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.