Stop It With The Inflation Talk

I'm really getting tired of hearing people talk about inflation. Every time the government unveils a new spending plan or the Fed injects money into failing banks, people in congress begin shouting "BUT THINK ABOUT THE DEFICIT! THE ONLY WAY OUT WILL BE TO PRINT MONEY! WE'RE GOING BANKRUPT! RABBLE RABBLE RABBLE!!!" as if we're going to turn into Germany circa the 1930s.

We're not. I'm sorry, did people just forget about the Phillips Curve, which explicitly states that there is an inverse relationship between unemployment and inflation? Last I checked, we're still at 10% unemployment. Maybe it's me, but that's pretty damn high. Sure, the economy only shed 11k jobs last month, but losing 11k jobs, while better than losing 100k jobs, is still losing jobs*.

But wait, you may say. What about the 1970s? Wasn't unemployment going up at the same time inflation was? Yes, this is true. But the reasons were different. The 1970s were marked by two supply (read: oil) shocks. What this did was decrease aggregate supply, and when aggregate supply decreases, we get stagflation (which is high unemployment and high inflation). The current crisis has nothing to do with aggregate supply decreasing. It's all about aggregate demand, and when aggregate demand drops, we get low inflation and high unemployment. Sound familiar?

It seems a lot of the talk of inflation leads back to the huge deficit. This would be cause for concern if it were not for one thing. We're in a recession. If you want to balance the budget and pay off the debt a la Roosevelt 1937, go ahead. Forgive me if I decide to skip out on the resulting economic collapse and move to Europe. And either way, the deficit should be a non-issue right now. It will be paid off. You want to know how? Tax revenue. Before you get up in arms, I'm not proposing raising taxes now, that'd be stupid. What I am proposing, though is that once unemployment is back down to 5% or so, we raise taxes, similar to what Clinton did in the 90s (that seemed to work pretty well). And didn't Clinton once say "Take care of the unemployment and the deficit will take care of itself"?

In short, stop talking about inflation. Just stop. You sound silly. And by "you," I mean managers of the regional Federal Reserve Banks and Republicans. Get your heads out of your asses and start creating jobs. You have the materials, you have the tools, you know what needs to be done, just do it. Otherwise, we're boned.


-The Economist