Permanent Stimulus

Lately I’ve made it a habit to read the New York Times editorial columns (don’t ask!). Today’s editorial on the economy makes an important point:

In the meantime, Fed Chairman Ben Bernanke has tough calls to make. Wall Street is insisting that lower rates are necessary, despite inflationary pressures, because recession is a more urgent threat than rising prices. There’s truth to that. Yet even if the Fed slashed rates, there’s no guarantee of a big rebound. Lower interest rates could cause the dollar to weaken further. A weaker dollar correlates to higher oil prices, which in turn, would blunt the ability of lower rates to stimulate a lagging economy.

Inflation kills economies and democracies, and it’s back. The top economic priorities for the administration and the Federal Reserve ought to be fighting inflation and strengthening the dollar. That may lead to some tough times in the short term – of course, it looks like we’re in for some tough times anyway – but it would also help the economy in the long term. Of course, as tends to happen, the Times editors go and make a point I don’t understand:

There’s a lot riding on Mr. Bernanke’s judgment. But the White House and Congress also must start preparing to step in if Mr. Bernanke and the Fed can’t turn the economy around. One issue they must agree on: any fiscal stimulus legislation should be targeted and temporary.

Whenever recession fears arise, Democrats argue that any stimulus ought to be “targeted” and “temporary.” Why? Why not enact economic policies that grow the economy for the forseeable future and beyond? One assumes Democrats favor one-time-only measures like tax rebates or temporary payroll tax cuts because they want the money back to spend on government programs and subsidies as soon as possible. But once you reason that economic stimulus helps, wouldn’t you want that help to last as long as possible?

Permanent Stimulus

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