| > Inflation was already high when the last large spending package passed and succeeded in over stimulating the economy. The others answered you pretty well. My comment speaks instead to this recital, which is incorrect and thus undermines the rest of your argument. Inflation in the US was averaging around 2% since 2008 (https://www.worlddata.info/america/usa/inflation-rates.php), and 2% is generally considered healthy (https://www.federalreserve.gov/faqs/5D58E72F066A4DBDA80BBA65...). "less government spending" doesn't address the pooled-up liquidity in the economy; it just addresses government spending. Hence the need for the scalpel (finely targeted taxes)... or in the absence of such, the blunt instrument (broadly-impactful rates). They both extract money, but one's specific to things such as luxury goods, gas-powered vehicles over a certain weight, homes over a certain size or cost relative to local income, a tax per stock trade, whatever makes sense, whereas the other... not so much. Targeted taxes without an increase in spending would result in a net reduction in the budget deficit or even potentially a budget surplus, which then is essentially how the money is removed from circulation. And without using the mallet, businesses can continue to grow in a cheap-money environment. I'm not an economist; I've just absorbed a lot from working in FIs in the past. But there's probably an economist here who can affirm or debunk what I just put forward. |
Re-reading my post, it looks like I could have written it better.
I was referring to the stimulus spending, in particular the last one or two huge packages. It might have been more efficient to not do them in the first place. At the time many economists were very concerned about the overall effects on the economy. We were already running at 5+% annualized inflation, right?
I understand the general ideas behind Modern Monetary Theory, that it looks like you and the original post are referring to. Wild spending corrected by surgical taxation...
MMT sounds great in academic papers, but it runs into problems in practice. We can't just raise taxes wherever and whenever we want. There are too many problems to list with attempting to do that, from the lobbyists, to officials wanting to get reelected, to the errors of misidentifying where the taxes are to be applied. Not to mention all the existing laws around taxing.
It's expensive to send out a bunch of money, and then tax it back... I suggest that it's more efficient to spend less. But I realize there is a fat chance of that ever happening!