Deficit spending is stimulative to economic growth: raising taxes on business and higher interest rates are a disincentive to economic growth. Doing both at the same time is incoherent and a recipe for stagnation.
If there is a tradeoff between a recession and inflation (and that is very questionable) then I would prefer a recession to inflation. A recession forces a reallocation of capital from weak hands to strong hands. Higher interest rates force a reckoning of those zombie businesses kept alive with artificially low rates, forcing a redistribution to better and more productive uses of capital. It can be a painful adjustment but will lead to better economic growth if allowed to proceed. Stagflation, slow economic growth paired with inflation, is unacceptable.
Inflation, particularly stagflation, undermines social and political stability.
Wages are sticky, difficult to reverse, and thus will tend to lag inflation. This is why inflation hits the poorest harder.
Economic growth is a more palatable solution to the deficit than fiscal restraint, but both are required.
Higher prices are an outcome of low production, strong demand or too much money. Traditional economics has tried to subdue prices by reducing demand with higher interest rates, higher unemployment, or less money in consumer hands. Supply side economics recognize that higher output can also dampen price pressures.
The shift to remote working has caused an excess of office space in urban areas, especially the blue cities experiencing an exodus of workers and employers. Colleges designed for on campus learning often have a majority of credit hours earned remotely. There is now a pending glut of underused real estate that will pressure the mortgage holders. Unless they can be repurposed, which seems to be a remote possibility, this will weigh heavily on a recovery.
For higher education which is struggling to remain relevant this imposes a legacy cost on a dwindling student population, leaving a value proposition that more will find hard to justify.
In A Demon of Our Own Design (2007) author Richard Bookstaber describes four pillars of our fragile financial system:
- Complexity only made worse by excess regulation. Complexity is a form of leverage.
- Tightly coupled- the components are tightly related. A mistake in one component can quickly infect other components.
- Voluminous information (and that observation was 15 years ago)
- Demand for liquidity
Firewalls serve to restrain complex and tightly coupled systems; small recessions are preferable to systemic failures. The political wish to avoid recessions by neutering small corrections only paves the way for greater failures.