“Why Inflation Is Biden’s Most Stubborn Political Problem” by Andrew Restuccia and Sam Goldfarb at WSJ was one of those coffee-spilling articles that gave Grumpy his nickname.
Thank-you for explaining, once again, what the root cause of inflation. As an old retired sailor, even I can grasp the idea that throwing money around will not fix the inflation problem. I do have a question, why is there no attempt at balancing the budget?
They are attempting it, they want to raise corporate taxes (not all the way back up, but some) and higher top tax rate (just a reset back to Bush era). That would not only balance the budget but start cutting the deficit as well.
The problem here is too much government spending, too much money printed, not that government doesn’t have enough money to spend. If they increased corporate taxes and taxed the rich more, likely this would cause huge lay off with wages staying even more flat, but that won’t control the price, because government continue to spend money on buying things. Eventually this will lead to stagflation
We literally had these same taxes dems are proposing (or higher) during trumps term when wages, hiring, unemployment were all amazing. So no that makes no sense at all.
Also no money is being printed right now, Fed is doing QT to the tune of 50B a month. Try again.
Trump lowered corporate taxes. Fed has printed too much money, and the QT isn’t fast enough. Check your chart from the St Louis Fed and see what the M2 level is currently. Fed even printed another round in 2023 to save SVB. It’s not yet below the 2021 level, not to mention pre 2020 pre-pandemic level
Yes the fed printed a lot of money but they've been doing that for 16 years and clearly it had no effect on inflation at all. It didn't magically become meaningful during covid. QT is at a rate that the market can bear without messing with treasury rates too much. Fed barely printed in 2023 for BTFP and that program has ended so ya keep trying to make things up to fit your narrative.
Funny you say Trump lowered personal taxes. My personal tax bill went up (mostly because state and local tax deductions were limited). What went down was the marginal rate on the last dollars I made, so it was more worthwhile to keep working and make more.
Yes it did, because somehow, miraculously, the economy outpaced the printing press. The artificial and foolish shuttering of the economy for no reason (other than to change the rules governing elections) closed the gap and it will take a century for the economy to catch up, barring major innovation that the government doesn’t kill in the interim.
Raising taxes on those that don’t spend will not solve the problem. We need to remove money from the consumer market, which means lowering spending by consumers. Either save money or tax the spenders.
I agree taxing high income cohorts does nothing to improve inflation. I am fine with taxing spenders if there's some way to sunset those taxes once inflation is down. Would you support something like that?
The biggest consumer is the government, so lower government spending, or you’ll see China style inflation going forward. China has experienced inflation for about 2 decades due to huge government spending and large M2 supply. Finally, now they beat themselves up and go into a stagflation
Spoken like a true believer in bigger government. "Why things were just great with higher tax rates under the previous administration or administrations or the previous mildly more Conservative administration" The Federal Government's share of the GDP is approaching 25%. Historical (last 75 years) Fed spending has been 16-18% of GDP. the GDP is Approx 25Trillion. The Budget proposal from the Biden Admin is 7.3 Trillion with Taxes providing approx 4.4T of revenue. Figure it out Jason. But I already know your answer...Double all forms of Taxes. And Deficit spending is only one of the 2 primary drivers of inflation. The other more nuanced cost is unbearable regulation form the Fed down to local city/county regulation, climate control regulations. Everything you buy or are not allowed to purchase is way more expensive because of government regulation that does not result in more cost effective ownership but higher cost, less dependable products, see cars, dishwashers, a/c units, gas appliances, wind farms, closing of Nat gas power generation etc........ Way less Government at all levels is the answer...but we will never get there from the generation that cannot define what a man or a woman is.
Spoken like someone who makes all kinds of assumptions about who I am and what I believe, classic small govt brainless mentality. So lets set the record straight:
- The implication was that higher tax was "likely would cause huge lay off with wages staying even more flat" is clearly invalid because things were very good under Trump re: wages and employment unless of course you are disagreeing with that. Me referring to the previous administration in a positive light has nothing to do with my feelings about federal debt levels nor sustainability of fiscal spending.
- Yes the Feds share of GDP is increasing compared to historical standards. In times of war this is normal and I fully expect DoD's budget to balloon in the next decade. You should expect and support that unless of course you think now is a time when we should be reducing defense funding?
- As for Biden's Budget Proposal I generally use Tax Foundation as my source of analysis. Given how you speak about this stuff you would likely think they are insufficiently "small govt" when it comes to taxes but I think they are a reputable and reasonable business friendly center-right tax analysis Org. Here's what I am reading FYI: https://taxfoundation.org/research/all/federal/biden-budget-2025-tax-proposals/
- You said "The Budget proposal from the Biden Admin is 7.3 Trillion with Taxes providing approx 4.4T of revenue." You will note that the 4.4 you are citing is the amount of tax revenue INCREASE (not total revenue) over the 10 year period. I believe you are either mistaken or conflating some numbers here so please try and clarify that. This is the type of error that makes me ignore your analysis because its either purposely misleading or just careless, you can tell me which one it is :)
- You will note that their analysis shows that this budget plan is a deficit reduction "After accounting for all changes in revenue and spending, we estimate the net effect of the budget would be to reduce the deficit by nearly $2.2 trillion through 2034 on a conventional basis." so I don't know what you were implying in your response about "Figure it out Jason".
- So no, I do not suggest that we "Double all forms of taxes". I am generally ok with Bidens budget plan but I strongly disagree with his 25% wealth tax. I think that is a purely red meat for his base and something that will never pass in the United States (it might honestly be unconstitutional). Not only that, wealth taxes have been tried all over the world and they never generate as much revenue as people expect and just cause capital flight which is something we do not want at all.
- As for the other drivers of inflation I agree with you that we should be reducing regulations and requirements as much as possible but many of them are both important and bipartisan, approved by congress and ostensibly the will of the people so we should assume those will continue regardless of whether they are inflationary or not.
- One of the things you mentioned is "closing of nat gas power generation" and I have no idea where you are getting that from. Either you are delusional or are citing another false statistic. Natgas power production has literally gone up every single year since 1990 and I fully expect it to continue to go up. Once again, feel free to clarify this or further beclown yourself publicly. https://www.epa.gov/power-sector/power-sector-evolution
- I am fine with less govt so long as that is actually what the people desire and as far as I can tell that is not what people desire. Only a very small and shrinking set of conservatives and libertarians are truly committed to a small govt so until you guys actually make your case to the american people and convince them of your vision you will forever be complaining about this and nothing will ever happen.
- FWIW I am a democrat as you could have imagined but I am not "woke" and definitely know what a man and woman is which is biologically defined and not something you can decide after you are born. Try again.
I’m used to this. Whenever someone mentioned Biden, there’s always a clown jumping out to talk about Trump. And their arguments are always either: 1. Trump also did it (without thinking about the context), or 2. Trump did something else that’s equally bad (prove it to us first). This is just called TDS. And they just want to point finger at Trump so their King Joe Biden won’t be on the spot light
Yes @Elizabeth you are correct. It has become impossible to discuss current events. One or more commenters alway infect the debate by dredging up how bad Trump is/was/will be.
No it won’t. Corporate tax rates are simply passed on to the consumer. It prevents the creation of further wealth because scarce resources that would be more effectively reallocated are instead transferred to the least efficient allocator of resources in the country: the U.S. federal government.
The question is whether it will help the deficit and it is very clear that raising taxes on anyone (whether corporate or income tax) will improve the deficit situation. Just because corporations pass taxes on to consumers does not mean that doesn't fix the deficit.
How will it help the deficit? Because if the government had more revenue they’d spend less money they don’t have? That’s like saying raising your credit limit would help your debt.
When you've got a government that spends more than it takes in during peacetime, incremental
revenue increases aren't the issue.
Then you have to consider that individual income tax rates ade higher than corporate tax rates and money taken from
corporations can often result in the corporations employing fewer individuals than they otherwise would have, so that corporate increase might be decreasing overall revenue.
Then the final and most damning consideration is that the annual deficit doesn't even really matter because it's been decades of 2-3 trillion dollar annual deficits. What would corporate tax rates have to be to run a surplus and pay down the debt the deficits have run up? 150%? 200%? Cutting soending and tax cuts to increase GNO are the only solutions that make any long term difference.
It is a mechanical operation, more revenue = less deficit, its really not complicated. Raising your credit limit is a terrible analogy, raising taxes is like getting a salary bump at your job so you can spend more or reduce your debt faster. Yes you can still purchase things on credit and more revenue, all other things being equal, will increase your ability to use credit.
These are not "incremental" revenue increases, these are trillions of dollars over the course of a decade. They would materially reduce our deficit by $2.2T over 10 years. That's an ~8% reduction in our total debt and while that does not solve our total problem, it is a step in the right direction.
So yes, higher taxes will have negative effects on the economy but the economy was doing quite well when those exact same tax rates were in effect during Trumps 2019 economy so please don't try and paint this as a dire picture. Here's the analysis I read from a center-right org on Biden's budget and they are very clear about the negative employment, GDP and other effects.
"Then the final and most damning consideration is that the annual deficit doesn't even really matter because it's been decades of 2-3 trillion dollar annual deficits." - This is how I know you are not a serious person. Please just read this an become educated - https://fred.stlouisfed.org/series/FYFSD
We have very clearly not had $2-3T deficits for "decades" that is completely absurd and patently false. Please try again with something more reasonable and we can continue discussing.
Also the #1 fix for all of our long term budget woes would be resolve social security and medicare. Fix that and we will be on a *much* better path. Mandatory spending is where we need to make our fixes and then our discretionary spending will seem far less of an issue. Also obviously because of the rise in interest rates, net interest payments are skyrocketing as a percentage of total govt outlays. A huge issue we need to resolve and hopefully we can soon or we're going to be spending more on interest than the DoD soon.
Inflation out of control at 3%! I can’t stop laughing. All of this while you have basically been pushed out of the slump of the 2010s in a few years.
Having said that, I agree that at this point inflation is purely fiscal. And given the budget worries, I’m fine seeing the administration tax heavily incomes above 1Mln.
This admin wants to spend 2x whatever amount they might raise in tax hikes or “cost savings”. Remember that the projected “cost savings” from Medicare changes weren’t used to make the budget more sustainable, but instead were looted to be spent on handouts to donors in the IRA (and of course much more than the tiny amounts raised were spent).
I’d love to see Biden and Trumps hypothetical plans to fully fund non-Medicare/social security spending in 5 years and keep it balanced for a succeeding 10. Yes, the old age/payroll tax programs are a difficult problem demographically and politically and will require some hard work (once the rest of the budget is balanced at full employment), but can anyone serious think of any reason at all why the rest of the budget should be in massive deficit with above trend growth and low unemployment?
And nobody with basic arithmetic skills thinks balancing everything but social security and Medicare can be achieved with “taxes on those making more than $1 million”. And there certainly won’t be any more tax cuts.
He seems like a nice guy and you can tell he is a little embarrassed by what is happening, unlike real economists but more cold-eyed partisan hacks like Yellen and Brainard.
Very good note about more money spending by the govt causing inflation, and an excellent graph showing it starting from Biden’s first big Free Money program and more direct government spending in Feb 2021.
It would have been excellent to note how much better and faster is a tax cut stimulus rather than a new spending program of the same deficit level. Tax payers all know what they would spend more on, so tax cuts are quickly spent or invested, so stimulate immediately.
Since the rich already pay a huge % of income tax paid, most tax cuts do reduce taxes of the rich taxpayers. Elites say they don’t like this,
Elites say they don’t like this, that tax cuts reduce taxes on the rich the most, but they actually do like it, financially. They like to pretend that they're not mere money-grubbers -- tho they mostly are. It's part of their luxury beliefes.
The February inflation likely caused by the bipartisan $900 billion handouts passed in December by Trump, McConnell and Pelosi. Biden’s insanity was to add another $2 trillion two months later on a party-line vote.
Things were already hot enough. Do you remember the economic analysis Yellen did to show why rounding the handouts up to $3 trillion over 3 months was necessary? Neither do I. Must have missed it.
In 2021 Feb inflation was still under 2% -- tho going up, so it was clear to any willing to look that new govt spending would increase inflation more. Had Trump been re-elected, the inflation would have been unlikely to go over 3%, or even the 2.5% seen as the earlier peak in Jan 2020 just before COVID lockdown (2 weeks to stop the spread!).
Correct, because Trump had been saying we needed to open the economy, and I’m sure he would do so had him been re-elected. We missed the best opportunity to re-open and let the business run on its own. Another one more year of shut down and sending money to household is completely on the wrong track
As Dr. Philip George says: “The velocity of money is a function of interest rates”
As Dr. Philip George puts it: “Changes in velocity have nothing to do with the speed at which money moves from hand to hand but are entirely the result of movements between demand deposits and other kinds of deposits”.
No wonder people don't understand inflation if in Week 2 the textbook fails to explain that monetary policy, not fiscal policy causes inflation (and deflation and employment and unemployment)! That's "demand curves slope down" territory. John McCain's goose was cooked by the public mistakenly blaming GWB for the unfolding financial crisis instead of Fed mismanagement. The same could happen to Biden.
"This dishonesty, this pandering to polls with no principles, this constant vacillation, this willingness to say utterly silly things as if we’re all small children, might have something to do with the Administration’s terrible poll numbers."
I don't know if Nixon's excuses were any better, but these guys seem truly not to understand that they can't just tell the DA not to prosecute when their policies break econ laws. I've stopped thinking they think *we're* stupid and beginning to conclude *they* are that stupid. They will still be "confused" when our economy mirrors the streets of San Francisco, covered in poo & populated by marks and grifters.
"Maybe honest, consistent leadership might poll better than telling fairy tales and handing out candy."
Too little, too late, and not within their competencies.
They first got into the educational system, no critical thinking, but just social justice political correctness for years. So that’s right, many of the younger generations are likely can’t digest what this article talks about. So now they can easily lie about stuff and gaslight us to make us believe they’re right.
Some of the people, some of the time, but fewer today than yesterday, and even fewer tomorrow. Willful stupidity in the face of reality may be slightly less evil than intentional malice but, then again, maybe not. When purposely wielded - with gleeful contempt - over people who in fact *can* do math, read history, parse a logical syllogism or dissect a fallacy, etc., and doing it with such cavalier dismissal of consequences: I call that evil. It is wrong. They could in fact try to figure stuff out, if they had any decency.
I'm done giving the benefit of the doubt. I don't care if they heard stupid things in school. Hey, guess what, I did too, and the whole way through I thought 99% of my teachers were not that smart. And they weren't. I enjoyed learning things they couldn't teach me and using my brain to prove them wrong, instead of parroting back dumb stuff that didn't make sense. Pro tip: Do that, kids.
Here's Chris Bray: "So: a panel of farmers, serving as local militia officers [after the American revolution], listening to an argument between farmers who served as local militia officers, in a tavern, and we have a detailed record of every word they said.
"They were magnificent. They were clear, thoughtful, fair, and logical. [...]"
There is literally no excuse for choosing, then doubling-, tripling-, gajillioning-down on basic ignorance. School was stupid, get over it; get real, and I'd like to see a new Constitutional amendment that no one can be a bureaucrat, administrator, or 'expert' until they have proven they can run a business, fix a tractor, build a fence, balance a checkbook, grow a tomato, and earn 25% tips waiting tables when the restaurant is slammed. I am just so tired of these people.
What are the chances that even the WSJ is suffering more and more from the bias in the quasi-neo-Marxist journalistic education system? I seem to note an increasing number or articles that seem to have a slant (many about how bad musk is) or deny economic reality to support social justice (climate, racism, etc.)?
Large. One article from WSJ recently said (literally their headline), consumers feel everything is expensive, it’s not the data, it’s your problem. They blamed average American for not looking into the data but just complaining about grocery prices. This headline literally blew my mind. Purely gaslighting and something you’ll only read from a socialist country
The Keynesian model Deficit = Aggregate Demand= Inflation has a missing funding component determining whether inflation in the model is zero or greater than zero. If the deficit is funded by "real" savings, real meaning savings that would have otherwise funded added private capital stock, then inflation would be zero. If the deficit was funded by Federal Reserve printed money, then inflation is creater than zero. Both scenarios shift future consumption to the present in the amount of government deficit spending.
The Keynesian inflation model is a special case showing one reason how inflation happens. Inflation can be generated many ways, Milton Friedman's helicopter rain also causes inflation, another special case.
Irving Fisher MV=PQ to then P=MV/Q shows the mechanism of inflation.
The Keynesian model is essentially Q=MV/P. Does deficit spending increase M? If no there is no inflation, no change in P. If deficit spending increases M, there will likely be infation. Unless Q increases with M, either velocity drops or .... P increases to match the unchanging Q, that is inflation. Since money is "paper" something from nothing why would increases in M change Q. Lincoln's Law claims changes in M do not change Q.
My point is that the brilliant Mr Grumpy describes a particular mean that creates inflation, our current means, the usual means. Yet to understand the fundamental mechanism Keynes is not the guide. Irving Fisher is the teacher. Inflation is monetary phenomenon.
Irving Fisher is an accounting concept, which makes crystal clear the assumptions made to cause inflation. A priori if Lincoln's Law is true and people don't give money away, then either inflation is caused by wildly volatile demand for money or is a monetary phenomenon. How are income models part of an inflation discussion?
There not. Remember that in 1978 (when Vi, income velocity fell, but Vt, transactions velocity rose) all economist’s forecasts for inflation were drastically wrong.
The Federal Reserve Board’s figure, income velocity, Vi, is endogenously and artificially contrived (N-gDp divided by M) whereas Vt, is an “independent” or exogenous force (having “both magnitude and direction, making it a vector quantity”), acting on prices.
Put into perspective:
There were 27 price forecasts by individuals and 9 by econometric models for the year 1978 (Business Week). The lowest (Gary Schilling, White Weld), the highest, (Freund, NY, Stock Exch) & (Sprinkel, Harris Trust & Sav.).
The range CPI, 4.9 – 6.5 percent. For the Econometric models, low (Wharton, U. of Penn) 5.7%; high, 6.6% U. of Ga.). For 1978 inflation based upon the CPI figure was 9.018% [and Leland Prichard, in his Money and Banking class, predicted 9%].
See: G.6 Debits and Deposit Turnover at Commercial Banks
In 1931 a commission was established on Member Bank Reserve Requirements. The commission completed their recommendations after a 7 year inquiry on Feb. 5, 1938. The study was entitled
“Member Bank Reserve Requirements — Analysis of Committee Proposal”
It’s 2nd proposal: “Requirements against debits to deposits”
After a 45 year hiatus, this research paper was “declassified” on March 23, 1983. By the time this paper was “declassified”, Nobel Laureate Dr. Milton Friedman had declared RRs to be a “tax” [sic].
How differently do various forms of deficit spending actually affect the price level? If the deficit increases because of new spending, that must be more inflationary than increased deficits via higher interest expense? If deficits are fueling inflation, where on the spectrum do these various sources fall?
Thanks. When I was in Government (the SEC) I was constantly surprised at how often simple, Econ 101 analysis was ignored. I guess saying "I was constantly surprised" means I wasn't learning very fast but lawyers were forever inventing political and self-interested stories that surprised me. We used to have more rules than we possibly could analyze so we would analyze those rules and regulations from attorney's who were likely to leave government and who used the word "sceineter" frequently as a guide to who was violating Econ 101 the most. It worked pretty well...
It’s government. They don’t have the incentive to serve the people or the country. Their incentive lies on how to serve themselves. So it’s probably not a surprise if Econ 101 isn’t required to get hired by the SEC
John is correct that Jared Bernstein is the real hypocrite in this whole mess. A while ago I saw an interview with Art Laffer and he said he never wanted to work in an administration, because he'd have to be a politician, not an economist. His comments were in regards to some of the things Janet Yellen was hawking at the time. At a recent event, I said to an economist peolpe like this (Bernstein and Yellen) are obviously brilliant, so how can they go so against these basic concepts which have been empirically proven over and over again in real world experience. His response was it is simple hubris- If only they would give me everything I want and do it my way, everything would be fine. In other words, they believe central planning (so long as they're the one doing the planning) is superior to the free market. Therein lies the problem.
Yellen is an idiot. There is literally zero evidence of any brilliance from her whatsoever. She’s a ground-floor DEI beneficiary that was too stupid to gather enough dirt on the Clintons to shuffle off this mortal coil, but when she does, the IQ in America will raise by at least a point.
Bernanke, pg. 287, “Lower long-term rates also tend to raise asset prices, including house and stock prices, which, by making people feel wealthier, tends to stimulate consumer spending-the “wealth effect”.
If the monies represented by the deficits are spent on projects which increase productivity and reduce waste, the deficits are beneficial no matter how financed. The initial inflationary effects of bank financing are quickly overcome by the larger output and lower unit costs. Debt incurred which reduces unit costs of production and promotes the health and welfare of the population obviously is “good” debt.
Debt incurred to finance transfer payments (interest, pensions, etc.) is of dubious quality. Any enterprise, private or public, is in dire straits if it has borrowed in order to make such payments.
This admin doesn’t believe in M2. Talked to a friend last December who works in the Wall Street. He said some famous economist from whatever firm who has connection with the Fed showed up one day to give a seminar and said that, based on some research, M2 supply doesn’t make much impact on inflation. So they believed the Fed will cut rates soon.
Thank-you for explaining, once again, what the root cause of inflation. As an old retired sailor, even I can grasp the idea that throwing money around will not fix the inflation problem. I do have a question, why is there no attempt at balancing the budget?
They are attempting it, they want to raise corporate taxes (not all the way back up, but some) and higher top tax rate (just a reset back to Bush era). That would not only balance the budget but start cutting the deficit as well.
The problem here is too much government spending, too much money printed, not that government doesn’t have enough money to spend. If they increased corporate taxes and taxed the rich more, likely this would cause huge lay off with wages staying even more flat, but that won’t control the price, because government continue to spend money on buying things. Eventually this will lead to stagflation
We literally had these same taxes dems are proposing (or higher) during trumps term when wages, hiring, unemployment were all amazing. So no that makes no sense at all.
Also no money is being printed right now, Fed is doing QT to the tune of 50B a month. Try again.
Trump lowered corporate taxes. Fed has printed too much money, and the QT isn’t fast enough. Check your chart from the St Louis Fed and see what the M2 level is currently. Fed even printed another round in 2023 to save SVB. It’s not yet below the 2021 level, not to mention pre 2020 pre-pandemic level
Trump lowered both personal and corporate taxes.
Yes the fed printed a lot of money but they've been doing that for 16 years and clearly it had no effect on inflation at all. It didn't magically become meaningful during covid. QT is at a rate that the market can bear without messing with treasury rates too much. Fed barely printed in 2023 for BTFP and that program has ended so ya keep trying to make things up to fit your narrative.
Funny you say Trump lowered personal taxes. My personal tax bill went up (mostly because state and local tax deductions were limited). What went down was the marginal rate on the last dollars I made, so it was more worthwhile to keep working and make more.
Yes it did, because somehow, miraculously, the economy outpaced the printing press. The artificial and foolish shuttering of the economy for no reason (other than to change the rules governing elections) closed the gap and it will take a century for the economy to catch up, barring major innovation that the government doesn’t kill in the interim.
Raising taxes on those that don’t spend will not solve the problem. We need to remove money from the consumer market, which means lowering spending by consumers. Either save money or tax the spenders.
I agree taxing high income cohorts does nothing to improve inflation. I am fine with taxing spenders if there's some way to sunset those taxes once inflation is down. Would you support something like that?
The biggest consumer is the government, so lower government spending, or you’ll see China style inflation going forward. China has experienced inflation for about 2 decades due to huge government spending and large M2 supply. Finally, now they beat themselves up and go into a stagflation
China doesn't have inflation right now, not sure what you're talking about.
Spoken like a true believer in bigger government. "Why things were just great with higher tax rates under the previous administration or administrations or the previous mildly more Conservative administration" The Federal Government's share of the GDP is approaching 25%. Historical (last 75 years) Fed spending has been 16-18% of GDP. the GDP is Approx 25Trillion. The Budget proposal from the Biden Admin is 7.3 Trillion with Taxes providing approx 4.4T of revenue. Figure it out Jason. But I already know your answer...Double all forms of Taxes. And Deficit spending is only one of the 2 primary drivers of inflation. The other more nuanced cost is unbearable regulation form the Fed down to local city/county regulation, climate control regulations. Everything you buy or are not allowed to purchase is way more expensive because of government regulation that does not result in more cost effective ownership but higher cost, less dependable products, see cars, dishwashers, a/c units, gas appliances, wind farms, closing of Nat gas power generation etc........ Way less Government at all levels is the answer...but we will never get there from the generation that cannot define what a man or a woman is.
Spoken like someone who makes all kinds of assumptions about who I am and what I believe, classic small govt brainless mentality. So lets set the record straight:
- The implication was that higher tax was "likely would cause huge lay off with wages staying even more flat" is clearly invalid because things were very good under Trump re: wages and employment unless of course you are disagreeing with that. Me referring to the previous administration in a positive light has nothing to do with my feelings about federal debt levels nor sustainability of fiscal spending.
- Yes the Feds share of GDP is increasing compared to historical standards. In times of war this is normal and I fully expect DoD's budget to balloon in the next decade. You should expect and support that unless of course you think now is a time when we should be reducing defense funding?
- As for Biden's Budget Proposal I generally use Tax Foundation as my source of analysis. Given how you speak about this stuff you would likely think they are insufficiently "small govt" when it comes to taxes but I think they are a reputable and reasonable business friendly center-right tax analysis Org. Here's what I am reading FYI: https://taxfoundation.org/research/all/federal/biden-budget-2025-tax-proposals/
- You said "The Budget proposal from the Biden Admin is 7.3 Trillion with Taxes providing approx 4.4T of revenue." You will note that the 4.4 you are citing is the amount of tax revenue INCREASE (not total revenue) over the 10 year period. I believe you are either mistaken or conflating some numbers here so please try and clarify that. This is the type of error that makes me ignore your analysis because its either purposely misleading or just careless, you can tell me which one it is :)
- You will note that their analysis shows that this budget plan is a deficit reduction "After accounting for all changes in revenue and spending, we estimate the net effect of the budget would be to reduce the deficit by nearly $2.2 trillion through 2034 on a conventional basis." so I don't know what you were implying in your response about "Figure it out Jason".
- So no, I do not suggest that we "Double all forms of taxes". I am generally ok with Bidens budget plan but I strongly disagree with his 25% wealth tax. I think that is a purely red meat for his base and something that will never pass in the United States (it might honestly be unconstitutional). Not only that, wealth taxes have been tried all over the world and they never generate as much revenue as people expect and just cause capital flight which is something we do not want at all.
- As for the other drivers of inflation I agree with you that we should be reducing regulations and requirements as much as possible but many of them are both important and bipartisan, approved by congress and ostensibly the will of the people so we should assume those will continue regardless of whether they are inflationary or not.
- One of the things you mentioned is "closing of nat gas power generation" and I have no idea where you are getting that from. Either you are delusional or are citing another false statistic. Natgas power production has literally gone up every single year since 1990 and I fully expect it to continue to go up. Once again, feel free to clarify this or further beclown yourself publicly. https://www.epa.gov/power-sector/power-sector-evolution
- I am fine with less govt so long as that is actually what the people desire and as far as I can tell that is not what people desire. Only a very small and shrinking set of conservatives and libertarians are truly committed to a small govt so until you guys actually make your case to the american people and convince them of your vision you will forever be complaining about this and nothing will ever happen.
- FWIW I am a democrat as you could have imagined but I am not "woke" and definitely know what a man and woman is which is biologically defined and not something you can decide after you are born. Try again.
I’m used to this. Whenever someone mentioned Biden, there’s always a clown jumping out to talk about Trump. And their arguments are always either: 1. Trump also did it (without thinking about the context), or 2. Trump did something else that’s equally bad (prove it to us first). This is just called TDS. And they just want to point finger at Trump so their King Joe Biden won’t be on the spot light
Yes @Elizabeth you are correct. It has become impossible to discuss current events. One or more commenters alway infect the debate by dredging up how bad Trump is/was/will be.
No it won’t. Corporate tax rates are simply passed on to the consumer. It prevents the creation of further wealth because scarce resources that would be more effectively reallocated are instead transferred to the least efficient allocator of resources in the country: the U.S. federal government.
The question is whether it will help the deficit and it is very clear that raising taxes on anyone (whether corporate or income tax) will improve the deficit situation. Just because corporations pass taxes on to consumers does not mean that doesn't fix the deficit.
How will it help the deficit? Because if the government had more revenue they’d spend less money they don’t have? That’s like saying raising your credit limit would help your debt.
When you've got a government that spends more than it takes in during peacetime, incremental
revenue increases aren't the issue.
Then you have to consider that individual income tax rates ade higher than corporate tax rates and money taken from
corporations can often result in the corporations employing fewer individuals than they otherwise would have, so that corporate increase might be decreasing overall revenue.
Then the final and most damning consideration is that the annual deficit doesn't even really matter because it's been decades of 2-3 trillion dollar annual deficits. What would corporate tax rates have to be to run a surplus and pay down the debt the deficits have run up? 150%? 200%? Cutting soending and tax cuts to increase GNO are the only solutions that make any long term difference.
It is a mechanical operation, more revenue = less deficit, its really not complicated. Raising your credit limit is a terrible analogy, raising taxes is like getting a salary bump at your job so you can spend more or reduce your debt faster. Yes you can still purchase things on credit and more revenue, all other things being equal, will increase your ability to use credit.
These are not "incremental" revenue increases, these are trillions of dollars over the course of a decade. They would materially reduce our deficit by $2.2T over 10 years. That's an ~8% reduction in our total debt and while that does not solve our total problem, it is a step in the right direction.
So yes, higher taxes will have negative effects on the economy but the economy was doing quite well when those exact same tax rates were in effect during Trumps 2019 economy so please don't try and paint this as a dire picture. Here's the analysis I read from a center-right org on Biden's budget and they are very clear about the negative employment, GDP and other effects.
https://taxfoundation.org/research/all/federal/biden-budget-2025-tax-proposals/
"Then the final and most damning consideration is that the annual deficit doesn't even really matter because it's been decades of 2-3 trillion dollar annual deficits." - This is how I know you are not a serious person. Please just read this an become educated - https://fred.stlouisfed.org/series/FYFSD
We have very clearly not had $2-3T deficits for "decades" that is completely absurd and patently false. Please try again with something more reasonable and we can continue discussing.
Also the #1 fix for all of our long term budget woes would be resolve social security and medicare. Fix that and we will be on a *much* better path. Mandatory spending is where we need to make our fixes and then our discretionary spending will seem far less of an issue. Also obviously because of the rise in interest rates, net interest payments are skyrocketing as a percentage of total govt outlays. A huge issue we need to resolve and hopefully we can soon or we're going to be spending more on interest than the DoD soon.
Fjb
Inflation out of control at 3%! I can’t stop laughing. All of this while you have basically been pushed out of the slump of the 2010s in a few years.
Having said that, I agree that at this point inflation is purely fiscal. And given the budget worries, I’m fine seeing the administration tax heavily incomes above 1Mln.
This admin wants to spend 2x whatever amount they might raise in tax hikes or “cost savings”. Remember that the projected “cost savings” from Medicare changes weren’t used to make the budget more sustainable, but instead were looted to be spent on handouts to donors in the IRA (and of course much more than the tiny amounts raised were spent).
I’d love to see Biden and Trumps hypothetical plans to fully fund non-Medicare/social security spending in 5 years and keep it balanced for a succeeding 10. Yes, the old age/payroll tax programs are a difficult problem demographically and politically and will require some hard work (once the rest of the budget is balanced at full employment), but can anyone serious think of any reason at all why the rest of the budget should be in massive deficit with above trend growth and low unemployment?
And nobody with basic arithmetic skills thinks balancing everything but social security and Medicare can be achieved with “taxes on those making more than $1 million”. And there certainly won’t be any more tax cuts.
We were doing just fine 2016-2019, despite 200 bp in rate hikes and switch from QE to QT.
Increasing taxes on those who don’t spend will not lower inflation. Follow the spending cycle.
3% ? On what planet are you ?
Jared Bernstein is often referred to as an economist. When did he become one? His doctorate is a DSW.
He seems like a nice guy and you can tell he is a little embarrassed by what is happening, unlike real economists but more cold-eyed partisan hacks like Yellen and Brainard.
Very good note about more money spending by the govt causing inflation, and an excellent graph showing it starting from Biden’s first big Free Money program and more direct government spending in Feb 2021.
It would have been excellent to note how much better and faster is a tax cut stimulus rather than a new spending program of the same deficit level. Tax payers all know what they would spend more on, so tax cuts are quickly spent or invested, so stimulate immediately.
Since the rich already pay a huge % of income tax paid, most tax cuts do reduce taxes of the rich taxpayers. Elites say they don’t like this,
Was the next line of your comment going to be, "so what?" or "because they're petty, covetous, insecure, not-at-all-elite in reality."
Elites say they don’t like this.
or
Elites say they don’t like this, that tax cuts reduce taxes on the rich the most, but they actually do like it, financially. They like to pretend that they're not mere money-grubbers -- tho they mostly are. It's part of their luxury beliefes.
The February inflation likely caused by the bipartisan $900 billion handouts passed in December by Trump, McConnell and Pelosi. Biden’s insanity was to add another $2 trillion two months later on a party-line vote.
Things were already hot enough. Do you remember the economic analysis Yellen did to show why rounding the handouts up to $3 trillion over 3 months was necessary? Neither do I. Must have missed it.
All three bills were wrong, but party line votes after vaccines were available were especially wrong.
In 2021 Feb inflation was still under 2% -- tho going up, so it was clear to any willing to look that new govt spending would increase inflation more. Had Trump been re-elected, the inflation would have been unlikely to go over 3%, or even the 2.5% seen as the earlier peak in Jan 2020 just before COVID lockdown (2 weeks to stop the spread!).
Correct, because Trump had been saying we needed to open the economy, and I’m sure he would do so had him been re-elected. We missed the best opportunity to re-open and let the business run on its own. Another one more year of shut down and sending money to household is completely on the wrong track
Why not cut the policy rate to 0 and ultimately cut spending by over $1.5 trillion per year?
Only way mortgage rates will be going down. But I don’t think policy rates will need to get wall the way back to zero
Because it would cause a deceleration in gDp.
Fake GDP that is inflated by pork barrel spending.
It would likely cause an uptick in GDO, which is the number that matters.
As Dr. Philip George says: “The velocity of money is a function of interest rates”
As Dr. Philip George puts it: “Changes in velocity have nothing to do with the speed at which money moves from hand to hand but are entirely the result of movements between demand deposits and other kinds of deposits”.
No wonder people don't understand inflation if in Week 2 the textbook fails to explain that monetary policy, not fiscal policy causes inflation (and deflation and employment and unemployment)! That's "demand curves slope down" territory. John McCain's goose was cooked by the public mistakenly blaming GWB for the unfolding financial crisis instead of Fed mismanagement. The same could happen to Biden.
"This dishonesty, this pandering to polls with no principles, this constant vacillation, this willingness to say utterly silly things as if we’re all small children, might have something to do with the Administration’s terrible poll numbers."
I don't know if Nixon's excuses were any better, but these guys seem truly not to understand that they can't just tell the DA not to prosecute when their policies break econ laws. I've stopped thinking they think *we're* stupid and beginning to conclude *they* are that stupid. They will still be "confused" when our economy mirrors the streets of San Francisco, covered in poo & populated by marks and grifters.
"Maybe honest, consistent leadership might poll better than telling fairy tales and handing out candy."
Too little, too late, and not within their competencies.
They first got into the educational system, no critical thinking, but just social justice political correctness for years. So that’s right, many of the younger generations are likely can’t digest what this article talks about. So now they can easily lie about stuff and gaslight us to make us believe they’re right.
Some of the people, some of the time, but fewer today than yesterday, and even fewer tomorrow. Willful stupidity in the face of reality may be slightly less evil than intentional malice but, then again, maybe not. When purposely wielded - with gleeful contempt - over people who in fact *can* do math, read history, parse a logical syllogism or dissect a fallacy, etc., and doing it with such cavalier dismissal of consequences: I call that evil. It is wrong. They could in fact try to figure stuff out, if they had any decency.
I'm done giving the benefit of the doubt. I don't care if they heard stupid things in school. Hey, guess what, I did too, and the whole way through I thought 99% of my teachers were not that smart. And they weren't. I enjoyed learning things they couldn't teach me and using my brain to prove them wrong, instead of parroting back dumb stuff that didn't make sense. Pro tip: Do that, kids.
Here's Chris Bray: "So: a panel of farmers, serving as local militia officers [after the American revolution], listening to an argument between farmers who served as local militia officers, in a tavern, and we have a detailed record of every word they said.
"They were magnificent. They were clear, thoughtful, fair, and logical. [...]"
https://chrisbray.substack.com/p/mouth-slop
There is literally no excuse for choosing, then doubling-, tripling-, gajillioning-down on basic ignorance. School was stupid, get over it; get real, and I'd like to see a new Constitutional amendment that no one can be a bureaucrat, administrator, or 'expert' until they have proven they can run a business, fix a tractor, build a fence, balance a checkbook, grow a tomato, and earn 25% tips waiting tables when the restaurant is slammed. I am just so tired of these people.
100 Likes.
What are the chances that even the WSJ is suffering more and more from the bias in the quasi-neo-Marxist journalistic education system? I seem to note an increasing number or articles that seem to have a slant (many about how bad musk is) or deny economic reality to support social justice (climate, racism, etc.)?
Large. One article from WSJ recently said (literally their headline), consumers feel everything is expensive, it’s not the data, it’s your problem. They blamed average American for not looking into the data but just complaining about grocery prices. This headline literally blew my mind. Purely gaslighting and something you’ll only read from a socialist country
The Keynesian model Deficit = Aggregate Demand= Inflation has a missing funding component determining whether inflation in the model is zero or greater than zero. If the deficit is funded by "real" savings, real meaning savings that would have otherwise funded added private capital stock, then inflation would be zero. If the deficit was funded by Federal Reserve printed money, then inflation is creater than zero. Both scenarios shift future consumption to the present in the amount of government deficit spending.
The Keynesian inflation model is a special case showing one reason how inflation happens. Inflation can be generated many ways, Milton Friedman's helicopter rain also causes inflation, another special case.
Irving Fisher MV=PQ to then P=MV/Q shows the mechanism of inflation.
The Keynesian model is essentially Q=MV/P. Does deficit spending increase M? If no there is no inflation, no change in P. If deficit spending increases M, there will likely be infation. Unless Q increases with M, either velocity drops or .... P increases to match the unchanging Q, that is inflation. Since money is "paper" something from nothing why would increases in M change Q. Lincoln's Law claims changes in M do not change Q.
My point is that the brilliant Mr Grumpy describes a particular mean that creates inflation, our current means, the usual means. Yet to understand the fundamental mechanism Keynes is not the guide. Irving Fisher is the teacher. Inflation is monetary phenomenon.
Irving Fisher's truistic "equation of exchange" is where M*Vt = P*T. It is a transaction's concept, not an income concept.
Irving Fisher is an accounting concept, which makes crystal clear the assumptions made to cause inflation. A priori if Lincoln's Law is true and people don't give money away, then either inflation is caused by wildly volatile demand for money or is a monetary phenomenon. How are income models part of an inflation discussion?
There not. Remember that in 1978 (when Vi, income velocity fell, but Vt, transactions velocity rose) all economist’s forecasts for inflation were drastically wrong.
The Federal Reserve Board’s figure, income velocity, Vi, is endogenously and artificially contrived (N-gDp divided by M) whereas Vt, is an “independent” or exogenous force (having “both magnitude and direction, making it a vector quantity”), acting on prices.
Put into perspective:
There were 27 price forecasts by individuals and 9 by econometric models for the year 1978 (Business Week). The lowest (Gary Schilling, White Weld), the highest, (Freund, NY, Stock Exch) & (Sprinkel, Harris Trust & Sav.).
The range CPI, 4.9 – 6.5 percent. For the Econometric models, low (Wharton, U. of Penn) 5.7%; high, 6.6% U. of Ga.). For 1978 inflation based upon the CPI figure was 9.018% [and Leland Prichard, in his Money and Banking class, predicted 9%].
See: G.6 Debits and Deposit Turnover at Commercial Banks
http://bit.ly/2pjr81u
And we knew this already:
In 1931 a commission was established on Member Bank Reserve Requirements. The commission completed their recommendations after a 7 year inquiry on Feb. 5, 1938. The study was entitled
“Member Bank Reserve Requirements — Analysis of Committee Proposal”
It’s 2nd proposal: “Requirements against debits to deposits”
http://bit.ly/1A9bYH1
After a 45 year hiatus, this research paper was “declassified” on March 23, 1983. By the time this paper was “declassified”, Nobel Laureate Dr. Milton Friedman had declared RRs to be a “tax” [sic].
How differently do various forms of deficit spending actually affect the price level? If the deficit increases because of new spending, that must be more inflationary than increased deficits via higher interest expense? If deficits are fueling inflation, where on the spectrum do these various sources fall?
Thanks. When I was in Government (the SEC) I was constantly surprised at how often simple, Econ 101 analysis was ignored. I guess saying "I was constantly surprised" means I wasn't learning very fast but lawyers were forever inventing political and self-interested stories that surprised me. We used to have more rules than we possibly could analyze so we would analyze those rules and regulations from attorney's who were likely to leave government and who used the word "sceineter" frequently as a guide to who was violating Econ 101 the most. It worked pretty well...
My friends who are lawyers have consistently told me there is no Econ 101 in law school
No you were supposed to take it in undergrad.
It’s government. They don’t have the incentive to serve the people or the country. Their incentive lies on how to serve themselves. So it’s probably not a surprise if Econ 101 isn’t required to get hired by the SEC
John is correct that Jared Bernstein is the real hypocrite in this whole mess. A while ago I saw an interview with Art Laffer and he said he never wanted to work in an administration, because he'd have to be a politician, not an economist. His comments were in regards to some of the things Janet Yellen was hawking at the time. At a recent event, I said to an economist peolpe like this (Bernstein and Yellen) are obviously brilliant, so how can they go so against these basic concepts which have been empirically proven over and over again in real world experience. His response was it is simple hubris- If only they would give me everything I want and do it my way, everything would be fine. In other words, they believe central planning (so long as they're the one doing the planning) is superior to the free market. Therein lies the problem.
Yellen is an idiot. There is literally zero evidence of any brilliance from her whatsoever. She’s a ground-floor DEI beneficiary that was too stupid to gather enough dirt on the Clintons to shuffle off this mortal coil, but when she does, the IQ in America will raise by at least a point.
I guess Milton Friedman was right after all.
Bernanke, pg. 287, “Lower long-term rates also tend to raise asset prices, including house and stock prices, which, by making people feel wealthier, tends to stimulate consumer spending-the “wealth effect”.
If the monies represented by the deficits are spent on projects which increase productivity and reduce waste, the deficits are beneficial no matter how financed. The initial inflationary effects of bank financing are quickly overcome by the larger output and lower unit costs. Debt incurred which reduces unit costs of production and promotes the health and welfare of the population obviously is “good” debt.
Debt incurred to finance transfer payments (interest, pensions, etc.) is of dubious quality. Any enterprise, private or public, is in dire straits if it has borrowed in order to make such payments.
This admin doesn’t believe in M2. Talked to a friend last December who works in the Wall Street. He said some famous economist from whatever firm who has connection with the Fed showed up one day to give a seminar and said that, based on some research, M2 supply doesn’t make much impact on inflation. So they believed the Fed will cut rates soon.