[saveferris]

Not the poster you asked. But, a lesson we continue to ignore is that there are other options to tame inflation besides raising interest rates. The problem is the option isn’t politically expedient so Congress just raises its hands in mock exasperation and says well, it’s the Fed’s mandate to manage inflation.

Congress are cowards and won’t do what should be done - raise taxes. That is likely the fastest least painful long term solution to quickly climbing inflation

I say likely solution because at this point economies are so complex I’m not certain there are solutions without any butterfly effect consequences

[nico]

Unfortunately, the current tax structure disproportionately affects not-as-wealthy people/companies. So raising taxes would probably be a very unfair move to most people.

My fantasy would be for the government to abolish taxes altogether and just print the money they need, then use whatever mechanisms they have to take enough money out of the market to keep inflation in check.

That way we wouldn't have to pay taxes and the government could just get whatever money they need when they need it. I mean, they already do, so why make people jump through hoops and threaten them with jail for not paying taxes properly, if they could just do without taxes in the first place?

It kinda feels like the whole system is a scam to keep control over the population.

[mindslight]

> then use whatever mechanisms they have to take enough money out of the market to keep inflation in check.

What mechanisms would these be, if not taxes?

The other main contemporary mechanism is raising interest rates, which only works on money that has been previously loaned out at a lower rate, and thus isn't a long term sustainable mechanism for recapture.

[nico]

Great question. I don’t know, that’s why it’s a fantasy.

But I’m guessing that taxes isn’t the only or even the biggest way in which money is taken out of circulation.

In fact, if you ask google “how is money taken out of circulation?”, the first few answers don’t mention taxes at all.

[dantheman]

Wouldn't it be better for congress to spend less? That's way better than raising taxes.

[mindslight]

That doesn't address inflation. The point is that money needs to be taken out of the system. That used to be done by high tax rates on high incomes, and the estate tax. Both have basically been neutered.

But all things considered, 5% is not really a high interest rate. People are just acting as if it's unreasonable because they'd become accustomed to ZIRP. Personally I hope rates stay above several percent for the foreseeable future, for climate/resource reasons.

[imtringued]

>Personally I hope rates stay above several percent for the foreseeable future, for climate/resource reasons.

I don't know what this has to do with climate or resource reasons. Cutting down the rain forest, polluting the planet with CO2 and sitting on interest payments are optimal in that scenario. Ultimately positive interest rates encourage corruption and short term thinking because earning money today ,no matter the cost, is better than earning money in the future.

Meanwhile with lower interest rates the future isn't discounted anymore and it is worth it to invest in emission reductions.

[dantheman]

Not spending takes it out of the system.

[mindslight]

I don't really know what you're try to say with this short blurb. Yes, money has to be taken out of the system via taxes and then not re-spent in order to successfully shrink the money supply. But compared with the current approach of creating new money and spending it, raising money through taxes for that spending will be an improvement.

Also focusing on executive spending is a bit of a red herring given how much outflow has occurred from the Fed itself over the past few decades via low interest rate loans. Basically rather than letting the gains from technology and offshoring accrue throughout society (via price deflation), or be spent purposefully (executive spending), the Fed has been squandering these gains to create an asset bubble.

[tines]

I know nothing about economics. Can you help me understand how raising taxes helps deal with inflation? Is the idea that the federal government "deletes" some of the money it receives through taxes, like the opposite of printing more money which cheapens the existing supply?

[frankfrankfrank]

Yes, on the face of it. The issue with what appears to be the same old game is that those who absconded with the wealth pillaged through funny money, are not going to be the ones getting punished to “fix things”. This opens up a whole different set of cascading consequences because now on top of the moral hazard we had, we’ve gone well beyond that because the perpetrators have learned there are not only no consequences, but that you will be rewarded for your evils.

Combined with other factors too numerous to really go into here, we are seeing the emergence of essentially an aristocracy in the USA and Europe, consisting of, as the earlier aristocracy, of the pillagers of their own people and the people of the rest of the world.

[lifeisstillgood]

You have stated Modern Monetary Theory precisely. Yes that is the new modern argument - government prints money, spends it on hospitals etc thus putting it in circulation and deletes it by taxation.

One HN comment == ten years of economic debate. :-)

[adolph]

Too bad malloc gets called significantly more often than free.

[AnimalMuppet]

That is an interesting idea, but it won't happen, because Congress won't "delete" the money. Instead, they'll spend it.

[convolvatron]

that would .. actually make sense. I can't imagine anyone who is winning in the status quo being anything but horrified at the thought.

has any currency ever done this? isn't there a risk of a Japanese-style concurrent inflation and recession?

[mxkopy]

> Congress are cowards and won’t do what should be done - raise taxes.

They're still cowards for not doing it but what should've been done is an increase in interest rates half a decade ago.

[lazide]

The fed tried - and the chairman almost got fired for it. Remember?

[https://www.cnbc.com/amp/2018/12/22/trump-reportedly-wants-t...]

Almost 5 years ago exactly.

[asimpletune]

Yeah it's crazy bc everyone's talking like it's just the rise in rates that's to blame for the asset/deposit mismatch, but really it was the 0% interest rates that came before that really did it. It was during that time that SVB had a lot of extra deposits, but no short term way to back it, since short term t-bills were paying practically 0% interest.

[di456]

The notion of managing "core" inflation ignores huge cost increases for housing, energy, education, and healthcare

All of those are to me basic infrastructure to support a healthy economy.