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The Disease of Inflation

Seldom do I agree with or recommend articles in the New York Times, but Allan Meltzer's Op-ed in yesterday's paper provides astute criticism of the Federal Reserve's current direction and the inherent danger of inflation in our future.  Here is some of what he said:

It doesn’t help that the administration’s stimulus program is an obstacle to sound policy. It will create jobs at the cost of an enormous increase in the government debt that has to be financed. And it does very little to increase productivity, which is the main engine of economic growth.

Indeed, big, heavily subsidized programs are rarely good for productivity. Better health care adds to the public’s sense of well-being, but it adds only a little to productivity. Subsidizing cleaner energy projects can produce jobs, but it doesn’t add much to national productivity. Meanwhile, higher carbon tax rates increase production costs and prices but do not increase productivity. All these actions can slow productive investment and the economy’s underlying growth rate, which, in turn, increases the inflation rate.


We should remember that government spending, when financed by debt will undoubtedly lead to inflation.  The huge amounts of spending beyond the ability to tax and repay the debt issued will lead to monetization of said debt and inflation in the future.

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