It is fundamentally rare in occurrence when I disagree with Mark Thoma, but this may be one of those times. His basic position would have everything trail from core inflation numbers, which on surface would seem to be the best. It holds down Welfare payments and taxation, while inciting the least Government expenditures. This on the surface appears to be the excellent product desired, but is it? We are in a period of necessary Stimulus, where We are attempting to get Production restarted from the lows of the last Recession. Incentives to business from Tax Credits work least well when there is an absence to Consumer Demand. What does this information tell Us?
I actually think that Welfare payments should be geared specifically to the Cost of Food and Energy. My analysis states that the quickest method of Stimulus is to incite Consumer Demand. Setting Welfare payments to the most volatile Consumer products which are most in Demand under the issuance of available Cash generates the greatest expenditure of Government stimulus; at probably the greatest rate of actual Spending. This higher Delivery Rate to Consumer Demand, along with business desire to share in the Wealth, actually lends itself to suppression of the more stable Consumer prices. I say this knowing full well All recognize my long-standing opposition to special Tax Credits–especially to business organizations.
We now have to consider the impact on long-term inflation by such a policy. Here is the thing! Long-term stable Demand for Energy and Food will lead to economies of scale within these industries, and eventual rise in the Supply of Product. Such a reduction in Food and Energy prices will never be realized, unless the Government will face reductions in Welfare payments when and if Food and Energy prices reduce. Business, which relies on such reductions where possible, will pressure those reductions whenever they can. Government reduction of Welfare payments after reduced Food and Energy prices will suppress all Consumer prices over the longer period, if done successively and correctly. It is here where We find the Problem: the inability of Politicians to buck the Voters in Election seasons. It requires a bipartisan commitment by all Parties with firm guarantees that no Promises will be made to the Public advocating any repeal of legislation set to impose such Welfare payment reductions. I do not know whether Congress can actually act in unison about anything. lgl