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"As a fraction of GDP" is kind of the point. If you have 10% inflation and taxes as a percent of GDP are flat, the inflation has increased nominal tax revenue b

"As a fraction of GDP" is kind of the point. If you have 10% inflation and taxes as a percent of GDP are flat, the inflation has increased nominal tax revenue by 10% and caused 10% more nominal dollars to be removed from the economy. The part that didn't happen is that the government then needs to not spend that extra money, or else it goes back into the economy and continues inflating prices.

ffgjgf1 2y ago
What exactly is the government spending that money on makes bug difference on inflation, though
- AnthonyMouse 2y ago
  That doesn't matter a lot. They pay it to Lockheed who pays it to employees or subcontractors who buy stuff at Walmart and then prices at Walmart go up by supply and demand. The same thing happens if they pay it to General Electric or Pfizer. To reduce inflation they'd have to throw it in a furnace or otherwise prevent it from going to anyone who would spend it.
  - ffgjgf1 2y ago
    > That doesn't matter a lot Depends on what do you mean by “a lot”. I don’t think that many people working at Lockheed spend their entire salary at Walmart every month.
JumpCrisscross 2y ago
> part that didn't happen is that the government then needs to not spend that extra money Sure. From a real (really real relative) frame, taxes stayed constant [1] while spending blipped up [2]. From a nominal frame, taxes rose and spending ballooned with it. We tend to adjust in the real frame, i.e. raise taxes or cut spending, because it’s simpler to specify the state’s needs in real terms (we want ten artillery rounds) than nominal (we want to spend $20,000 on however many rounds that might buy). [1] https://fred.stlouisfed.org/series/FYFRGDA188S https://fred.stlouisfed.org/series/FYFRGDA188S [2] https://fred.stlouisfed.org/graph/?g=8fX https://fred.stlouisfed.org/graph/?g=8fX
- AnthonyMouse 2y ago
  But that's not as useful a frame when you're talking about inflation because in that case the number of nominal dollars matters. Saying that real spending is flat during a period of inflation sounds like something neutral is happening, when really you're increasing the number of nominal dollars being spent into the economy. Doubly so when you're running a deficit. It's also implying that the government decides it needs ten artillery rounds and then allocates that amount of money, instead of determining how much money it can get away with spending/borrowing and then having various interest groups fight over who gets it. If it was the first one then there would be non-trivial periods when real government spending goes down because the need for some existing program declines and it gets reduced or removed without being replaced by anything, right?

ffgjgf1 2y ago

What exactly is the government spending that money on makes bug difference on inflation, though

AnthonyMouse 2y ago
That doesn't matter a lot. They pay it to Lockheed who pays it to employees or subcontractors who buy stuff at Walmart and then prices at Walmart go up by supply and demand. The same thing happens if they pay it to General Electric or Pfizer. To reduce inflation they'd have to throw it in a furnace or otherwise prevent it from going to anyone who would spend it.
- ffgjgf1 2y ago
  > That doesn't matter a lot Depends on what do you mean by “a lot”. I don’t think that many people working at Lockheed spend their entire salary at Walmart every month.

JumpCrisscross 2y ago

> part that didn't happen is that the government then needs to not spend that extra money Sure. From a real (really real relative) frame, taxes stayed constant [1] while spending blipped up [2]. From a nominal frame, taxes rose and spending ballooned with it. We tend to adjust in the real frame, i.e. raise taxes or cut spending, because it’s simpler to specify the state’s needs in real terms (we want ten artillery rounds) than nominal (we want to spend $20,000 on however many rounds that might buy). [1] https://fred.stlouisfed.org/series/FYFRGDA188S https://fred.stlouisfed.org/series/FYFRGDA188S [2] https://fred.stlouisfed.org/graph/?g=8fX https://fred.stlouisfed.org/graph/?g=8fX

AnthonyMouse 2y ago
But that's not as useful a frame when you're talking about inflation because in that case the number of nominal dollars matters. Saying that real spending is flat during a period of inflation sounds like something neutral is happening, when really you're increasing the number of nominal dollars being spent into the economy. Doubly so when you're running a deficit. It's also implying that the government decides it needs ten artillery rounds and then allocates that amount of money, instead of determining how much money it can get away with spending/borrowing and then having various interest groups fight over who gets it. If it was the first one then there would be non-trivial periods when real government spending goes down because the need for some existing program declines and it gets reduced or removed without being replaced by anything, right?