.0 requires not just an update of economic textbooks, but a complete paradigm shift. We need economists who are not afraid to admit that the emperor has no clothes, and that we are actually in economic terra incognita — uncharted territory for which there are no maps and compasses.

Instead of dogmatically following outdated theories, economic science should return to its interdisciplinary roots, integrating achievements in psychology, sociology, history, physics, and even biology. Perhaps it is in this synthesis that new ideas will be born, capable of explaining and overcoming the stagflationary paradox.

Cryptocurrencies as a Solution to the Stagflation Problem

While the traditional financial system convulses in stagflation, a fundamentally new approach to monetary relations appears on the horizon. Cryptocurrencies and decentralized finance represent not just a technological innovation, but a philosophical alternative to a system that has proven its insolvency.

Fiat money issued by central banks has a fundamental defect: its quantity can be increased arbitrarily, by political decision, without being tied to real economic activity. In conditions of stagflation, this becomes a deadly trap — the printing press accelerates inflation without creating jobs.

Cryptocurrencies with limited emission offer an alternative paradigm, returning to money the property of scarcity and protecting savings from the inflation tax. But most of them still remain a passive means of preserving value, not offering active mechanisms to counter economic stagnation.

A real breakthrough in this area comes from deflationary cryptocurrencies, which not only limit emission but actively reduce the money supply in circulation, creating a positive economic incentive. In a world where everything is depreciating, an asset that becomes rarer every day acquires fundamental value.

DeflationCoin — The Anti-Stagflation Instrument of the Future