That explanation is only needed if inflation is being caused by excessive demand, which is really not clear. Why are food prices going up? Did the U.S. all of a sudden get hungrier?
If I’m a deficit hawk and inflation isn’t caused by excessive demand, then, whew, it appears I don’t have to feel funny about not calling for raising taxes in that case.
That explanation is only needed if inflation is being caused by excessive demand, which is really not clear. Why are food prices going up? Did the U.S. all of a sudden get hungrier?
If I’m a deficit hawk and inflation isn’t caused by excessive demand, then, whew, it appears I don’t have to feel funny about not calling for raising taxes.
Somebody said a tell was his sympathy for concern about inflation and the natijonal debt.
yes, that's why I looked up who he is and what his background is. I even quoted his self-written bio. I confess I didn't know who Ben Ritz is before I read that article.
fwiw, most of what he writes is pretty easy to agree with. But this part about inflation and the national debt gives away that Ritz really isn't himself a progressive. There is no evidence BBB would have caused inflation. And there's also no evidence that the national debt is unsustainable. Interest payments on the national debt are about as low a % of GDP as they've been in decades.
fwiw, most of what he writes is pretty easy to agree with. But this part about inflation and the national debt gives away that Ritz really isn't himself a progressive. There is no evidence BBB would have caused inflation. And there's also no evidence that the national debt is unsustainable. Interest payments on the national debt are about as low a % of GDP as they've been in decades.
If I were a deficit hawk, first I’d need someone to explain to me how raising taxes on top earners would remove enough money from the economy to tame inflation.
I should probably clarify first that I'm not necessarily saying raising taxes would solve our current inflationary episode. It might, or it might not. My point was more that the people who warn about inflation a) are always warning about inflation, regardless of whether inflation is actually happening or not and b) nearly always warn about inflation as part of an argument for reducing spending.
I have a few problems with that. In the first place, inflation hawks are nearly always also deficit hawks, as you note. But if you're really concerned about the deficit per se, then it shouldn't matter if you narrow the deficit by increasing revenue or decreasing spending. Mathematically, both would effectively shrink the deficit. Indeed, the most effective approach would likely be some combination of more taxes and less spending. But the argument is nearly always exclusively for less spending, which suggests to me that it's not actually the deficit that deficit hawks are concerned with, it's the spending. It's not an economic argument at all, or even an accounting argument, it's an argument about the proper role of government, disguised as an objective economic argument.
Similarly, with inflation, if one's theory of inflation is that there is too much money in the economy, then it shouldn't really matter how you remove that money. Subtracting $X via taxes should be the equivalent to subtracting $X via reduced spending or via increasing unemployment. But one very seldom comes across an inflation hawk arguing for higher taxes. So, as with the deficit hawks, this suggests to me it's not actually inflation they are primarily concerned with. Again, it's really a disagreement over what the proper role of government is, with inflation concerns being a handy cudgel to advocate against government spending while appearing dispassionately objective.
Similarly, with inflation, if one's theory of inflation is that there is too much money in the economy, then it shouldn't really matter how you remove that money. Subtracting $X via taxes should be the equivalent to subtracting $X via reduced spending or via increasing unemployment.
Thanks, PVW, I appreciate the elaboration. The quoted excerpt, though, gets to what I was wondering about: Would a tax hike (within reason) on the wealthy subtract a significant amount of money? My thought is that it’d require a broader-based tax increase, which nobody is arguing for, defanging the rhetorical challenge to deficit hawks.
Thanks, PVW, I appreciate the elaboration. The quoted excerpt, though, gets to what I was wondering about: Would a tax hike (within reason) on the wealthy subtract a significant amount of money? My thought is that it’d require a broader-based tax increase, which nobody is arguing for, defanging the rhetorical challenge to deficit hawks.
I'm not an economist, I just play one on MOL ;-)
If one wanted to make the argument, though, I imagine it'd be something like "the people who spent the pandemic building up their savings were higher earners. Essential workers and others who are primarily benefiting from pandemic aid programs are more likely to be spending their money on essentials such as food, school supplies, etc. Rather than kneecapping the gains being made by those at the lower wage end of the scale, then, it makes more sense to raise taxes on higher earners and focus on making sure the supply chain issues for items like groceries and energy get resolved quickly."
Thanks, PVW, I appreciate the elaboration. The quoted excerpt, though, gets to what I was wondering about: Would a tax hike (within reason) on the wealthy subtract a significant amount of money? My thought is that it’d require a broader-based tax increase, which nobody is arguing for, defanging the rhetorical challenge to deficit hawks.
I'm not an economist, I just play one on MOL ;-)
If one wanted to make the argument, though, I imagine it'd be something like "the people who spent the pandemic building up their savings were higher earners. Essential workers and others who are primarily benefiting from pandemic aid programs are more likely to be spending their money on essentials such as food, school supplies, etc. Rather than kneecapping the gains being made by those at the lower wage end of the scale, then, it makes more sense to raise taxes on higher earners and focus on making sure the supply chain issues for items like groceries and energy get resolved quickly."
couldn't it also make sense to add a surtax on corporate profits that sunsets after a year or two?
If one wanted to make the argument, though, I imagine it'd be something like …
Alas, I’m a professional noodge.
That tax talk makes sense to me; just beside the point of inflation-fighting. (Indeed, it sounds like the spenders go unscathed and the savers, if anything, have more impetus to spend from their savings.)
Oh, I definitely look forward to DaveSchmidt's posts, especially if he's replying to one of mine. A good-faith reader who's paid enough attention to what I wrote to notice the weaker or unclear portions, and who points these out in the spirit of giving me the opportunity to clarify or revise? I mean, that's the ideal reader of an online discussion board to me. I'm always flattered to see that he find what I write worth reading so closely.
I'll have to disappoint him a bit on his latest response, though, as there's food to cook and presents to wrap and a host of other things to be done. Happy holidays all, and we're past the solstice so just remember everything gets brighter from here on out
That explanation is only needed if inflation is being caused by excessive demand, which is really not clear. Why are food prices going up? Did the U.S. all of a sudden get hungrier?
Biden's policies have reduced child poverty by about 40% so poor families are able to purchase more and better quality food.
That tax talk makes sense to me; just beside the point of inflation-fighting. (Indeed, it sounds like the spenders go unscathed and the savers, if anything, have more impetus to spend from their savings.)
I suppose what I'm really saying is that I believe very few people are actually talking about inflation when they talk about inflation.
Let's take, for instance, the inflation-hawks' claim that the pandemic aid -- stimulus checks, child tax credits, extended unemployment, etc -- is the source of this inflation. It's a reasonable case. As the economy opened up again over the summer, before Delta (and way before Omicron), now we have millions of people with extra money in their pockets, trying to spend. Meantime, supply chain issues reduce the ability to actually deliver goods, and workers, buoyed by the extra cash, quit or hold off on returning to their old jobs, causing staffing shortages.
Let's pause for a moment to notice the implications of this argument. People had money to spend because that money had not been going to desperate attempts to avoid eviction, or hunger, or other severe challenges they were able to avoid thanks to that aid. Similarly, it does look like the aid has made it easier for people to move on from jobs they did not like or that were dangerous, or poorly paid, or all of the above. So the "inflation hawk" argument is that inflation is a far worse outcome than people locked into bad jobs and mass eviction and mass hunger.
But even apart from this, do we even know this to be the real story of our current inflation? Here's another equally plausible story. Let's say we didn't provide all this aid. As vaccinations increased and cases abated in the early summer, we still would have seen the economy open up. Supply chains still would be stressed, though. And millions of people like me who aren't essential workers and were able to save would still have had plenty of cash on hand to provide demand to an economy unable to supply (not to mention millions who have even less essential jobs than I do and so did even better financially). Meanwhile, even those who suffered great financial challenge and loss still would have access to credit cards and a desire to spend after the long pandemic slow down, so there still would have been demand there too. Maybe not as much as we actually experienced, but plausibly enough to spark inflation. So maybe we'd be in a world where we still had high inflation PLUS millions immiserated. And I guarantee that the inflation hawks would still be worried we are spending too much on aid and services.
So my point is this -- we don't actually know, with great certainty, how to effectively predict and control inflation. Should we increase taxes on the wealthy to fight inflation? I think so, and maybe it would actually help, but the real reason I support that is because I support raising taxes on the wealthy. Similarly, those who argue we should reduce spending to fight inflation might end up being right that this would help, but the real reason they argue this is because they want to reduce spending.
I'll grant that in economics papers and conferences they're probably talking about inflation. But worries about inflation in op-eds and speeches from the well of the Senate are definitely not actually about inflation.
One more note -- if in the current moment, when inflation is actually something that's happening, and it turns out we don't know precisely why, isn't it even more ridiculous to look at a proposal like BBB and claim that one is worried that money spent over the next decade will be a problem because it might hypothetically cause inflation?
So my point is this -- we don't actually know, with great certainty, how to effectively predict and control inflation. Should we increase taxes on the wealthy to fight inflation? I think so, and maybe it would actually help, but the real reason I support that is because I support raising taxes on the wealthy.
That was my only quibble with the implied contradiction of inflation hawks who aren’t calling for a tax increase. “Think so” and “maybe it would actually help” pale in comparison with your real reason for wanting to tax the wealthy and your complementary discussion about inflation. If an inflation hawk asked me if I could see where he was wounded after that earlier comment, I’d have to say no.
If he asked me after your “I suppose what I’m really saying” graf above, I’d recommend he find a first aid kit.
I think the two rounds of Federal stimulus packages during covid prevented a large Depression. Depression is the worst of economic situations and would have far outweighed the concerns about inflation we now have. So, good for Congress for passing this needed and timely legislation.
PS. I took only one year of economics in college when the praises of Keynesian economics were widely endorsed.
PPS: Economists love to debate economic policy. Much like many of us like to debate Mets vs. Yankees.
His resume is that of a fiscal conservative.