The nemesis that perceptive economists like Paul Krugman have been predicting has arrived: stagflation — the grim confluence of inflation and economic stagnation. And what’s really eerie is how nobody in power in Britain can talk about it, let alone admit it. As Will Hutton puts it in today’s Observer.

The way we analyse and discuss our plight is crazily upside down. The Department for Business, which does have some interesting ideas for how to promote innovation, is browbeaten by the wider politics into making it a priority to take the ‘burden’ off business, allegedly to stimulate growth. Yet on most benchmarks, the UK is already the most lightly regulated member of the EU. It is absurd to characterise regulation and red tape as principal sources of the UK’s ills. This is voodoo economics.

Meanwhile, the story is nurtured that the coalition’s judicious austerity plans that were firmly on track are being derailed only by the crisis in the eurozone – the consequence of the madcap project to create a single currency in Europe. The enemies of the piece are thus deluded Europeans, anti-enterprise officials, unresolved global imbalances, excessive regulation and the 50p top rate of income tax, not to mention Gordon Brown’s legacy. There is nothing wrong – or so runs this line – with the gallant coalition’s economic strategy.

It is a story a lot of powerful and influential people – in finance, business, politics and the media – need to believe to cover their support for the coalition’s epic misjudgment when it took office. This was the decision to withdraw demand at a rate of 2% of GDP every year for four years in the wake of the biggest financial crisis in our history, alongside private sector debt levels higher even than in Japan before its lost two decades of growth.

Yep. So what we’re in for is a decade — maybe more — of stagflation. A re-run of Japan’s catastrophe. It’s nuts — and yet it’s happening before our eyes.