1970s Style Stagflation? I Don't Buy It

by: Mark J. Perry

The topic of stagflation was discussed tonight on CNBC's "Kudlow and Company," and guest John Browne, former member of British Parliament and ultra-stagflationist, argued that we are facing a "far, far worse situation than the 1970s," and further predicted that we are "facing a massive recession."

Larry Kudlow disagreed, and said "Stagflation is a total canard."

The money supply data support Larry Kudlow, not John Browne. The chart above compares the growth of M1 during the peak of the stagflation period of the 1970s (the 85 month period from December 1974 to December of 1981) to the growth of M1 over the last 85 months, from January 2001 to January 2008. (M1 is set to equal an index value of 100 in the beginning month of each sample period.)

Notice that there is a significant difference between the two periods: During the 1970s, M1 grew by almost 60%, compared to a 24% growth during the last 7 years. And for the last 3.5 years, M1 has been flat, with almost 0% growth!

Like Larry Kudlow, when it comes to staflation, "I don't buy it for a nanosecond." Not gonna happen.

UPDATE:

The chart above compares the growth of M2 during the peak of the stagflation period of the 1970s (the 85 month period from December 1974 to December of 1981) to the growth of M2 over the last 85 months, from January 2001 to January 2008. (M2 is set to equal an index value of 100 in the beginning month of each sample period.)

Notice that there is a significant difference between the two periods: During the 1970s, M2 grew by almost 95%, compared to a 50% growth during the last 7 years.

Bottom Line: The money supply data (M1 and M2) don't support the position that we are entering a period of 1970s-like stagflation.

The chart above compares the growth of the monetary base during the peak of the stagflation period of the 1970s (the 85 month period from December 1974 to December of 1981) to the growth of the monteary base over the last 85 months, from January 2001 to January 2008. (The monetary base is set to equal an index value of 100 in the beginning month of each sample period.)

Notice that there is a significant difference between the two periods: During the 1970s, the monetary base grew by more than 70%, compared to less than a 40% growth during the last 7 years.

Bottom Line: The money supply data (M1, M2 and monetary base) don't support the position that we are entering a period of 1970s-like stagflation.