Potentially original idea on money, taxes and spending

Discussion in 'Economy' started by darnskewered, Apr 19, 2011.

  1. darnskewered
    Offline

    darnskewered Rookie

    Joined:
    Apr 19, 2011
    Messages:
    1
    Thanks Received:
    0
    Trophy Points:
    1
    Ratings:
    +0
    First off, I'm new here so hi everyone!

    One idea I've been intrigued by of late is the concept of the "inflation tax." One typically hears this idea espoused by libertarian thinkers such as Ron Paul and austrian economists in general.

    The concept basically says that those with large lines of credit, whether it be the government, banks, or large corporations, can basically use money now to enrich themselves. Once the money is spent and "trickles down" to the little guy, it is worth less, making saving difficult or impossible.

    However---it seems to me this can only happen in our present monetary system, the fiat monetary system. If we had a gold standard, it seems pretty obvious to me this could not happen since the amount of money in circulation is finite. Even borrowing, leveraging against the future will be severely limited.

    So, many would say the obvious solution is to simply go back to a gold standard. But let's get real here. How on earth are we going to accomplish that? (aside from somehow convincing all voters to become austrian economics nerds)

    Let's say we can't go back to a gold standard, ever. What's the next best thing?

    It seems to me---by virtue of the inflation tax unfairly enriching the elites (government, banks, corporations,...what liberals like to call "the rich"), it only makes sense to have a highly progressive tax---not to redistribute wealth,--no...it has already been redistributed. Let's redistribute it BACK down so that purchasing power is maintained and excessive borrowing and inflation is kept in check. Tax revenues will APPEAR to be smaller, yes. Corporate profits will appear to be smaller, yes, but that is only because inflation can't hide the real problem in such a scenario. What really happens is all boats are lifted and the little guy can save. (and, moreover, the government would remain solvent...)

    Now, I sure don't believe that welfare and any entitlement program that generates dependency, apathy, demotivation, etc. is a good thing..not at all. In fact, I'd say the only thing I'm becoming liberal on is tax policy. But that's ONLY if we can't ever go back to a gold standard. On a gold standard, progressive taxes would strangle the economy, that's very obvious to me. The point is..a monetary system must support saving at all levels. If you invent a new kind of motor for cars that will help everyone, you ought to be able to save proportional to what you've earned. If you're just some dude working in factory, you ought to be able to save to afford a house or whatever you want. But it isn't fair if that dude (indirectly due to inflation) can't afford his house because the guy who invented a motor ALSO was extremely leveraged up against future returns on the stock market, for example. Or because some government agency "invested" in his technology. Does any of that make sense?

    ...I guess the thrust of what I'm saying is: I do not accept the emotional appeal of rich vs. poor. However, I can accept the logic and existence of very real effects of an inflation tax. To me, that's the real rich vs. poor question. If progressive taxes under a fiat monetary system could be shown to mediate the effects of the inflation tax---doesn't that mean it's the next best thing to a gold standard?
     
    Last edited: Apr 19, 2011
  2. Wiseacre
    Offline

    Wiseacre Retired USAF Chief Supporting Member

    Joined:
    Apr 8, 2011
    Messages:
    6,025
    Thanks Received:
    1,192
    Trophy Points:
    48
    Location:
    San Antonio, TX
    Ratings:
    +1,194
    Sounds like you know more about this than I do, but using a gold standard essentially means you cannot monetize your debt, right? IOW, no quantitative easing and hopefully less inflation. But, that doesn't leave many options left to deal with an enormous amount of debt. You either raise taxes and cut spending or your default. The problem: the GOP will not raise taxes and the dems won't cut spending.

    Sounds like your solution is to raise taxes on the rich. Quite frankly, in today's global economy that doesn't work. The really rich guys park their money in tax sheltered foundations or offshore. Whatever they do, the economy suffers because there's less investment here and as a result less economic growth and fewer jobs. Dems don't like this and will not accept the premise, but there's too many other places where they can invest. You can talk about what's fair all day long, but it ain't going to change the basic facts: money gravitates to the places where it can give the best return. Raising taxes cuts into that return.
     
    Last edited: Apr 21, 2011

Share This Page