Friday, October 14, 2011

Leftists Need To Learn About Long & Short Term

Matthew Yglesias argues that Rick Perry's comment that it would be treasonous to try to help Obama by inflating more proves that Republicans want to wreck the economy in order to prevent Obama from being re-elected, because the only way that inflating more would help Obama is if the economy became stronger by re-election day.

Now, it is likely that some Republicans (and non-Republican opponents of Obama) may feel that it is worth weakening the economy for the purpose of hurting Obama, because they think that without Obama economic policy will become better and so make the economy stronger in the long term or because they for other reasons resent the fact that Obama is President so much that a permanently weaker economy would be worth it if it meant ending Obama's Presidency. However, it is not the case that Perry's statements or any other statements against more inflation necessarily implies this.

The reason for that is that inflationary policies can sometimes (but not always) strengthen an economy in the short-term, but still weaken it in the long-term. Alan Greenspan's inflating of the housing bubble probably meant a short-term boost to the U.S. economy, but it also meant the problems America has seen in the last few years. And there is certainly a risk that inflationary policies from Bernanke now while boosting the economy in the coming year or so, will similarly create new troubles a few years from now, and that these problems will be so serious that the short-term benefits won't be worth it.

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