Economist’s View: How Close to Deflation are We?.
The gist here is that actual inflation is very near to slightly below zero. Using inflation fears as a reason to avoid further stimulus is simply unfounded. Deflation is a much more pressing concern.
A more important question is what can they do, given that interest rates are near an effective rate of zero at the Federal Reserve? Business are unwilling to spend more on hiring or make capital investment because of weak demand and existing inventories that are moving slowly. It was a very bad time for the Senate to take a summer break without extending unemployment benefits.
The underlying assumption seems to be that the long term unemployed would get a real job if we just stopped benefits. That’s despite the fact that there are still 5 people looking for work for every job opening. Furthermore, unemployment benefits and food stamps that put money right into the pockets of those most in need and are the most effective means of stimulating the economy. Those dollars get spent right away, with little delay and lower administrative costs than alternatives like tax cuts or infrastructure projects.
Just goes to show, once again, what’s political palatable is often economically stoopid.
