Stagflation Again?

I’m worried we are facing stagflation once again. I’m not an economist, but I am a historian and I see eerie parallels to the 1980s when stagflation was destroying the lives of ordinary working people, bringing down governments, and wreaking havoc across the economy. The fundamental parallel is the overlap of real economic problems with a demographic shift in the labour market. Twelve years of very cheap money was bound to have a cumulative effect and the massive cash infusions of the Covid pandemic would make them worse. Inflation is an expected result and higher interest rates should effectively manage it. However, the underlying forces in the economy might be being misunderstood by those in charge and that worries me. There is much more going on than just a surplus of cash than needs absorbing. But will those involved see it? They didn’t in the 1980s and I’m worried they are not going to now either.

Back in the 1980s, we saw interest rates climb and climb as governments tried to dampen inflation. It failed, and interest rates were crippling even relatively well-off families while the high inflation destroyed the well-being of the rest. No one seemed to understand why a standard economic tool was failing. It should not have. The best analysis I read, published in the 1990s, said the problem was that economists were not demographers, and they failed to understand basic human demography and the way it pushes the economy.

The factor he identified was that fundamental to all demographers, the human baby. He noted that peak baby boomers (1955-1961) were starting their families in the 1980s, and starting a family demands major economic resources. To simplify a complex argument, baby boomers were prepared to sell their souls for homes, furniture, appliances, and mini-vans in order to care for their new babies. The price of that soul was skyrocketing inflation. Demand outstripped supply, and that drove up prices, and everything else followed. High-interest rates failed to dampen demand until they were fundamentally crippling the economy. That’s the power of a baby. 

Hidden inside today’s inflating economy might be a similar demographic function with just as much destructive power. This is the retirement of those same baby boomers who were having babies in the 1980s. Right now millions of men and women are walking out of the workforce as they retire, ending forty years of labour glut. The future is of a labour shortage, one with no quick fix. 

However, it isn’t merely that the labour market is facing a long-term shortage of workers, it is what that means for the economy as a whole. Among other things it means: 

  • Rising wages as employers try to hang onto workers who are tempted to leave for better (paying) jobs. Of course that drives price increases that fuel inflation.
  • Increased unionization as workers realize that once again they have the ability to really bite into employers. The breakdown in globalization followed by the labour shortage means local workers once again have power if they stand together. The result is increasing wages and decreased flexibility, productivity, and innovation—all bad for the economy and likely to drive inflation.


  • The collapse of small employers as they find themselves unable to compete for workers, again reducing innovation and low-cost services. That drives inflation further.

  • The collapse of poorly managed mid-sized companies. Poor management has a catastrophic effect when workers are free to choose new companies leading to the collapse of some middle sized companies who supply critical components of the supply chain. That causes shortages and again drives up the prices, and thus causes inflation.

There is no easy way out of this labour situation. You cannot stop retirement any more than you can stop the demands a baby makes. Older workers are leaving in large numbers and there isn’t a big enough pool of available workers to step in. Then, to make things worse, it is next to impossible to increase immigration to compensate. The sheer number of retirees are too great. As well, immigrants are culturally out of tune, and less experienced with the local economy and working practices, even if they have the training and skills. They act as a drag on productivity compared to those they are replacing.  

I have no idea what the solution might be. Better management and rapidly increasing productivity is going to be an important part of business survival. Changing consumer expectations will be another important part of managing the economic changes (no cheap food). Enticing retirees to return to the workforce (part-time) might help in the short term. But none of that will change the fundamentals. The retirement wave is here and it cannot be stopped. All that we can wonder about is where the impacts will be felt and how painful they will be. 

I suspect we are in for a decade of very painful transition.  

Bruce Hiebert PHD  

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