Illusory Follies Andrew Flanagan's Blog

11Jan/082

Solution to our economic woes?

I'm very confused over economist's handling of our current situation. On the one hand we have inflation and on the other we're struggling with economic growth.

In order to avoid a recession (negative economic growth) the Fed is considering cutting interest rates now while Bush is planning an "economic stimulus plan". So... cut rates which will cause more inflation and then print more money which will definitely cause more inflation. The end result seems like it will be out-of-control inflation regardless of real economic growth.

We have all the signs of "stagflation" seen in the 1970's but this time instead of going through a "disinflationary" period, we're planning to attempt to not worry about inflation and just worry about growth. But the problem is that while a "disinflationary" period would have certainly hurt and people would have lose their jobs, what we're doing instead offers no long-term solace -- at least none that I can see. Tackling inflation first would give us a solid base on which we could kickstart the economy (if we should kickstart it at all). I guess my rather un-academic feeling is that economic growth is good and necessary for the future but that inflation affects our already saved-up capital. If that's the case it seems to make sense to control inflation before we worry about ever-increasing economic growth.

Please add your comments -- I'm not much of an economist so I'm likely off the mark.

Comments (2) Trackbacks (0)
  1. You failed to deliver one sarcasm steeped term which has direct bearing on the issue, and that is the impending RECESSION!!! Yes folks, that terrible inflation causing word is the direct backlash of the housing markets sub-prime foreclosure fiasco. This mess we led like sheep the tight-budgeted “I’m gonna make money in realestate”, low income public down the financial rabbit hole; thus the resulting circular market manipulation to try to retain as much market share as possible.

    Final Analysis: Hang on to what you have, keep your job and save what money you can.
    This latest confusing news is just news, the economy is not crashing,
    so just change the station and ease your mind with the sounds of
    someone who does not make their money making others loss public
    cud,(I prefer classical, or classic rock).

  2. Now you know why they call economics the dismal science!! The entire issue – root of the problem to the fruit you mentioned is that we live in a “managed economy” – you will be told that we have a free market economy but we do not. And rather than let those who greedily seek to amass wealth suffer when things go sour – we bail them out. Except of course for the those middle class and lower – who get to pick up the tab (either thru direct taxes or indirect taxes – inflation). The reason we have stagflation isn’t hard to discover – how do you think the war in Iraq is being funded?? And trying to have both guns and butter always leads to inflationary pressures.


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