Economics 101

Posted by LK on 5/08/08 • Categorized as The Economy

There’s a troublesome news article in the Wall Street Journal this morning on interest rate decisions overseas.

What’s worrisome is that, although the US, the UK, and Europe are all facing similar problems (housing meltdowns, sub-prime issues, higher energy and food costs, etc.) we choose the quick (but possibly short-sighted) fix (a rapid lowering of interest rates) while they maintain a bit of tough love (holding rates steady).

Our politicians are no better than our central bank, as Clinton and McCain want to violate one of the few solid laws of economics by making an under-supplied commodity (gasoline) cheaper by suspending the federal gas tax, thereby increasing demand and further reducing supply, which will then inevitably drive prices even higher down the road, so to speak.

Obama, who is being advised by, among others, Paul Volcker (the man who took on double digit inflation and taught it to heel in the early ’80’s), may not have the experience of running a massive economy, but he has the intellectual humility to know what he doesn’t know, and that allows him to call on the best minds out there (Volcker, Reich, et al.) to assist him in correcting 8 years of economic negligence.