WHY IS INFLATION A TAX? — PART 1

What Happened To Productivity? should be a weird and unusual post, but we have such a lousy education system that it isn’t. Therefore, Lobotero can end his post with this absurdity.

Lots of excuses of why this is……excuses does not help the situation…..many blame the output of the workers….why?  Workers only produce what they are told to produce…..

I still think that some sort of price controls would help me and my fellow Americans that are struggling with the situation these days.

https://lobotero.com/2022/07/13/what-happened-to-productivity/

We are supposed fix inflation with price controls? Workers only produce what they are told to produce? How can lobotero be serious? lobotero doesn’t understand basic economics; he apparently has no idea what causes inflation. Because our government educates us so poorly, most of us don’t even understand why our currency has value. So, here begins an explanation.

What Is Inflation?

Why is our money worth anything? We have fiat money. What does that mean? The value of the US dollar comes from the fact that our government requires us to pay our taxes in dollars. That is, in order to pay our taxes, we need to acquire some of the limited supply of dollars our government prints. Otherwise, a dollar bill has very little intrinsic value. It is just fancy, used paper. However, because we have to pay our taxes using dollars, and dollars are quite portable, we can easily use our nation’s currency as a convenient medium of exchange. So, we do.

What is inflation? We experience inflation when the supply of money increases relative to the supply of the goods and services. Inflation usually occurs when our government spends a bunch of money and/or the Federal Reserve (see U.S. Treasury vs. Federal Reserve: What’s the Difference?) monetizes public debt by printing a bunch of money. Printing money to spend and printing money to pay off public debt can both lead to increases in the money supply. Nevertheless, we usually experience inflation when our government spends significantly more that it collects in taxes. Then the money supply generally increases, and the supply of goods and services cannot keep up.

What about the opposite, deflation? We experience deflation when the supply of money decreases relative to the supply of the goods and services. Because government officials rarely spend less than they collect in taxes, we don’t experience deflation very often. Since most government leaders thoroughly enjoy spending our money, inflation is the norm,

Inflation and deflation are possible because the value of money behaves like the value of grain, cattle, precious metals, wood, and so forth. The value of money is affected by the supply of money and the demand for money. That is, money, like any other commodity, is subject to the economic laws of supply and demand. The demand for money stems primarily from our need to have it so that we can pay our taxes. The supply of money primarily depends upon government spending.

Note also that government borrowing can temporarily limit the effects of excessive government spending (spending more than we pay in taxes), but even the high taxes we pay can only support so much debt. Eventually, our government must either print lots of money to “pay off” the interest on the debt (which results in inflation), or our government must reduce spending, and we must pay a large a large amount of interest on the public debt. Since paying off the interest on the debt makes the problem of excessive government spending altogether obvious, most politicians prefer to print money, and that is our current situation.

Consider the options. We have tried all of them. What can we do when our government spends and borrows lots and lots and lots of money? What has happened as the result of each option?

  • In order to spend more and more and more money, in our name our government officials have borrowed more and more and more money. Borrowing limits inflation by diverting private investment to government spending, that is, more government “investment” and less private investment. The end result is steadily increasing government debt and a steady increase in the amount of the government’s budget going towards paying the interest on that debt. Why do something so foolish? Spendthrift politicians like this because they get to spend that borrowed money before the bill comes due.
  • In order to spend more and more and more money, in our name our government officials are now printing more and more and more money. Instead of borrowing money, the Federal Reserve has been printing money to support a flood of spending. Why? Because we are already up to our ears in debt, the private market has little interest in loaning our government more money. So, today’s spendthrift politicians have opted to print and print and print more money, and the result has been the worst bout of inflation in decades. Instead of paying increasingly larger interest payments on public debt, today’s spendthrift politicians would have us believe we can print more and more and more money, and there won’t be any negative consequences.
  • In order to pay off our nation’s debt, on increasingly rare occasions our government officials have reduced government spending. Reduced government spending leaves more money available for private investment. Increased private investment almost invariably results in increased productivity and an increase in the supply of goods and services. That makes our money relatively more valuable. What is the downside? We have to decide which government services we need to reduce or do without. Unfortunately, too many conniving politicians and greedy citizens don’t like that.

The third option is obviously the one we should prefer, but it takes a knowledgeable, disciplined, and patriotic electorate to make it happen. Let’s see what we can do here to spread some knowledge.

Why me? Am I an economist? No. I am just a voting citizen. As voters, we all need to understand the basic functions of our government. We all need to understand how government regulates our economy, and that includes the regulation of our money. Therefore, I am sharing what I have learned.

To Be Continued

What subjects will we consider in future posts?

  • How Much Money Do Our Leaders Want To Spend?
  • What Additional Factors Can Produce Inflation?
  • What Is Wrong With Price Controls?
  • Why Is Inflation A Tax?
  • What Should We Do?

16 thoughts on “WHY IS INFLATION A TAX? — PART 1

  1. It kind of depends on where in the country you live, but besides the government printing and spending too much money, their policies around covid are really pinching our productivity. In my state due to vaccine mandates, we don’t have enough people to work. Many people were fired and lost their jobs. So the dump was closed the other day due to staffing shortages and a tree fell on the power lines, but now we only have two linemen left to fix such things. My work had a case of covid and so that’s an automatic 7 day shutdown. The healthy people aren’t allowed to work. This kind of thing is happening all over my state. Many, many businesses have just closed their doors. When products and services are scarce, that also drives up prices. This is flat our a man made disaster being orchestrated by our government, both my state gov and the feds. Gas is almost 6 bucks a gallon and our donkeys just voted to raise the state gas tax 50 cents. It’s just crazy.

    1. Crazy? Yep.

      We have a lot of people who have been thoroughly indoctrinated by public education and the so-called mainstream news media. So, now we have a bunch of fanatics the Democratic Party doesn’t know how to control.

      Since they were taught to reason properly, we cannot actually reason with the people Democrats have indoctrinate. All they do is call you names and demand you shut up. That is what they were taught.

  2. Let’s not forget that one big reason why we have inflation now is because of covid lockdowns.
    All over the world goverments did the same stupid thing. They forced people to not work and to close their businesses and “helped” the lockdown victims by giving them printed money. The inflation was entirely predictble. All those idiots who dismissed the warnings by people like me about the economic effects of the covid policies are still too stupid to understsnd basic ecomomics. Not only did the money supply sharply increase but at the same the supply of goods and services did decrease, exacerbating the inflationary pressure further. Productivity was further decreased by nonsensical covid regulations. As for the high energy prices. In addition to the effect of printed money the supply of energy is inentionally kept low.
    Prior to the pandemic global oil production was 83 to 84 million barrels per day. Today it is about 80 million. US oil production alone has fallen by 2.2 million barrels per day. These are the reasons for high fuel prices and not the Ukraine war or Putin. The “elites” governing the US and the EU want to keep it that way because they want high energy prices in order to implement the “Green New Deal” and “Build Back Better” aka the “Great Reset”.
    Price controls have naver worked and they will never work.
    The goverment can force oil companes to sell at a maximum price of X but that still wouldn’t create one additonal drop of oil.

    1. The COVID lockdowns and the pressure to decrease energy production from fossil fuels are both inflationary. Spending, however, because politicians always want to spend as much as they can, is usually the biggest cause of inflation.

      Frankly, I think Democrats are deliberately trying to wreck our economy. Why? No one reason, I suppose. Their ideology is crazy insane; that includes all the lies they believe. Many have been bought by foreign powers. Many are crooked in other ways. Almost all of them are too full of themselves to rationally consider what is best for our country.

      Think about how nuts this is. Almost every Liberal Democrat has a visceral fear and hatred of former President Donald Trump. Nevertheless, all of them want to give our government enormous powers even though Trump might become president again. Such insanity is the number one cause of inflation and other economic woes.

      1. Technically, it’s not goverment spending that causes inflation. Goverment could increase spending and increase taxes to get the money it spends but it is politically easier to finance your spending by printing money. This is what happened during the lockdowns.
        Goverments that caused economic misery by denying people their livelyhood simply had to pay them or there would have been social unrest and rebellion. They had two choices: Increase taxes and deepen the lockdown-induced recession or simply print money. By spending printed money they could maintain the illusion that these lockdowns would have no longterm economic impact. Nothing is free and we are all paying now.

        “Frankly, I think Democrats are deliberately trying to wreck our economy. Why? No one reason, I suppose.”

        There are the crazies but if you wanted to introduce a new global currency what better way than to run all major economies into the ground and bankrupt them?

        If all economies and currencies are kaputt you can come as the saviour who bails all those economies out. but nothing is free and there would be strings attached to that money, like “Build Back Better”, “Green New Deal” and “Great Reset”.

        1. @artaxes

          Single currency? Under whose control?

          I think there are conspiracies, but the grander a conspiracy the less likely it is. Grand conspiracies require too many actors and are too difficult to execute to happen very often.

          The simple explanation for the inflation mess and the wreckage of our republic is for the most part incompetence. Have Biden and some our nation’s top office holders been bought off by foreign powers? I think it obvious that they have. Some of the things they are doing are so dumb no other explanation makes much sense. The thing is, however, is the sheer number of people involved in promoting the COVID lockdowns, shutting down oil production, trying to implement Socialism, CRT, packing the court, and so forth. Even the Chinese don’t have the capacity to orchestrate that. So, we have to face the fact that Pagan societies (and we have largely become one) are just full of people who are so focused upon themselves that they cannot see what is right in front of them. Instead, they believe what they want to believe.

          Consider slavery. Slavery is obviously wrong, but for thousands every society known to man supported the enslavement of large numbers of people. Moreover, each of these societies believed slavery was for the best. Only Christians rejected slavery, and it took a terrible war in our own country to end our government’s support for slavery.

          1. You assume that I’m talking about a conspiracy. I’m NOT.
            Conspiracies are by definition done in secret. However there is nothing secret about the UN’s agenda 2030 or the WEF’s “Great Reset”. It’s in your face. They are very open about their goals. For the same reasons a grand conspiracy is not plausible the idea that they are running the US into the ground because of incompetence is not plausible too. It’s not plausible that no one in the whole goverment apparatus and the bureaucracy is warning them of the disastrous consequences of their policies. Therefore all the damage is done deliberately. Just as Gavin Newsom stated publicly the covid pandemic offers the opportunity to “build back better” instead of going back to the old normal many other leaders have made similar statements. It’s implausible that all of them or even most of them are not aware of the consequences of their policies. German minister for the economy Habeck, has been warned again and again about the disastrous consequences of shutting down the last 3 nuclear reactors in the midst of an energy crisis, yet he’s still insisting on going ahead. It’s not conspiracy. It’s ideology.
            The fact that most countries around the world reacted in the same way to the pandemic, using the same talking points, the same phrases, the same arguments, the same tactics and making the same errors by sheer accident is absolutely implausible. The more plausible explanation is that it is the result of people sharing the same world view and the same ideology which makes them act in similar ways. Just as a Jihadi doesn’t need to be told what to do because his world view and his brainwashing make him act in predictable ways, Klaus Schwab and other proponents of the “Great Reset” don’t have to call Macron and Trudeau and tell them what to do. They know what to do and even though it looks like there was global coordination such coordination isn’t necessary to achieve the results we are seeing. If one looks beyond the US then one sees a pattern and a direction all pointing to the same destination.
            I’ve never subscribed to the popular idea that the reaction to the virus or the virus itself was merely a conspiracy to sway the US presidential election for the simple reason that other countries around the world wouldn’t be willing to nuke their economies just to install a certain president in the US.

            It is a proven fact that Macron, Trudeau, New Zealand’s Jacinda Ardern and other prominent leaders were members of the WEF’s young global leaders, that EU president Von der Leyen was a member of the WEF’s board, that leaders like Biden and Boris Johnson were using the same language (“Build Back Better”) and sharing the same goal as the WEF and that the Dutch goverment has deep ties to the WEF. The vison of the WEF is not a vison of sovereign nations but a world ruled by supranational entities. The damage that is inflicted on the world is collateral damage that, unfortunately, is necessary to realize the grand vision. That’s exactly how Germany’s Habeck thinks. He wants to inflict pain on the German population in order to achieve the more important ideological goal.
            The WEF’s and the UN’s goals are clear and they are very open about it. What they are not telling you is how exactly they want to achieve them.
            So far, everything we view as dumb, idiotic and suicidal brings us nearer to these goals.
            Viewed in this light everything makes sense and my theory explains reality better than the idea that we are dealing with incompetence.
            The way the pandemic has been weaponized, causing untold human misery, pain and death, should tell you that we are dealing with sociopaths who simply don’t care about the pain they are inflicting if it furthers their political aims.

            You asked under which control a global currency would be. Institutions like the IMF for example?

          2. I don’t view what is happening as anything other than Satanic, but I don’t actually know how Satan orchestrates these things.

            I regard organizations like the WEF and the UN as symptomatic, not causal. The real drivers are far more powerful, huge corporations and labor unions. Massive government spending on education.

            You indicated the key is ideology. That come from indoctrination instilled through education and the mass media. Massive government spending on education has even affected privately owned ivy league schools. That is why the vast majority of university professors are Democrats, and these professors have driven the plot — the destruction of society to replace it with their Utopian dreams — by doing what they know how to do.

          3. “I don’t view what is happening as anything other than Satanic, but I don’t actually know how Satan orchestrates these things.”
            Satanic it is. I agree.

            “I regard organizations like the WEF and the UN as symptomatic, not causal. The real drivers are far more powerful, huge corporations and labor unions. Massive government spending on education.”
            Frankly, it doesn’t make much difference whether these organisations are causal or not. Neither does it make a difference whether these are Klaus Schwab’s ideas or whether he is only the front for others in the background.
            What is important is that these organisations pretty much reflect the views of our “elites” and that they pretty accurately formulate their goals.
            I know this because goverments around the world are working towards these goals. It also doesn’t matter whether leaders like Macron are true believers or whether they use the WEF’s ideology only to increase power and wealth for themselves. The outcome is the same.

            What is also important is that the goals of these organisations can never be achieved through the ballot box. There is simply no majority anywhere in the world. These goals can only be achieved through coercion, either by brute force or by economic coercion. There simply is not enough support for the “Green New Deal” but they can achieve the “Green New Deal” by artificially making energy so expensive that the people are behaving in the way they want them to behave and in this way they can achieve their goals.
            In the same way a deliberate crash of the world’s economies could be used to introduce global control of the money.
            If you had told me what I’m saying now prior to the pandemic I would have told you that you are bats*** crazy conspiracy nut.
            Not anymore. The lengths to which our goverments are willing to go has taught me that we cannot dismiss such possible scenarios out of hand.

          4. I don’t disagree. I became seriously concerned some time back beginning around the second Bush administration. Since then I have been trying figure out what is going on. There seems to be a guiding hand, but there is no single person or organization I can point to. Satan, however, fits the bill just about as well as he would be likely to.

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