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Governments have two broad ways of fighting inflation. The first way is to raise interest rates. This is essentially a wealth transfer to banks and their owner

by jmyeet 3y ago

Governments have two broad ways of fighting inflation. The first way is to raise interest rates. This is essentially a wealth transfer to banks and their owners while hurting individuals and businesses to stifle economic activity. This is what we always do. Why? Because capital owners demand it. The other way cannot be tolerated or entertained. The second way is taxation. Some countries (eg Spain) enacted a windfall profits tax. Unlike interest rate hikes, taxation only targets profitable corporations. It allows a government to redistribute wealth to those who most need it, fund infrastructure and so on. And it disproportionately affects those who price gouging for massive profits, such as in the case of the oil and gas industry. Companies may reinvest profits into their business to avoid these excessive taxes. Great. Perfect. Love to see it. This latest price-fixing scandal is going to turn into a huge deal. This is just the beginning. But it's not th esole reason for price hikes in 2020-2022. A lot of that was because the then Trump administration browbeat OPEC into cutting production in early 2020 [1], which was a truly disastrous policy. You can see the effects on the 5 year view [2] very clearly. [1]: https://www.reuters.com/article/idUSKBN22C1V3/ https://www.reuters.com/article/idUSKBN22C1V3/ [2]: https://tradingeconomics.com/commodity/crude-oil https://tradingeconomics.com/commodity/crude-oil

marcosdumay 3y ago
If you insist on controlling the noise in monetary phenomena through fiscal policy you'll have a really bad time. But people are saying the Panama canal has a drought problem. Maybe you can help with a bucket, you'll probably have a larger impact.
- abeppu 3y ago
  > If you insist on controlling the noise in monetary phenomena through fiscal policy you'll have a really bad time. Isn't that more a political problem than an economic insight though? We know fiscal policy impacts monetary phenomena (PPP loans, stimulus checks, the child tax credit, etc had inflationary effects), but it's too politically easy to spend more, and too politically difficult to raise taxes, and it's definitely too hard to do either in a timely manner in response to changing economic conditions. But if we had given a politically independent body like the Fed control of tax / spend knobs instead of interest rates, and allowed them to evaluate whether to change those things on a scheduled basis as economic data arrive ... maybe that would also work, we'll just never get the opportunity to try it.
  - marcosdumay 3y ago
    Nope, it's a completely mathematical reality. If you ditch monetary intervention you'll lose control of the economy by the simple fact that the noise in monetary markets is orders of magnitude larger than the economy. You'll regain your power after you destroy enough of the economy that it runs with a smaller monetary market. Your government will certainly get bankrupt a few times in the process. The fiscal and monetary interventions are almost independent things. One can not really replace the other.
deleted 3y ago
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by jmyeet 3y ago

marcosdumay 3y ago

If you insist on controlling the noise in monetary phenomena through fiscal policy you'll have a really bad time. But people are saying the Panama canal has a drought problem. Maybe you can help with a bucket, you'll probably have a larger impact.

abeppu 3y ago
> If you insist on controlling the noise in monetary phenomena through fiscal policy you'll have a really bad time. Isn't that more a political problem than an economic insight though? We know fiscal policy impacts monetary phenomena (PPP loans, stimulus checks, the child tax credit, etc had inflationary effects), but it's too politically easy to spend more, and too politically difficult to raise taxes, and it's definitely too hard to do either in a timely manner in response to changing economic conditions. But if we had given a politically independent body like the Fed control of tax / spend knobs instead of interest rates, and allowed them to evaluate whether to change those things on a scheduled basis as economic data arrive ... maybe that would also work, we'll just never get the opportunity to try it.
- marcosdumay 3y ago
  Nope, it's a completely mathematical reality. If you ditch monetary intervention you'll lose control of the economy by the simple fact that the noise in monetary markets is orders of magnitude larger than the economy. You'll regain your power after you destroy enough of the economy that it runs with a smaller monetary market. Your government will certainly get bankrupt a few times in the process. The fiscal and monetary interventions are almost independent things. One can not really replace the other.

deleted 3y ago

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