“If only we had something more precise!“ Says surgeon holding a rusty kitchen knife over a tray full of scalpels…
How “should” we slow demand in an overheating economy? Congress should be (temporarily) raising taxes. The Fed’s rate policies should be back page news today and always. Yes, that sounds absurd. Because we have all succumbed to political learned helplessness. But it is still blindingly obvious.
How many times have you read some variation on? “Fed rate changes are a blunt weapon, but (insert shrug here) its the only way to slow demand.” This is poppycock.
The tax code gives us infinite ways to slow demand immediately with precision. With the side benefit of reducing the deficit in the bargain. Yet the tax code toolbox just sits there un-opened.
It didn’t used to be this way. In the 1940’s, tax increases were the “expected” inflation response. This is the Fed Chair writing in 1943.
The public, which has come to understand the need for increased taxes as a means of inflation control, would find it more difficult to see how an expansion of the Social Security program at this time would serve the same purpose.
Of course, we know there is zero chance that we would ever use the surgical tools of the tax system. We will, instead, sign the whole economy up for brutal economic chemotherapy. Because that learned helplessness serves a political agenda…
BTW the alternate title to this post: “They” Say They Care About The Deficit. They are Lying...
