Thursday, February 13, 2003

Inflate the debt away?

Now there's a scary thought.

Mr. Greenspan said that "there should be little disagreement about the need to re-establish budget discipline." But it is always easier to cut taxes than cut spending.

What will happen if nothing is done? If deficits continue to accumulate, the temptation to print money to pay our debts will become almost irresistible. Inflation is all too tempting as an "easy" way to avoid the political pain associated with tax increases or budget cuts.

All a president needs is a pliable Federal Reserve Board, and this can probably be arranged sometime in the next 10 or 15 years. Inflating away the debt is not pretty, but it may well end up being the most politically expedient solution to the burden of accumulated deficits.

(via Brad DeLong).