WSJ: "Tax Increases Won’t Cure Inflation", responding to NY Senator Schumer's "idea"

The theory seems to be that if you raise taxes, people will have less money and so be able to buy less things. And the lower demand will force lowering of prices ... So dumb... Read the excerpts below to see what they really are promoting.

Another bright idea from the folks who brought you Modern Monetary Theory.

The same policy wizards who brought you soaring inflation are now offering what they claim is a solution to inflation: Raise taxes. Our advice is to consider the source and the economic record their previous advice produced.

******************************

“If you want to get rid of inflation, the only way to do it is to undo a lot of the Trump tax cuts and raise rates,” Mr. Schumer said after a meeting this week with Mr. Manchin. ...

This argument is probably mere political expedience—any pitch in a storm to convince Mr. Manchin. But to the extent it’s serious, the idea is one tenet of the Modern Monetary Theory school that is fashionable on the left.

“Coordinating higher government spending with higher taxes so that the rest of us are forced to cut back a little to create room for additional government spending,” as MMT evangelist Stephanie Kelton puts it. She says the trick is to “remove spending power from the rest of us” via taxes so the government can fund things like solar panels in California.

***************************

The raise-taxes strategy gets the inflation dilemma exactly backward. Congress and the Federal Reserve pumped up demand for two years to the point that supply couldn’t keep up. The Fed is finally doing its part to suppress demand by belatedly raising interest rates and planning to trim its balance sheet. The main cure for inflation is better monetary policy.

***********************

The only way a tax increase could reduce inflation is if it pushes a slowing economy into recession. We doubt that’s the inflation solution Democrats have in mind.

Comments

[the Grand Master of Geysers - SWEAT]

The best way to cure inflation is to vote political hacks like Schumer out of office without delay!