I have argued on this site that the most important economic problem we face is inflation. I have suggested that the Federal Reserve should be raising interest rates, not lowering them, and that the government should be encouraging both public and private savings. Here is Robert Samuelson today.
Forget the housing collapse, the "credit crunch" and -- in isolation -- higher oil prices. The real economic menace may be resurgent inflation, which is the broad rise of most prices.(snip)
One antidote to rising raw material prices is for the Fed to reverse its easy money policies. Combating inflation is rarely popular or easy, because it involves slowing the economy -- even inducing a recession -- to relieve pressures on prices and wages. Unemployment rises. There are usually plausible reasons for waiting. Surely there are now. Housing remains in disarray. More loan defaults could increase bank losses. No matter what the Fed does, there are dangers. Perhaps inflation will spontaneously subside (as some Fed officials hope) because the economy is already weak.
But similar arguments for delay were made in the 1960s with disastrous results. The resulting inflationary psychology made inflation harder to extinguish. The initial unwillingness to take a modest slowdown or recession led to deeper subsequent recessions. There are now signs that we are at a similar juncture.
As is becoming increasingly the case, I find myself in almost total agreement with Mr. Samuelson.
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