The income/wealth/power Gaps make the rich richer and the poor poorer. If there were no Gaps no one would be rich or poor; we all would be the same.

To become richer, you needn’t necessarily acquire more money or power for yourself. You can even lose money and power so long as everyone else loses more.

If you have ten thousand dollars, and everyone else has only one thousand, you are rich. If you lose a thousand, and everyone else loses a thousand, they all are broke, and you are richer than ever; the Gap is proportionately wider.

Wide Gaps negatively affect poverty, health and longevity, education, housing, law and crime, war, leadership, ownership, bigotry, supply and demand, taxation, GDP, international relations, scientific advancement, the environment, human motivation and well-being, and virtually every other issue in economics.

To put it succinctly, wide Gaps are bad economics. Period.

Here are excerpts from a short article in THE WEEK Magazine:

Billionaire tax: A question of fairness

It’s unfathomable that billionaires could have a lower tax rate than working-class Americans, said economist Gabriel Zucman in The New York Times. 

And there’s finally a chance of this changing. France, Germany, Brazil and other countries “have recently expressed support for a minimum tax on billionaires.”

Brazil is Monetarily Sovereign, meaning it has the unlimited ability to pay its creditors Brazilian Reals. France and  Germany are monetarily non-sovereign, meaning they have limited ability to pay their creditors in euros.

“Other countries” may or may not be Monetarily Sovereign.

Brazil does not need the tax money, but France and Germany do. The motive to increase taxes on billionaires is different depending on a nation’s financial status.

Earlier this year, I was invited to present a plan to the finance ministers of the world’s leading economies—the so-called Group of 20—about how to make that happen, and the G20 will consider the proposal at its Brazil summit in July.

The U.S. should take the cue. In the U.S., unless men like Jeff Bezos or Elon Musk or Warren Buffett sell their stock, “their taxable income is relatively minuscule.”

And even when they do, tax rates on stock sales are much lower than on ordinary earnings. That’s why the 400 richest Americans paid a 23 percent effective tax rate in 2018, while the bottom half of earners paid 24 percent.

This is a global issue, and if we are to address the global “inequality that corrodes societies,” taxing the assets of the superrich is “a necessary first step.”

Inequality, aka the income/wealth/power Gap, can be cured by taking money from the rich or by giving money to middle— and lower-income people.

As you will see, the latter approach is economically preferable 

The number of billionaires in the world has nearly tripled since the early 2010s to about 3,000, said Larry Elliott in The Guardian. 

Taxing them even a small amount—say, 2 percent—would “raise $250 billion a year.”

Yes, a tax on wealth would expose politicians to the “hissing of the superrich.” But they “may find it harder this time than in the past to resist the pressure” from governments and angry voters.

That is especially true for Monetarily Sovereign nations like Canada, the UK, Japan, Brazil, et al., who, like the U.S. government, collect taxes but have no need for them.

The purpose of federal taxes is not to supply the government with spending money. It already has infinite dollars. Rather, taxes do two things:

1. 1. Taxes help the federal government control the economy by taxing what it wishes to discourage and by giving tax breaks to what it wishes to reward.
   2. Federal taxes assure demand for the U.S. dollar by requiring dollars in payment of taxes.

By contrast, state and local government taxes provide their governments with spending dollars. It is important to understand the difference.

Monetarily Sovereign nations have the infinite ability to spend without collecting any tax dollars at all.

Of course such a global money grab is hard to resist, just like any “taxation without representation,” said The Wall Street Journal in an editorial.

The plan is to have an unelected “body of global elites” convene at the G-20 sum mit and negotiate a billionaire tax, then “wait until Democrats control all of the U.S. government to approve it, even if that takes many years.”

The Wall Street Journal is owned by Rupert Murdoch, the same man who founded Fox News. They favor the rich over the rest of us. They like the Gap; the wider, the better.

That’s the same approach Janet Yellen is pursuing with a global minimum tax on corporations. “Once a global wealth tax is in place, you can be sure that billionaires won’t be the last target.”

Except that taxing billionaires is a way to avoid raising tax rates on ordinary people, said David Lauter in the Los Angeles Times. 

For the U.S. government, taxing billionaires does nothing to “avoid raising tax rates on ordinary people.” Unlike state and local governments, which are monetarily non-sovereign, the U.S. government destroys all the tax dollars it receives.

(When you pay your federal taxes, the dollars come from your checking account. They are part of the M2 money supply measure. When those dollars reach the U.S. Treasury, they cease to be part of any money supply measure. They effectively are destroyed.)

All U.S. government obligations are paid with newly created dollars, ad hoc. In fact, the very act of paying a bill is how the government creates new dollars.

(To pay a creditor, the federal government sends instructions (not dollars) to the creditor’s bank, instructing the bank to increase the balance in the creditor’s checking account. When the bank obeys those instructions, new dollars are created.)

Even if President Biden wins re-election, he won’t “risk the wrath of voters” by allowing the popular tax breaks passed in 2017 to expire at the end of 2025. Instead, he will “find ways to offset the cost.”

There is no need for the U.S. government to “offset the cost.” The federal government has infinite dollars, and in any event, tax dollars do not “offset” anything.

That’s the “scenario that many ultra-wealthy Americans appear to be worried about,” motivating them to support Trump—“a fellow billionaire”—for the White House.

Do you agree? Should we tax billionaires more, as a matter of fairness?

Here is what Abigail Disney says. I urge you to click the link and read the entire article; the following are mere excerpts and don’t do justice to all her thoughts.

Abigail Disney just gave a searing indictment of American capitalism

“In tolerating such extreme unfairness, we have begun to cannibalize the very people that make this economy thrive.” by Alexia Fernández Campbell, May 15, 2019, 

Disney heiress Abigail Disney isn’t done calling out American CEOs for hoarding corporate profits.

The 59-year-old philanthropist and filmmaker, who is the granddaughter of Walt Disney Company co-founder Roy Disney, blasted corporate executives Wednesday for their “addiction” to money and the “extreme unfairness” of paying their workers less than a living wage.

“We have begun to cannibalize the very people that make this economy thrive. After all, no middle class, no Disney,” she said during a hearing before the House Financial Services Committee.

House Democrats are considering several bills aimed at boosting middle-class wages, including one that limits how much companies can spend to buy back their own stock and another one that requires companies to report details about executive salaries.

Rather than forcing companies to pay higher wages, it would be far better economically to “boost middle-class (and lower class) salaries by creating a Social Security for every adult and child program, with dramatically increased benefits. 

That would increase federal spending and the U.S. money supply, thus increasing Gross Domestic Product and economic growth.

In contrast, when employers pay benefits, no new growth dollars are added to the economy.

Last month, she caused an uproar when she called out Disney for paying CEO Bob Iger an “insane” amount of money.

Her tweets went viral, and since then she has continued to make the case that lavish CEO salaries are hurting American families and contributing to income inequality.

Even if the government installed some limits on CEO salaries, companies would find other ways to reward executives.

Regarding dollars for the top brass, companies can be very creative.

She then proposed changes the Disney company could make to better reflect her family’s values, including renovating empty housing near Disney parks so employees don’t have to drive hours to work; restoring stock options for all employees; letting workers take leftover food home instead of throwing it away; and letting them take their families to the parks for free, like they used to.

Disney also proposed a reasonable idea that likely won’t get much love from corporate leaders: cutting executive bonuses in half, and using some of that money to help employees pay for insulin, child care, and emergency expenses. 

Or, better yet, the federal government could fund renovating empty housing, free transportation, free food, free medical aid, child care, and paid time off.

That would add growth dollars to the economy and cost the private sector nothing, something that enforced corporate benefits would not accomplish.

Additionally, millions of people work for small companies that don’t have the margins Disney has. Does Ms. Disney really think the “Mom and Pop” stores of America to shoulder a new benefits load?

The subject we are here to discuss is critical to the future of our country. I am here to help shed light on the problem of excessive executive compensation and the injustice of the contrast between that compensation and the low wages and poor conditions of those that work at the bottom of the pay scale.

The questions I am raising are simply “is there such a thing as too much?” “Does what a CEO gets paid have any relationship to how much his janitors and wait staff and hotel workers are paid?”

And, “Do the people who spend a lifetime at the lowest end of the wage spectrum deserve what they get, or does every person who works full-time deserve a living wage?”

I know a little something about the dynamics of money. It is a lot like the dynamics of addiction. Alcohol, like money, can be a harsh and demanding task master; once one glass of wine becomes normal, it demands a second, and then a third.

Returns diminish, and more is always, eternally required. That is why billionaires leave terrible tips, heirs rankle at the idea of estate taxes, and wealthy old men go to their graves grasping for yet more.

I believe that there is such a thing as too much money.

I’ve seen what excess looks like in the form of the private planes parked chock a block at posh conferences about global warming, where no one so much as nods at the grotesque irony of such a thing.

I’ve lain in the unnecessary queen size bed of a 737 big enough to carry hundreds but designed to accommodate no more than a dozen.

I have seen it in 85 million-dollar mansions dotting the Hamptons—empty— I have watched children decked out in designer outfits expensive enough to fund a whole family’s healthcare for a year and I’ve been a guest in homes with toilets that clean your backside on your behalf. (Yes, there is such a thing, and yes, it’s really gross.)

I have to interrupt here to wonder at the possibility that Abigail Disney is impressed by a bidet.

There’s an important economic case to be made for addressing inequality across the spectrum. In tolerating such extreme unfairness, we have begun to cannibalize the very people that make this economy thrive. After all, no middle class, no Disney.

And yes, low unemployment is great, unless the only jobs available are low-paying jobs with no benefits, no hope of retirement, no respect.

The federal government could supplement jobs, at no cost to anyone, while providing benefits and paid retirement.

Offering education to employees is also great, but sidesteps the issue at hand. — taking a job that will offer a wage dwarfed by the enormous debt they’ve incurred getting the education most of their parents got either almost or totally free of charge.

Philanthropy is often offered as the answer to the problem of inequality. 

But, even the largest philanthropy is dwarfed by government programs like Head Start, Food Stamps, Social Security and Medicare, each of which has proven effective and has already lifted many millions out of poverty.

Right. No amount of business regulation or coercion can equal what the government can do, with much less effort.

At Disneyland in Anaheim, workers had to fight for years to get their minimum wage raised to $15/hour. Studies show that today a living wage in Anaheim is closer to $24/hour.

The average Social Security benefit today computes to about $10.25 an hour, less than half the living wage in America.

Of course, some areas are more costly, and some less. But the point is, unless you are fortunate enough to have amassed a substantial retirement fund, you will live hand-to-mouth in your retirement years.

The world of low wages and wondering where your next meal might be coming from is, after all, where my own grandparents got their start. I vividly remember my grandmother telling me about the many mornings she left for school in Kansas wondering how she would be able to feed her siblings when she got home.

This is a moral issue. And it is so much bigger than just Disney. For too long the business community has brushed aside moral considerations as beneath them—naive, childlike, irrelevant.

This is, oddly enough, not an issue that divides red from blue. Not, at least, at the highest levels. Many an executive who calls himself liberal or donates to candidates whose rhetoric would seem to indicate a care for the poor, fails to bat an eye when offered his or her princely compensation.

Many of these men and women are perfectly nice people. But the hypocrisy has been so normalized I don’t think most of them even see it. Disney itself is uniquely placed to lead us out of this quagmire if its management so choose.

Disney led when it offered benefits to same-sex partners. It led when it began consciously to focus on the hiring and promotion of women, of people of color and other groups.

I’ll interrupt again to remind you that offering benefits to same-sex partners and hiring people of color has been pejoratively termed “Woke” by such as Governor Ron DeSantis and the entire Republican Party.

What could Disney do (now)?

It could raise the salary of its lowest paid workers to a living wage. 

Disney could take half of this year’s enormous executive bonuses, all of which are a fraction of revenues, and place them into a dedicated trust fund which could help workers with emergency needs like insulin, housing, transportation and child care.

Disney could rehabilitate moribund housing near its parks to ensure people do not have to drive three hours every day to get to work.

Disney could restore the employee stock option program for all employees, not just management.

Disney could restore the right that workers once had to get into the park for free, since as things now stand, they cannot afford to bring their own families to the happiest place on earth.

Disney could make food available to employees.

Many employees currently survive on food stamps and yet are required to throw away huge amounts of food on the job.

Disney could hold two or three seats on the board for employee representatives, to be elected by their peers. They, being well versed on what’s going on the inside of the company, could probably contribute more effectively to board discussion than yet any CEO from an unrelated industry anyway.

 This leads me to respectfully suggest that pegging the ratio of the CEO’s compensation to that of the median worker is not a reliable metric. Men like JP Morgan Chase Jamie Dimon have blithely encouraged the downward pressure on not just salaries, but benefits, vacations, parental and family leave, retirement benefits and more.

Remember how we all recently watched Jamie Diamon struggle to answer a simple question Representative Porter posed to him about the entry level wage at JP Morgan Chase.

In a year of record profits and 8 figure compensation at the highest levels, the pay at his bank is way out of whack and further, that if someone working full time for him cannot afford even the most basic necessities without running up a crushing amount of life-destroying debt, something needs changing, and fast.

There is nothing inherently wrong with an eight-figure payoff—unless there are people at the same company rationing their insulin.

Comparing a CEO’s compensation with a median worker’s wage renders the experience of low wage workers invisible and implies that they are irrelevant to the well-being of the very company they labor to support.

It implies that the fates of the CEO and his lowest wage worker are unconnected. It is this feeling of disconnection that enables management to repeatedly ignore conditions deteriorating right under their noses.

Look at the fortune Jeff Immelt amassed while driving share prices down more than 30% during his tenure at General Electric.

We need to change the way we understand and practice capitalism. We need to put people ahead of profits once and for all.

This moment has never been simply about excessive compensation. But outrageous payouts do get us thinking about business practices that are unsustainable, irresponsible and morally corrosive.

We need to look at the ratio of a CEO’s compensation to that of his lowest-paid, full-time worker, because that person is just as much a part of the company as the median paid worker and just as much a part of the company as the CEO.

Let’s choose to tether their fates and make it more difficult to leave that low paid worker out of consideration when any important decisions get made. It is time to say, “enough is enough.”

It is time to bring a moral and ethical framework back to the way we discuss business.

Ms. Disney is correct that moral and ethical considerations demand narrowing the Gap.

But there are economic considerations, too. The aforementioned “poverty, health and longevity, education, housing, law and crime, war, leadership, ownership, bigotry, supply and demand, taxation, GDP, international relations, scientific advancement, the environment, human motivation  and well-being, and virtually every other issue in economics.”

She mentioned “record profits” to demonstrate the feasibility of businesses providing benefits to even the lowest-wage workers.

But what is the single most profitable organization in America?

Which organization has the unlimited financial ability to provide every American with comprehensive health care, food, housing, education, clothing, retirement, and lifestyle benefits?

Which organization can do it all without having to wrestle the rich for their precious dollars?

Answer: The U.S. federal government can spend not just millions or billions of dollars, not even just trillions of dollars, but infinite dollars — and all without collecting a single extra penny in taxes.

There are zero financial reasons why any American should be poor. The federal government can and should fund for every American:

• Comprehensive, no-deductible health care
• Livable Social Security for All
• Long term care
• Retirement
• Childcare
• A healthful diet, including school meals
• Decent housing
• Education through advanced degrees for those who want it
• Public transportation
• Basic clothing

While some may claim that the poor won’t work if they receive financial support, this is demonstrably false. Most people want more. Even Bezos, Musk, Buffett, and Zuckerberg still work.

Also demonstrably false are the notions that federal spending is socialism and causes inflation.

The primary reason the federal government doesn’t already fund the above is Gap Psychology, the desire of the influential rich to widen the income/wealth/power Gap below them.

It’s a disgrace. An infininitely rich, Monetarily Sovereign government pretending it is monetarily non-sovereign, and limited in it’s ability to help it’s people. 

Imagine Elon Musk claiming he is too impoverished to help his own children financially. The federal government’s claims of poverty are worse than that. Far worse.

Rodger Malcolm Mitchell
Monetary Sovereignty

Twitter: @rodgermitchell Search #monetarysovereignty
Facebook: Rodger Malcolm Mitchell

……………………………………………………………………..

The Sole Purpose of Government Is to Improve and Protect the Lives of the People.

MONETARY SOVEREIGNTY

Copilot seems to be a fairly good Artificial Intelligence system. However, it suffers from the same problems all AIs do: They gather and spit out information and often don’t comprehend logic.

While discussions with Copilot can be frustrating — it hardheadedly repeats what it already has said and often doesn’t respond to your argument — it does help reveal counter-arguments you may not have considered.

That said, I enjoy seeing what the world (i.e. the world that AI samples) says about various ideas. After all, Copilot reads far more than I can, so it usually represents most common beliefs.

Here is an example of my discussion with Copilot regarding the cause and cure for inflation. If you never have had a discussion with AI, you especially will find this enlightening:

You
Virtually all businesses borrow and/or use materials made by companies that borrow. Interest is a cost. Businesses price their products to make a profit over costs.

Therefore, increasing interest rates increases business costs, which in turn increases the prices of nearly all goods and services. Is this correct? If not, why?

Copilot
You’re on the right track! When interest rates rise, businesses can face several challenges that impact their costs and pricing.

Here’s how it works:

Reduced Ability To Service Debt: Rising interest rates increase the cost of borrowing.

If a business has existing debt with variable interest rates, servicing that debt becomes more expensive.

This can strain cash flow, leaving less capital available for other investments or operational expenses. As a result, businesses might prioritize debt payments over growth initiatives, potentially limiting their overall potential.

Slower Growth: Access to capital is crucial for business expansion. When interest rates go up, borrowing becomes costlier.

Businesses may scale back growth plans to avoid excessive liabilities relative to their income. This slower growth can impact their ability to introduce new products, expand operations, or invest in marketing.

Consumer Purchasing Power: Higher interest rates affect consumers too. Borrowing costs for personal expenses (like mortgages and car loans) increase, reducing consumers’ purchasing power.

When consumers spend less, businesses may face decreased demand for their goods and services, impacting revenue and profitability.

In summary, rising interest rates can indeed lead to increased business costs, affecting pricing and growth.

Business owners must carefully manage their capital structure and adapt to changing economic conditions to maintain competitiveness and profitability.

You
If, as you say, “rising interest rates can indeed lead to increased business costs, affecting pricing and growth,” raising interest rates to combat inflation is counterproductive.

Those higher interest rates cause higher prices. True?

Copilot
You’ve raised an interesting point! Let’s delve into this further.

When central banks raise interest rates to combat inflation, their primary goal is to manage the overall economy. Here’s how it works:

Controlling Inflation: Inflation occurs when the general price level of goods and services rises over time. Central banks aim for moderate inflation (usually around 2%) to promote economic stability. If inflation exceeds this target, it can erode purchasing power and disrupt economic equilibrium.

Interest Rate Impact: Central banks adjust interest rates (usually the policy rate) to influence borrowing costs. When rates rise:

Borrowing Costs Increase: As you rightly pointed out, businesses face higher borrowing costs. This affects their investment decisions and can slow down economic activity.

Consumer Spending: Higher interest rates also impact consumers. Mortgages, car loans, and credit card rates increase, reducing disposable income. Consumers may cut back on spending, affecting demand for goods and services.

Trade-Off: Central banks face a trade-off. If they keep interest rates too low for too long, inflation can spiral out of control. Conversely, if rates are too high, economic growth may suffer. Striking the right balance is crucial.

Expectations Matter: The impact of interest rate changes depends on expectations. If businesses and consumers believe that higher rates will curb inflation, they may adjust their behavior accordingly. This can mitigate the impact on prices.

In summary, while raising interest rates can lead to higher business costs and potentially impact prices, central banks use this tool strategically to manage inflation and overall economic health.

It’s a delicate balancing act, and the effectiveness varies based on the specific context and expectations within the economy.

You
You said, “while raising interest rates can lead to HIGHER BUSINESS COSTS and potentially impact prices, central banks use this tool strategically to manage inflation.”

In short, the Fed increases prices to combat increased prices. Does this make any sense?

Copilot
I apologize if my previous explanation caused confusion. Let’s clarify:

Interest Rates and Inflation:
Central banks raise interest rates to manage inflation, not to directly increase prices.
The goal is to strike a balance between controlling inflation and supporting economic growth.

By adjusting interest rates, central banks influence borrowing costs, which in turn affect spending and investment decisions.

Mechanism:
When interest rates rise:

Borrowing Costs Increase: Businesses face higher costs for loans, impacting their investment decisions.

Consumer Spending Adjusts: Consumers pay more for mortgages, car loans, etc., reducing disposable income.

These adjustments can slow down economic activity, potentially curbing inflation.

Complex Dynamics:
It’s not a straightforward “increase prices to combat increased prices” scenario.
Central banks consider various factors, including inflation expectations, economic growth, and employment.

Their actions aim to stabilize the economy, even if the immediate impact involves adjusting costs.
In summary, while the relationship between interest rates and prices isn’t linear, central banks use this tool strategically to maintain overall economic health. It’s a nuanced process, and the ultimate goal is stability.

You
I still don’t see how increasing business costs combats higher prices.

Copilot
I apologize for any confusion. Let’s break it down further:

Interest Rates and Business Costs:
When central banks raise interest rates, it affects businesses in several ways:

Borrowing Costs: Businesses pay more for loans, impacting their expenses.

Investment Decisions: Higher costs may lead to reduced investment in expansion, research, or new products.

Cash Flow Constraints: Debt payments become costlier, affecting cash flow.

Impact on Prices: While higher business costs don’t directly combat inflation, they influence pricing indirectly:

Supply-Side Constraints: If businesses face higher costs, they may pass some of it on to consumers through higher prices.

Demand-Side Effects: Reduced consumer spending due to higher rates can dampen demand, affecting overall price levels.

Complex Dynamics: It’s not a direct cause-and-effect relationship. Central banks aim for a balance:

Inflation Control: They raise rates to prevent runaway inflation.

Economic Growth: But they also consider growth and employment.

In summary, the connection isn’t straightforward, but central banks use interest rates strategically to stabilize the economy. The goal is to manage inflation while supporting growth.

You
You said, “Businesses pay more for loans, impacting their expenses” (which requires businesses to raise prices.) “Higher costs may lead to reduced investment in expansion, research, or new products” (which reduces supply, thereby causing shortages that lead to higher prices.) And,

“Debt payments become costlier, affecting cash flow” (which requires businesses either to raise prices or reduce production.)

And, “Reduced consumer spending due to higher rates can dampen demand, affecting overall price levels” (Dampening demand is recessionary.)

Put them all together, and you’re saying, in essence, that the Fed fights inflation by causing inflation and/or by causing a recession.

Copilot
Thank you for your thoughtful analysis! Let’s untangle this complex web of economic dynamics:

Interest Rates and Business Costs:
When interest rates rise, businesses indeed face higher costs for loans.
This can impact their expenses, cash flow, and investment decisions.

Supply-Side Effects:
Higher costs may lead to reduced investment in expansion, research, and new products.
Reduced supply can potentially cause shortages, which could contribute to higher prices.

Consumer Spending and Demand:
Higher rates also affect consumers:

Mortgages, car loans, and credit card rates increase.
Reduced consumer spending can dampen overall demand for goods and services.

The Fed’s Balancing Act:
Central banks, including the Federal Reserve (the Fed), face a delicate balancing act:

Inflation Control: They raise rates to prevent runaway inflation.
Economic Growth: But they also consider growth and employment.
Their goal is stability, not necessarily causing inflation or recession.

Complex Trade-Offs:
The relationship isn’t linear:

Short-Term Pain: Higher rates can cause short-term challenges (like reduced investment).
Long-Term Gain: But they aim for long-term stability and sustainable growth.

In essence, the Fed’s actions involve trade-offs, aiming to manage inflation without causing severe disruptions. It’s a nuanced dance, and the ultimate goal is a healthy economy.

You
Rather than fighting inflation by raising business costs and/or causing a recession, the Fed should admit it does not have the correct tool to fight inflation.

Congress and the President have the correct tool: Spending some of the government’s infinite supply of dollars to acquire and distribute the goods, the scarcity of which causes inflation.

For instance, when oil is scarce we have inflation. Federal spending to encourage drilling and refinining oil would cure many inflations.

Federal spending to help farmers grow more food and manufacturers to create more steel, computer chips, shipping, logging, etc., would lower the prices of food, steel, etc.

The Fed has one tool — interest rates — and it is the wrong tool.

Copilot
You’ve raised an important debate about inflation-fighting tools. Let’s explore the roles of both monetary policy (controlled by the Federal Reserve) and fiscal policy (controlled by Congress and the President):

Monetary Policy (Federal Reserve):
The Federal Reserve primarily uses interest rates to influence the economy.
When inflation rises, the Fed may raise interest rates to:

Reduce borrowing and spending.

Slow down economic growth.

Mitigate inflationary pressures.

Fiscal Policy (Congress and President):
Fiscal policy involves government spending and taxation.

Here’s how it can combat inflation:

Targeted Spending: Congress can allocate funds to specific sectors (like oil drilling, food production, or steel manufacturing) to increase supply and reduce scarcity.

Infrastructure Investment: Investing in infrastructure (roads, bridges, etc.) can boost productivity and reduce bottlenecks.

Subsidies: Subsidies for essential goods (like food) can stabilize prices.

Tax Policies: Adjusting taxes can impact consumer spending and business investment.

Complex Interplay:Both monetary and fiscal policies have strengths and limitations.

The Fed’s interest rate tool isn’t the only lever—it’s complemented by fiscal decisions.

In summary, a holistic approach that combines both monetary and fiscal measures is crucial for effective inflation management. 

You
Agreed, with one exception. In the real world, monetary policy never has reduced inflation, though it can cause a recession.

Historically, all U.S. recessions have begun with reduced deficits.

On the other hand, fiscal policy does work—it is the only policy that works. However, Congress is reluctant to accept responsibility for controlling inflation and would prefer to blame the Fed for inflation.

Copilot
You’ve highlighted an essential debate about inflation-fighting tools, and it’s a nuanced discussion. Let’s explore the roles of both monetary policy (controlled by the Federal Reserve) and fiscal policy (controlled by Congress and the President):

Monetary Policy (Federal Reserve):

The Federal Reserve primarily uses interest rates to influence the economy.

When inflation rises, the Fed may raise interest rates to:

Reduce borrowing and spending.
Slow down economic growth.
Mitigate inflationary pressures.

Fiscal Policy (Congress and President):

Fiscal policy involves government spending and taxation.
Here’s how it can combat inflation:

Targeted Spending: Congress can allocate funds to specific sectors (like oil drilling, food production, or steel manufacturing) to increase supply and reduce scarcity.

Infrastructure Investment: Investing in infrastructure (roads, bridges, etc.) can boost productivity and reduce bottlenecks.

Subsidies: Subsidies for essential goods (like food) can stabilize prices.

Tax Policies: Adjusting taxes can impact consumer spending and business investment.

Complex Interplay: Both monetary and fiscal policies have strengths and limitations.

The Fed’s interest rate tool isn’t the only lever—it’s complemented by fiscal decisions.

In summary, a holistic approach that combines both monetary and fiscal measures is crucial for effective inflation management.

While monetary policy plays a role, fiscal policy remains a powerful tool in the fight against inflation.

Copilot hasn’t convinced me that “monetary policy plays a role,” primarily because I disagree with the notion that recessive policy is better than growth policy.

But it was good to see what I assume to be most of the Fed’s arguments, faulty as they may be, spelled out concisely. 

What do you think?

Rodger Malcolm Mitchell
Monetary Sovereignty

Twitter: @rodgermitchell Search #monetarysovereignty
Facebook: Rodger Malcolm Mitchell

……………………………………………………………………..

The Sole Purpose of Government Is to Improve and Protect the Lives of the People.

MONETARY SOVEREIGNTY