Stagflation - What is it?

stagflation /stægˈfleɪʃən/ [stag-fley-shuhn]

I was pondering on the word "stagflation." Big word, huh? Everyone in the industry seems to think we are in it or headed for it. At least the ones I spoke to think it is here. Now, what exactly does stagflation mean anyway?

1. "An inflationary period accompanied by rising unemployment and lack of growth in consumer demand and business activity" (Dictionary.com)
2. "Sluggish economic growth coupled with a high rate of inflation & unemployment" (American Heritage Dictionary)
3. "A condition of slow economic growth & relatively high unemployment, accompanied by a rise in prices, or inflation" (Investopedia.com)
4. "Stagflation occurs when the economy isn't growing, but prices are... . This happened to a great extent during the 1970s, when world oil prices rose dramatically, fueling sharp inflation in developed countries..." (Investopedia commentary)
5. An economic phenomenon of the late 1960s & 1970s characterized by sluggish economic growth & high inflation.

Where do we get this word, anyway?
In 1965, the word "stagflation" was apparently coined by U.K. Conservative Party Finance Minister Iain Macleod, from stag(nation) + (in)flation.
(Online Etymology Dictionary, © 2001 Douglas Harper)

A Tutorial & View of "Flation"
Inflation - Expansion of money and credit
Deflation - Contraction of money and credit
Disinflation - Expansion of money and credit, but at a declining pace
Hyperinflation - Rapid rise in inflation accompanied by a complete loss of confidence in currency

From the above, stagflation seems to be based on rising prices (instead of an expansion of credit), and furthermore, the term seems to imply that rising prices are bad only in context of stagnation & high unemployment.

Where exactly does it supposedly fit in?
In the 1970s, economists had been conditioned to associate economic downturns with deflation. Suddenly recession coincided with the effects of the concurrent inflationary monetary policy becoming highly visible, something happened that wasn't supposed to happen. So some really smart people thought it required a new term - 'stagflation,' equaling recession cum inflation, the supposedly 'unnatural' state of affairs. Double whammy.

However, once & if you define inflation correctly (expansion of the fiat money supply), such a term actually makes little sense, especially considering that the Keynesian recipe for 'combating economic downturns' consists of deficit spending cum monetization, i.e., printing lots of money! Application of this recipe usually leads only to bigger failures, like the housing bubble in the U.S..

Truth is: no one can seem to agree on any easy or standard definition for an economy in which growth is slowing while inflation is rising, such as it is today. Could it be 'fearflation,' a term that means it's all just fear, rather than actual inflation that's driving the current economy? Maybe it's 'bubbleflation,' as the U.S. seems to be stuck in a bubble of higher prices, growing unemployment, high housing prices, and a falling dollar. Then again, it could be 'gasflation,' the cycle of high gas prices leading to higher inflation. Or how about 'deceleflation,' a slowing down accompanied by inflation?

I think if Mr Bernanke is to be believed, it's not inflation we need to fear, but the expectations of inflation. Maybe we should describe the current economy as 'Fedflation.' Call it whatever you like, we can all agree to disagree, & there is nothing wrong with that. Should unanimous opinion ever form on something economically related, I confidently predict we would all be wrong, and probably sooner, rather than later.

What do you think?