Of the economic ills our government can help bring about, it’s commonly assumed that “inflation” is the one that is guaranteed to make voters angry, and prompt them to throw the bastards out come election time.
In Arnold Kling’s outlook for how we might deal with our debt burden, he suggests that the “inflate our way out of it” strategy would be too politically costly to seriously pursue.
Obviously nobody likes the loss of buying power that comes with meaningful inflation, but this hard link between inflation and voter dissatisfaction strikes us weaker than people assume. It all seems to stem from the 70s and the election of Reagan. That’s one datapoint and hardly conclusive about voter behaviour.
If home prices keep declining for the next few years, that will make voters extremely angry. Persistent high unemployment would too. In fact, we’d expect inflation to be politically neutral (if not positive) if it means higher home prices and a rising stock market. And if more cash can (temporarily) staunch the growth in unemployment, that’s a bonus, too.
What’s more, inflation is a path chosen by the Fed. Congress and the President may try to force the Fed’s hand — forcing the Central Bank to monetise the debt — but ultimately, it’s not on politicians to go down this path. Our guess is that the Fed will take an inflationary, pro-liquidity stance for some time, and until we hit a severe bust, inflation (even if it manifests itself in rising prices) won’t be a problem for politicians.
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