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What's the difference between inflating away the buying power of the people, versus taxing away the buying power of the people? Mathematically there should be n

What's the difference between inflating away the buying power of the people, versus taxing away the buying power of the people? Mathematically there should be no difference. But I guess the transparency of the latter and the unpopularity for the politicians involved is too scary, so that's why we print monopoly money instead.

mjburgess 4y ago
Right, but deflation has been the largest risk during that era of "printing". Inflation is only now a risk due to global supply-side problems, and changes in demand characteristics, and the cost of energy. But even if we say the amount of money creation during the pandemic is a principle cause of inflation today -- isnt that great? In the sense that we survived a global shut down of the economy *only at the price* of 10% inflation for a few years. People who decry central banks managing the supply of money seem only to have one, bad argument, "intuitively, money is a commodity and printing dilutes its value" -- well money *is not* a commodity. Money is a ledger of promises whose values is proportionate to future economic activity. There is no "intuition" here. The actions of central banks have not created "monopoly money", since I can still spend mine now on basically what i've always been able to.
- _Algernon_ 4y ago
  >People who decry central banks managing the supply of money seem only to have one, bad argument, "intuitively, money is a commodity and printing dilutes its value" -- well money is not a commodity. No. I'm saying inflation through money printing is mathematically equivalent to taxation, as it causes the same level of loss in buying power. Since one of these is more transparent in what is actually happening (taxation), that one should be used. Additionally money printing largely affects people who hold cash which is primarily poor people. Anyone who has money invested in the marked will not be affected. Taxation can be applied selectively. Money printing is effectively a hidden tax (thus not gaining the unpopularity it deserves), which selectively favours the rich, to which a better - or at least more honest - approach exists. Not to mention that money printing is controlled by people who were never elected and have no mandate from the electorate.
  - mjburgess 4y ago
    It's not a dilution of value when the risk is deflation; and at zero-inflation, it's not a tax because it encourages growth by investment. So it's only a "tax" if it (1) causes inflation to rise; and (2) rise above the level which promotes growth. Neither of those conditions obviously obtains in the era of QE. Indeed, (1) never did.
    - nwienert 4y ago
      You’ve made up three things, each without convincing rhetoric let alone evidence, and then put QED at the end.
      - mjburgess 4y ago
        I presume I'm speaking to a person who understands the evidence for each, and that the argument is about how one frames QE. There are videos, no doubt, if you want to understand why a positive rate of inflation promotes growth, and hence why central banks are legally obligated to "print money" to ensure a 2% target. The relevant disagreement here, I think, isn't the basic economics. Its under what conditions the "'deliberate' inflation = tax" view is correct. Since it is correct under some conditions. I'd dispute that it accurately describes the last decade of central bank policy, which on the whole, seems fairly successful at avoiding a post-crash depresson, and a post-pand. depression.... Both seem highly implausible feats done via taxation.
colinmhayes 4y ago
The difference is inflation creates jobs and taxes don’t. They have extremely different effects beyond “reduce purchasing power”
cykros 4y ago
Well, especially since when you look at the way money is held across different social classes, it tends to form a much larger percentage of total wealth at the lower classes than at higher classes, who hold their wealth in other assets because they can afford to, while the lower classes, needing the majority of their wealth in liquid form for routine expenses, cannot, and so have more exposure to inflation in the first place. There's not much way around this as long as you're dealing with a currency that can be expanded by credit, because with or without a central bank, fractional reserve banking increases the money supply -- if anything, a central bank allows you to TRY to bring some order to that process. But yes, the difference is that direct taxation would be paid by the higher classes, while inflation is shouldered predominantly by the lower, and both have a way at eating into economic output in real terms.

mjburgess 4y ago

Right, but deflation has been the largest risk during that era of "printing". Inflation is only now a risk due to global supply-side problems, and changes in demand characteristics, and the cost of energy. But even if we say the amount of money creation during the pandemic is a principle cause of inflation today -- isnt that great? In the sense that we survived a global shut down of the economy *only at the price* of 10% inflation for a few years. People who decry central banks managing the supply of money seem only to have one, bad argument, "intuitively, money is a commodity and printing dilutes its value" -- well money *is not* a commodity. Money is a ledger of promises whose values is proportionate to future economic activity. There is no "intuition" here. The actions of central banks have not created "monopoly money", since I can still spend mine now on basically what i've always been able to.

_Algernon_ 4y ago
>People who decry central banks managing the supply of money seem only to have one, bad argument, "intuitively, money is a commodity and printing dilutes its value" -- well money is not a commodity. No. I'm saying inflation through money printing is mathematically equivalent to taxation, as it causes the same level of loss in buying power. Since one of these is more transparent in what is actually happening (taxation), that one should be used. Additionally money printing largely affects people who hold cash which is primarily poor people. Anyone who has money invested in the marked will not be affected. Taxation can be applied selectively. Money printing is effectively a hidden tax (thus not gaining the unpopularity it deserves), which selectively favours the rich, to which a better - or at least more honest - approach exists. Not to mention that money printing is controlled by people who were never elected and have no mandate from the electorate.
- mjburgess 4y ago
  It's not a dilution of value when the risk is deflation; and at zero-inflation, it's not a tax because it encourages growth by investment. So it's only a "tax" if it (1) causes inflation to rise; and (2) rise above the level which promotes growth. Neither of those conditions obviously obtains in the era of QE. Indeed, (1) never did.
  - nwienert 4y ago
    You’ve made up three things, each without convincing rhetoric let alone evidence, and then put QED at the end.
    - mjburgess 4y ago
      I presume I'm speaking to a person who understands the evidence for each, and that the argument is about how one frames QE. There are videos, no doubt, if you want to understand why a positive rate of inflation promotes growth, and hence why central banks are legally obligated to "print money" to ensure a 2% target. The relevant disagreement here, I think, isn't the basic economics. Its under what conditions the "'deliberate' inflation = tax" view is correct. Since it is correct under some conditions. I'd dispute that it accurately describes the last decade of central bank policy, which on the whole, seems fairly successful at avoiding a post-crash depresson, and a post-pand. depression.... Both seem highly implausible feats done via taxation.

colinmhayes 4y ago

The difference is inflation creates jobs and taxes don’t. They have extremely different effects beyond “reduce purchasing power”

cykros 4y ago

Well, especially since when you look at the way money is held across different social classes, it tends to form a much larger percentage of total wealth at the lower classes than at higher classes, who hold their wealth in other assets because they can afford to, while the lower classes, needing the majority of their wealth in liquid form for routine expenses, cannot, and so have more exposure to inflation in the first place. There's not much way around this as long as you're dealing with a currency that can be expanded by credit, because with or without a central bank, fractional reserve banking increases the money supply -- if anything, a central bank allows you to TRY to bring some order to that process. But yes, the difference is that direct taxation would be paid by the higher classes, while inflation is shouldered predominantly by the lower, and both have a way at eating into economic output in real terms.