With much of the media focusing on the plans and objectives being articulated by Trump and his many prospective appointees, I fear that many of us are being distracted from what may be the most important economic policy consideration deserving of our attention.
At the risk of oversimplification, fiscal and monetary policy are levers that our government can use to affect macroeconomic conditions. Expansionary policies are appropriate when unemployment is deemed to be excessive or economic growth is perceived to be too slow; contractionary policies are appropriate when inflation is the larger concern.
That is, an overly expansionary policy would risk a renewed bout of inflation; and similarly, an overly contractionary policy would risk throwing an unacceptable number of people out of work. These conditions call for both our fiscal and monetary authorities to play it safe by maintaining as near a neutral policy as possible, for as long as possible – i.e., until inflation or unemployment reveals itself to be the more pressing problem that would necessarily have to be addressed.
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