There are some periods in economics that test not only statistics but also theories. One of the most complex of these periods is the economic situation called "stagflation". Stagflation is a term that can create a tangle of contradictions in the mind at first glance. Because it describes a period in which inflation and economic stagnation, which are opposite concepts, occur simultaneously. Under normal conditions, in an environment where economic growth slows down and production declines, inflation would also be expected to fall. However, stagflation represents an extraordinary situation that breaks this rule and is considered a turning point in economic literature. In short, growth slows down and unemployment increases, but prices continue to rise instead of falling.
The term stagflation, which entered the literature with the oil crises in the 1970s, is quite instructive in terms of showing how supply-side shocks can cause deep damage to the economy. During the relevant period, oil prices increased exponentially, production fell, growth stopped and prices got out of control. In the face of this picture, neither the explanations of the Classical nor the Keynesian models were sufficient. It is seen that the economy has been pressed “ctrl+alt+delete” so to speak and a new period called stagflation has begun. This phenomenon, which is especially observed in developed countries, has created a picture where prices are increasing rapidly but unemployment is also rising at the same time. Traditional Keynesian policies were thought to be inadequate in the relevant process, and the stagflation process paved the way for the monetarist approach to come to the fore.
Today, stagflation is once again on the agenda as a topic of discussion. The disrupted supply chains after the pandemic period, fluctuations in the energy market and geopolitical uncertainties show that many countries have difficulty achieving both growth and price stability targets. The interest rate hike policies implemented by central banks to control inflation suppress demand while also weakening growth dynamics. In other words, economies lose their balance while searching for the answer to the question of “brake or gas?” At this point, stagflation comes to the scene again. Therefore, it can be said that stagflation is not only a historical phenomenon; on the contrary, it offers a lively and current area of discussion for today.
The importance of stagflation in terms of economic education is not limited to its theoretical dimension. This phenomenon is also a valuable example in terms of understanding the dilemmas faced by policy makers and developing multidimensional thinking skills. On the one hand, the effort to ensure price stability and on the other hand, the goal of stimulating economic growth can often produce mutually exclusive results. Therefore, thinking about stagflation does not only mean learning a concept; it also means gaining the ability to look at complex economic problems in a multidimensional way; it teaches to look at the entire economic picture, not just a single indicator, holistically. On one side, unemployment, on the other, prices that erode purchasing power, and economic managements that try to find solutions to these... For a good candidate economist, this picture is an invitation to go beyond classical boundaries.