Printing money is
Talk of tariffs has the corporate media gaslighting the public over their supposedly inflationary implications. This is the same media, by the way, that has been cheerleading for Fed rate cuts. The hapless consumer of this media bilge had better look for economic enlightenment elsewhere.
We’ve already established that its assumption that CPI=inflation has yet to be justified. There isn’t even an argument to be refuted; it hasn’t been made. But that need not be rehashed here.
The core fact we need to get our arms around is this: Every unit of purchasing power the government spends comes from somewhere. If the government spends a trillion dollars on widgets, for example, and blows them up overseas, it can take the purchasing power spent in two ways. It can either take it in direct taxes, or it can take it through inflation. Either way someone loses the amount of purchasing power that was appropriated by the government.
The direct tax route is self-evident. Somebody gets a bill. The inflation route is more circuitous. It usually involves borrowing the money. Now, if the quantity of money remained fixed, the cost would be borne by other borrowers competing with the government to borrow from a finite pool of dollars. They would pay a higher rate of interest. But of course in our central banking system, there is no fixed pool of dollars. Rather interest rates are fixed. So more dollars are produced and each is worth correspondingly less. It takes more of these devalued dollars to buy the same stuff, which is the same thing as saying prices rise.
This must be the case, because the government’s exercise of purchasing power did not create any new goods or services. The body of goods and services available for purchase remained unchanged. Its exercise of purchasing power removed a like amount of purchasing power from someone else. If not removed by means of a tax bill, then it was removed more surreptitiously.
Tariffs are a form of tax. So whatever purchasing power the government obtains through tariffs, all else being equal, reduces inflation by a like amount.
No, that’s not a mistake. All else being equal, the assessment of a tariff reduces inflation by a like amount.
It’s no different than any other form of tax. Suppose for instance that instead of levying a tariff, the government collects the same amount of funds by assessing companies a percentage of sales or of profits. By the same argument as applied to tariffs, companies will raise their prices to cover the cost. But in current media economics, for some reason, tariffs are uniquely inflationary.
The thing is, all of these means of covering the cost of government expenditure are capable of increasing consumer prices. One does so through tariffs. Another does so through a corporate tax. Another does so through currency debasement.
What about income tax? Same thing. Your wages or salary are the price you charge for your labor. If they are subject to income tax, you charge more to cover the cost. Wouldn’t you be willing to work for less if you could take it all home? Either way, your purchasing power is reduced by the amount of the tax.
Big picture, it’s a shell game. Every unit of purchasing power the government spends reduces purchasing power of someone else by the same amount. The only difference is that with a tax, it’s direct and straightforward. The payer knows who took his purchasing power and how much. The politician must weigh this carefully against the benefits his program is intended to produce. With inflation, the payer does not know who took his purchasing power or how much was taken. Because of this the politician avoids the cost benefit analysis and can appear to be providing benefit at no cost. The cost doesn’t disappear though, it just gets blamed on some other nefarious actor. This makes inflation uniquely destructive because it does an end run around accountability and rational cost benefit analysis.
Summing up, the essential ingredient of inflation is the creation of money. This enables politicians to chronically spend more than they assess in direct taxes. For a given level of spending, the collection of taxes reduces inflation, and the mere fact that a particular tax happens to be collected a national border does not make it an exception.
I always recall the Bulsh1t they pulled in the 1970s when i was a kid. They blame unions for high wage demands or “Greedy” manufacturers…….worse of all i recall Prez FORD & his “Win” badges (Wip inflation now)……………
How about not having wars?……or Printing money?
The MEGA problem they have now is a VERY well informed public. The old bulsh1t will simply not fly now….
Its very enjoyable watching the powers to be trying to find excuses to why they lost growth …..sadly they going to lose control very soon. Meantime things are better elsewhere & the West is going to find it tough to sail up to some nation with a Gun boat & demand its wealth…..given that even a small nation can turn round & blow said Gun boat out of the water.
WE still going to see the West try “Colour revolutions” here & there but again the other nations are getting their acts together.
I think the rest of the World can see the BASTARD nations need to be run out of town…..its coming.
Mike
How about not having wars? My example of sending widgets overseas and blowing them up wasn’t accidental … it’s the worst example of inflation. If politicians had had to send voters the bill for the costs of, say, Vietnam, Iraq, Afghanistan, I suspect those wars might have been a tad less likely to happen.
At least in the case of transfer payments, the stolen purchasing is re-allocated somewhere else. (Minus a cut for political and bureaucratic overhead … and of course you still have the problems of loss of accountability and rational cost-benefit analysis.)
But war is the worst case, because the purchasing power is literally destroyed. Not to mention human lives.
Lest the logic appear merely theoretical, consider the plight of millions who now find home ownership unaffordable. Just one, but probably the most dramatic example of where the purchasing power the government appropriated has disappeared from.
EU to Tax you AFTER you left them!
https://www.youtube.com/watch?v=_F3oQQVkiho
I know the US does this,but if you move to the US they let the IRS tax you, THEN RAPE you some more!
Modern mobility loosens the link between where you physically are and where you’re a citizen. Where you vote and where you pay taxes might reasonably linked to each other and to citizenship.
Just because a government wants more money … ? … no.
https://www.youtube.com/watch?v=DL-0t-vaGaE
Strong $ policy?
Ramaswamy is smart. There absolutely should be a single mandate for the Fed. The Fed issues the currency … literally the Federal Reserve Note. Maintaining its value is fully within its control and responsibility. The other stuff isn’t.
Am quite impressed with Vik
Mike
So, the FED are going protect the $?
Rate rises?……………….or just cut spending cuts?
Mike
Latest Fed talk is they will take their time cutting rates. Whether they should be cutting at all seems not to enter in. For all the talk about reining in inflation, action seems to be going the other way. Inflation’s “last mile” is supposedly “sticky”, but if it is it’s only because the Fed folded too soon.
The incoming Trump admin says it wants to cut the size of government, but it also says it wants to cut taxes. Trump is not known to be fiscally conservative, so it remains to be seen whether there would be net spending cuts. It would be difficult, since most spending is entitlements, defense and interest on the existing debt. And if the economy were to slow, there would be a lot of pressure for “fiscal stimulus”.
My base case is for the debt to continue to grow and for the Fed to continue to inflate. I hope I’m wrong, but we’ll just have to see what develops over the coming weeks.
Meantime Britian 2030
https://www.youtube.com/watch?v=e3Qv7BzBXKM
You “Q” for a ticket (Only 4 hours if you pay a $10 bribe)
Then go to station, get you ticket “confirmed”
Wait over an hour for train to appear
Wait another hour just to get on the train
1st class gets aircon, Progs don’t it seems
Service runs every few days, ish……..
Mike
https://www.theguardian.com/business/2024/nov/15/reeves-tells-city-regulator-to-encourage-more-risk-taking-in-financial-sector
My My Limey……
https://x.com/LukeGromen/status/1858909872416325935?ref_src=twsrc%5Egoogle%7Ctwcamp%5Eserp%7Ctwgr%5Etweet
So what’s goin’ on over there? US media are reporting Starmer is being advised to hold out an olive branch to Farage.
Starmer was 110% gun ho for missile attack into Russia, now suddenly he not keen.
Everything is turning to sh1t here….i doult Nigel could save Starmer now…..hated by everyone, 4th rate performer
Appalling move. This administration has no other tools in the toolkit besides escalation. And this right after voters plainly said they wanted the opposite.
We just heard that the government wants to put our two aircraft carries “in to reserve” (ready for scraping). given that they are not old & built at vast expense the public are some what put out.
“Why?”
Well back in WW2 the British wanted a new battleship….HMS Vanguard. Layed down just as the war was ending EVERYONE asked “WHY?!”
Even the dogs in the street knew the day of the battleship was over!………but the Limey had NOT understood the Empire was over, still had that imperialist mindset……only 12 years later it was scraped!
History repeats, “They” wanted “power projection” as they saw “America 1st” policy & understood they were going to have to invade nations once again to steal stuff without US support.
Now, like the Battleship new TEC means old masters will get their ass kicked by even a small nation…..suck it up limey!
It begins
https://www.youtube.com/watch?v=8BJoVKqn9sM
Lance Roberts has an article at RIA that touches on the relationships between tariffs and inflation through a more data intensive lens.
https://realinvestmentadvice.com/resources/blog/trumpflation-risks-likely-overstated/
I agree with Roberts’ analysis with a caveat. Roberts correctly asserts that debt is deflationary. I’ve discussed that in these pages. Expansive monetary policy leads to expansion of debt. It’s inflationary during the monetary expansion.
But inflation is springy. Once the expansion of debt slows, the weight of the debt itself grows deflationary. The cause of deflation is inflation.
The inflationary threat doesn’t disappear though. While the debt is inflationary, it is the response of policymakers that poses the inflationary threat. If the Fed attempts to monetize the debt, not an unlikely development, that response is inflationary.
So of course deflation remains a threat. But it would be a … uhm … transitory one. In the longer run the government debt, unless brought under control, is likely to lead to an attempt to inflate it away.
It’s a vicious circle of causality.
Monetary stimulus->inflation->debt—>deflation->monetary stimulus->inflation->debt … round and round we go…
https://www.advisorperspectives.com/commentaries/2024/12/03/distractions-inflation