MY VIEW: Paul Volcker
In today's New York Times, CRFB board member and former chairman of the Federal Reserve Paul Volcker has an op-ed on the dangers of inflation.
He writes that while "just a little inflation" can seem like an attractive option for invigorating the economy -- especially now given the "sense of desperation that both monetary and fiscal policy have almost exhausted their potential, given the size of the fiscal deficits and the already extremely low level of interest rates" -- it is a slippery slope.
My point is not that we are on the edge today of serious inflation, which is unlikely if the Fed remains vigilant. Rather, the danger is that if, in desperation, we turn to deliberately seeking inflation to solve real problems — our economic imbalances, sluggish productivity, and excessive leverage — we would soon find that a little inflation doesn’t work. Then the instinct will be to do a little more — a seemingly temporary and “reasonable” 4 percent becomes 5, and then 6 and so on.
Mr. Volcker also voices support for a comprehensive deficit reduction plan, saying:
President Obama has now set out new proposals to support economic growth. I hope he will be able to work with a responsible Congress to find the common ground that is urgently needed to deal with the economic challenges before us, restoring a healthy economy “in a context of price stability.” I also hope they will reach agreement early next year on a strong program to deal responsibly with our huge budget deficit over the years ahead.
Click here to read the full op-ed.
"My Views" are works published by members of the Committee for a Responsible Federal Budget, but they do not necessarily reflect the views of all members of the committee.