| The problem with inflation as a tax is not so much that you can't target 10% exactly. We could probably do that these days with level targeting. No, the real problem is the deadweight cost: The higher your inflation, the less cash people want to hold in real terms. But that amount of cash is what you collect your inflation tax on. > An inflation rate of 10% is basically a wealth tax on currency-denominated assets of 1/1.1 ~= 9%, collected implicitly. What makes you say so? Expected inflation would purely be a tax on cash. Currency-denominated assets like loans and bonds would just get a higher interest rate up front. Your next paragraph describes exactly that 'dodging' of the inflation tax. Btw, you can also simply dodge eg a USD inflation tax by holding Swiss Franks. No need for NFTs. (Of course, if you have a capital gains tax levied on nominal gains, then inflation effectively increases the capital gains tax. The solution here is to charge capital gains taxes only on real gains. That's a real problem in the real world.) > In reality, you never get uniform inflation across all prices; instead you get something called Cantillon Effects [1], where money pools at the places it's injected within the economy and at monopolies, and never makes it to ordinary consumers. The Cantillon effect is controversial to say the least. In order to work like Internet Austrians commonly describe the effect, people have to be idiots who act purely on historical data and do not form any expectations. In the real world, when the Fed announces some future policy in advance (like a taper or a new round of QE), that announcement has effects on eg the stock market right away, even when the Fed hasn't added or removed any money yet. In contrast, for the Cantillon effect to work as described, money would need to act sort-of like a liquid or gas and 'slosh around the economy' and get stuck in nooks and crannies. |