Most of us think of inflation as a problem. But as should have become clear in the GOP Recession of 2008, inflation is also a tool.
As the recent Jackson Hole paper on inflation pointed out, we spent a lot of money to ward off the worst economic impacts of the pandemic. The question is how to pay for that.
Logically, we would pay for it by raising revenues. If the outlays stimulated economic growth, then that might happen naturally as more economic activity brought in more taxes. But the money spent during the pandemic wasn't to stimulate growth, it was to fend off collapse. No "natural" increase in revenues.
We could also pay for it by raising taxes. The Dems actually tried to do this in some of their legislation, but were mostly shut down by the GOP/Manchin/Sinema hydra.
So that leaves inflation. Inflation lets you pay off debt with cheaper dollars. But then you, um, have inflation to deal with.
The Fed has decided that raising rates will stamp out inflation, if they just keep at it long and hard enough. But higher interest rates can't fix broken supply chains and war dislocations. So that's only a partial solution that is likely to cause its own problems, perhaps even another recession.
So . . . how would you tackle inflation?
As the recent Jackson Hole paper on inflation pointed out, we spent a lot of money to ward off the worst economic impacts of the pandemic. The question is how to pay for that.
Logically, we would pay for it by raising revenues. If the outlays stimulated economic growth, then that might happen naturally as more economic activity brought in more taxes. But the money spent during the pandemic wasn't to stimulate growth, it was to fend off collapse. No "natural" increase in revenues.
We could also pay for it by raising taxes. The Dems actually tried to do this in some of their legislation, but were mostly shut down by the GOP/Manchin/Sinema hydra.
So that leaves inflation. Inflation lets you pay off debt with cheaper dollars. But then you, um, have inflation to deal with.
The Fed has decided that raising rates will stamp out inflation, if they just keep at it long and hard enough. But higher interest rates can't fix broken supply chains and war dislocations. So that's only a partial solution that is likely to cause its own problems, perhaps even another recession.
So . . . how would you tackle inflation?