Breaking the Curve: How 1970s Stagflation Rewrote the Rules of Economics
Introduction The 1970s were a decade of upheaval—not just socially and politically, but economically as well. The global economy was rocked by a phenomenon that economists of the time believed to be impossible: stagflation. For years, prevailing economic theories insisted that inflation and unemployment had an inverse relationship—a tradeoff neatly illustrated by the Phillips Curve. Yet the 1970s delivered a rude awakening: surging inflation and rising unemployment occurring simultaneously. This period of economic chaos it shattered the intellectual foundation of mainstream economics and ushered in a new era of thought incorporating Monetarist ideas. The failure of traditional tools to address this paradox forced economists to reconsider their understanding of inflation, unemployment, and monetary policy. At the center of this revolution stood figures like Milton Friedman, whose theories of inflation expectations and the natural rate of unemployment not only explained stagflation but a...