Krugman in 2005

A Whiff of Stagflation
By PAUL KRUGMAN

Published: April 18, 2005

We shouldn't overstate the case: we're not back to the economic misery of the 1970's. But the fact that we're already experiencing mild stagflation means that there will be no good options if something else goes wrong. 

Suppose, for example, that the consumer pullback visible in recent data turns out to be bigger than we now think, and growth stalls. (Not that long ago many economists thought that an oil price in the 50's would cause a recession.) Can the Fed stop raising interest rates and go back to rate cuts without causing the dollar to plunge and inflation to soar? 

Or suppose that there's some kind of oil supply disruption - or that warnings about declining production from Saudi oil fields turn out to be right. Suppose that Asian central banks decide that they already have too many dollars. Suppose that the housing bubble bursts. Any of these events could easily turn our mild case of stagflation into something much more serious.