Stagflation and Shortageflation: A Comparative Approach

Abstract

SUMMARYThis paper compares inflation and unemployment in western market economies with the repressed inflation and persistent shortages common in centrally planned economies. Stagflation and shortageflation, the latter defined as inflation accompanied by shortages, have much in common, and a similar, albeit inverse, theoretical structure is offered. Measures of stagflation for the western economies and development of a conceptual framework for measuring shortageflation for the eastern European socialist countries leads to a new ‘misery index' facilitating comparisons that are not as misleading as comparison only of inflation rates. They suggest that Italy and Poland have the most severe unhappiness index, and West Germany and East Germany have the lowest unhappiness index. Furthermore, where relative prices fail to reflect relative scarcities, then the failure of production to fully respond, and the time and other resources wasted through queuing, gluts, and other allocative inefficiencies can slow growth.