Stagflation, 1971–80

During the 1970s, the US economy suffered from stagflation. The simultaneous occurrence of high rates of inflation and high rates of unemployment were the outward manifestation of a more fundamental problem, the decline of the US dominance in the world economy. At the same time as the rate of economic growth was slowing, foreigners were, in effect, increasing their claims on the real output produced in the United States. Western European and Japanese firms were becoming more formidable competitors on the world scene. Oil producing countries were demanding a larger share of world output. If the increased claims of foreigners were to be satisfied, in the context of a slowly growing economy, a noninflationary situation required the claims of those living in the United States to be scaled back (Rosenberg and Weisskopf, 1981).