In the classic Keynesian view an economy is a closed system. When it "overheats," raw materials, unemployed labor, and finished goods all become scarce; and prices rise. The remedy is to raise interest rates and slow down the economy.
But the U.S. economy is NOT a closed system. The prices of petroleum, copper and even wheat are set by a WORLD market.
I strongly suspect that stagflation is an unavoidable effect of high energy prices, and has little to do with political policy.
Yes. Despite U.S.A.'s own high production of petroleum, prices are set in the WORLD market, which is not controlled by U.S. fiscal or monetary policies. The domestic economy is NOT a closed system, so inflation is not easily controlled by domestic policies. As we learned in the 1970's and early 1980's: In 1981, BOTH unemployment AND interest rates were setting record highs, despite that interest hikes are the classic remedy when unemployment is too LOW.
Another confounding factor is asset price bubbles. Asset-price inflation is WELCOMED, explicitly by politicians and implicitly by central bankers, but it has its own drawbacks. The three big recessions of the 21st century (2001, 2009, 2023) have all been provoked by asset price inflation.
A high cost of energy (particularly for transportation) both increases prices across the board, and dampens growth.
Keeping the cost of energy low requires independence on warzones and politically unstable regimes for our energy; And rational energy policies that don’t rely on hope triumphing over engineering and thermodynamic reality. You cannot power a modern civilisation with intermittent power sources, and attempts to do so just increase reliance on Natural Gas, as supplied by the stable and peace-loving Russians.
There is an obvious solution here, but I expect regular board members are as sick of me saying it as I am. If we, as a species, are too dumb to properly implement a perfectly good solution because of a quasi-religious belief that it is evil, then we deserve to suffer the consequences.
I think your obvious solution will take more than a decade to influence U.S. energy prices, but critical economic and political inflection points are looming right now, in the 2020's. I recently read an article asserting that climate change had already passed an inflection point that rendered future behavior chaotic and UNPREDICTABLE. I think economics and politics are similarly entering a chaotic and unpredictable phase.
In an age of "global plenty" why do we see scarcity-induced high prices of oil, other raw materials, fertilizers and certain foods? The answer is obvious to those not blinded by a different quasi-religion than the one of which bilby speaks. I speak of course of the quasi-religious belief that the planet can readily support a population of eight billion humans. This is a misconception promoted by politicians and billion-dollar corporations which profit from growth. There is no easy solution to over-population, but it is a big part of the reason why the future will be perilous, chaotic and unpredictable.