So, we must make tradeoffs all the time. There can be too much of a good thing...
One economic concept most probably haven't heard of is the NAIRU. In short, it's about balance between the unemployment rate and the inflation rate. If we step on the economic gas to try to provide more jobs, that's likely to lead to higher inflation. At some point, chasing the lowest possible unemployment rate, we'll start hurting the economy through too-high inflation. Figuring out that point, though, is not easy; the exact number will never be perfectly known, and it's subject to change over time, as the economy itself changes. But some people get stuck on one number, and won't forget it:
...Krugman points out that we really don't know the level of unemployment that is low enough to trigger accelerating inflation, although many people have put it in the 5.3-5.5 percent range. If the Fed acted on this view then it would be raising interest rates very soon to keep the unemployment rate from falling below this level.
But there was a widely held view back in the 1990s, back up by a considerable amount of evidence, that the magic number was close to 6.0 percent. Alan Greenspan had the good sense to ignore this view and allowed the unemployment rate to continue to fall, eventually bottoming out at 3.8 percent in some months in 2000. The result was that millions of people had jobs who would not otherwise have been able to, and tens of millions saw pay increases. And, we had trillions of dollars in additional output.
The gains from lower unemployment contrasted with the risks of higher inflation seem so asymmetric that it is difficult to see why the Fed should move to dampen growth until there is real evidence of higher wage growth and accelerating inflation. There clearly is none now, so why shouldn't the Fed be prepared to take the Greenspan gamble?