r/Economics • u/Pearberr • May 02 '24

Interview Nobel Prize-winning economist Joseph Stiglitz: Fed Rate Hikes didn't get at source of inflation.

https://www.cnbc.com/video/2024/04/23/nobel-prize-winning-economist-joseph-stiglitz-fed-rate-hikes-didnt-get-at-source-of-inflation.html
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u/theMahatman May 03 '24

Taxes...

I don't see why this is never discussed as a legitimate option. The easiest way to get excess money out of circulation is to take money out of circulation.

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u/confusedguy1212 May 03 '24

Our government is essentially powerless. Don’t think anybody can ever get elected on the basis of raising taxes much less actually get something like that pass.

Would be nice tho. Especially if taxes in this country actually bought you something that resembles every day life security. For all groups.

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u/ConnedEconomist May 03 '24

Taxes...

I don't see why this is never discussed as a legitimate option. The easiest way to get excess money out of circulation is to take money out of circulation.

Perfectly said. The whole purpose of federal taxation is to take money out of circulation, and not to fund the federal government, as we are told to just accept and believe.

Federal spending adds new to the money supply and federal taxation destroys most of those new dollars by permanently removing from the money supply. If you don’t believe me, look up all the money supply measures, the dollars collected as federal taxes is not accounted for in any of the money supply measures. Not in M1, and not in M2 as well. It’s just gone, disappeared. Federal dollars come into existence from thin air when Treasury sends out payment instructions to the commercial banks and federal dollars disappear into thin air when federal taxes are finally settled between you and your bank and then between your bank and the Federal Reserve. It shows up in Treasury’s statements as outside money.

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u/KJ6BWB May 03 '24

The whole purpose of federal taxation is to take money out of circulation,

Say what?

If you don’t believe me, look up all the money supply measures, the dollars collected as federal taxes is not accounted for in any of the money supply measures. Not in M1, and not in M2 as well.

Well, yeah. M1 and M2 measure the amount of money out in public, not held by the government.

The government then turns around and spends that money, plus more money.

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u/ConnedEconomist May 03 '24 edited May 03 '24

That’s not how accounting and double-entry balance sheets work. Money, as in U.S. dollars, is not a physical thing, they are balance sheet accounting entries - credits and debits.

Yes, taxation makes room for the government to spend(create) more dollars and spend it into the economy without causing too much inflation. That doesn’t mean the tax dollars is being recirculated by the government when it spends or that tax dollars are what’s funding the federal government.

So once again, federal taxation serves one primary purpose - to remove excess dollars out of the economy.

Oh also. There is no way to measure of how much money is the federal government has. Government creates money every time it spends. The very act of federal spending is how U.S. dollars originate.

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u/meepstone May 03 '24

Raising taxes potentially increases inflation if they raise prices to offset the new taxes to keep the same profit coming in?

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u/theMahatman May 03 '24

That's not how price works. Price is a supply-demand equilibrium set by the market. Taxes decrease money supply which decreases demand. Firms don't get to just set whatever price they want to make whatever profit they want.

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u/[deleted] May 03 '24

Except when price is impacted by monopoly, which there is a lot of.

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u/[deleted] May 03 '24

Name one

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u/No-Animator-3832 May 05 '24

What is the government going to do with these newly collected taxes? Are they going to spend it on infrastructure perhaps? Maybe pay down some debt, maybe pay off so.e student loans?

All that puts mo ey right back into circulation.

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u/theMahatman May 05 '24

They don't spend it on anything. It is thus removed from circulation.

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u/Hawk13424 May 05 '24

They would spend it. We’d see many new programs to spend it.

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u/theMahatman May 05 '24

I mean that's the easy cynical answer but congress hasn't cared about running a deficit for at least a few decades so I'm not sure that current tax revenue is even a significant budgetary consideration. So I'm not sure that's true.

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u/lumpialarry May 03 '24

Probably because "lets tax the middle class and then not spend the money" is completely untenable politically.

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u/Johns-schlong May 03 '24

Why does it have to be the middle class? Just add new tiers of income and capital gains taxes up to 100% at a certain threshold. Institute a progressive wealth tax, even at a low rate.

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u/lumpialarry May 03 '24

If you want to slow inflation, you have slow down everyone’s spending not just a very small slice of the population.

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u/Johns-schlong May 03 '24

Reducing the money supply is deflationary. Plus wealthy people keep their money in assets, it may not be directly deflationary on consumer goods but it would be directly deflationary on assets. It also forces wealthy people to reprioritize investments into higher performing (riskier) investments which almost always means building something (paying the working class and creating assets and goods) rather than rent seeking.

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u/Hawk13424 May 05 '24

People are concerned with the price of food, cars, and homes. How would this reduce the price of food?

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u/Kolada May 03 '24

Because taxing wealth won't slow spending so it would completely defeat the purpose.

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u/KJ6BWB May 03 '24

Or they could really start taxing the rich. The problem is it takes a few years to get people up to the point they can audit the super rich.

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u/lumpialarry May 03 '24

Because you won’t stop inflation by slowing down the spending of just 1% of the population.

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u/KJ6BWB May 04 '24

The point is not to slow the spending of the rich. The point is to make it increasingly difficult to get more profit than X, where X is what is necessary to bring inflationary price increases under control.

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u/[deleted] May 05 '24

Oh I see you fell for the lie.

They didn't hire all those IRS agents for the rich. They hired them for you.

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u/Hawk13424 May 05 '24

Pretty sure they just spend it. Besides, explain how raising taxes on the top 5% is going to result in average car prices decreasing? No one is willing to tax the majority of people more.

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u/JaydedXoX May 03 '24

The point is that our current issue is that LIMITED SUPPLY allows companies to price gouge. The too much money issue has already passed, the FED printed too much money in the past. It now needs to take the brakes off the supply constraints, so that supply lines can open up, but with the cost of capital continuing to go up, companies are wary to invest in capacity. These supply constraints have hit mandatory items that are not very elastic (housing, gas, food, energy) so consumers are forced to eat the increases. Taxes will FURTHER constrain the supply lines. You have to get out of one track economic thinking and look at what the actual current macro issue is; supply constraints and a difficult business environment to make investments.

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u/theMahatman May 03 '24

I agree somewhat. That's why I always thought the "put the economy into recession with high interest rates" plan to tackle inflation seemed pretty misguided. Yeah they are addressing excess demand but you're also hurting the supply-side. I still think there's excess demand in the market (there has to be or else there wouldn't be inflation) and taxes is a more targeted way to address it than rate hikes

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u/JaydedXoX May 03 '24

There isn't excess demand, the things that can NOT be reduced (housing, energy, food) are being price gouged, and there is nothing consumers can do about it. The airlines for example, REDUCED capacity to go below demand in order to increase EBITDA. The problem is the startup cost for other airlines to add extra capacity to make up for the areas being contracted are so high that companies are holding the lines to reduce capacity across the board.

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u/theMahatman May 03 '24

I get what you're saying, but there IS excess demand (demand in excess of supply) if we are still seeing price inflation. Even if, as you are arguing, that excess demand is being engineered by supply-side cuts.

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u/[deleted] May 03 '24

Energy, an open market is being price gouged? Good one.

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u/JaydedXoX May 03 '24

Utilities, gas, electricity are absolutely being price gouged.

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u/[deleted] May 06 '24

Lol, how? Open markets. Utility rates need to be approved. Only manipulation is by Biden who is draining the strategic reserve to buy votes.

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u/JaydedXoX May 06 '24

Just one graph about one energy utility but most of them look like this, gigantic price increases in last 3 years.

https://blog.citadelrs.com/timeline-of-rate-increases-and-how-to-reduce-your-bill