The fight against inflation led to the high unemployment in 1970s in UK, says British economist Meghnad Desai

The global economy seems to be heading into a funk with Europe dealing with an inflationary energy crisis while the United States is staring at a tightening of monetary policy by the Fed.

As fears of stagflation — a crisis wherein an economy sees a slowdown in growth, high unemployment and an increase in prices — rise, CNBC-TV18’s Latha Venkatesh caught up with British economist Meghnad Desai to discuss how such a situation should be dealt with.

Recalling a similar situation during the 1970s, Desai said, "Without real pain, there is no cure to inflation. There are no easy ways out of stagflation. In a sense, we learned a lot at that time."

Inflation or the 'great inflation', as it is called, in 1970s, was also triggered by an energy price rise, very much like the present situation. Oil soaring about 300 percent on supply concerns that time had taken inflation from 9.2 percent in September 1973 to 12.9 percent in March 1974 with a sharp increase in unemployment.

“So, 70s to about end of 80s, we had a serious inflationary crisis. All the countries had an inflationary crisis. The paradigm change from Keynesian economics to monetary economics," said Desai in an interview with CNBC-TV18.

He warned of severe inflation and unemployment globally in the coming years.

Recalling how the then prime minister of UK, Margaret Hilda Thatcher, dealt with the situation in 70s, Desai added, “Margaret Thatcher did not cut taxes till after a third victory. They paid unemployment benefits out of Nazi oil, and out of selling national assets. All that money disappeared in paying the unemployed. But that was a cost of fighting inflation and that cost had to be borne.”

On Indian economy, Desai said the country's recent policy to boost manufacturing is a "wrong choice" as India’s excellence lies in services sector and software exports.