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First consider: Inflation occurs when supply of dollars exceeds demand for dollars. Demand comes mostly from investment. Taxes try to exert a direct effect on
by jl2718 5y ago
First consider: Inflation occurs when supply of dollars exceeds demand for dollars.
Demand comes mostly from investment. Taxes try to exert a direct effect on supply and demand, but they also exert a massively negative effect on private activity. I think, at this point, the negative effect is far greater. They’re complicated and expensive, and ineffective at collecting from the benefactors of the spending activity. Even 100% taxes would be catastrophically inflationary because there would be no private investment demand to absorb new money creation. So we have to consider the possibility that forcible tax collection is just ineffective, inefficient, and obsolete.
Also consider that there is now global competition, maybe even supranational, for choice of economic systems to participate in. Efficiency and value of governance will be paramount.
Edits: many. Sorry.
- mac01021 5y agoTo be pedantic, I think it's that inflation occurs when supply of dollars increases relative to the demand for dollars? I'm not sure what, if anything, it means for demand to exceed supply.
- jl2718 5y agoWell, yes, it depends on how you define demand for a transactional medium, which is not easy. You could see it as having something to do with the sum of all immediate capital obligations, like loan payments or salaries, plus consumption at a given price level, and international exchanges. But my point is that those market factors easily dominate balance of supply and demand, such that the only thing that matters is the efficiency of the economy. So even if taxes could balance the budget, the reduction in investment would kill more demand than supply. Therefore, if correct, the only thing that matters is efficient spending.