Not just “other goods and services”. Those same services.
Suspending the fuel tax will have the impact of slightly increasing demand for fuel, which will increase the price of fuel itself. Difference is that the increased price will go into the pockets of fuel sellers (at whatever point in the marketing chain). The cost of fuel probably wouldn’t go up by the entire amount of the fuel tax, but a big chunk of it.
And cancelling student loans not only increases velocity of money (and therefore money supply) by allowing all those beneficiaries to spend more on consumer goods, it increases the quantity of money because the relief will be paid for with printed dollars, and it will increase demand for student loans next year, make it harder to get other student loans to be paid off, and increase tuition as colleges realize there are more rents to be had in the student loan system.
Everything about those programs is inflatiinary. Here in Canada they are talking about ‘relief’ from inflation - by printing more money and handing it out to the peoole with the most propensity to soend. And Biden wanted to hand out gas cards until they realized they’d never be able to administer the program.
I swear, it’s like people have completely forgotten everything we knew about economics twenty years ago. It’s all snake oil and bullshit now.
I suppose the next failed policy from the past to be resurrected will be price controls.
Here is another brain trust at work…the State of California.
This is not how you fight inflation…this is how you exacerbate it.
That’s the problem. Even if the Fed allowed interest rates to rise enough to cause a recession, the fools in our governments now will just respond with ‘fiscal stimulus’ and ‘relief payments’ like California is doing now. Thus undermining the attempt to shrink the money supply.
I don’t know; it seems a bit more complex. CA is not that self-contained. The cost of goods & services that they purchase from the rest of the country is only going to be impacted by a small amount, while the CA people who get the money receive the full benefit.
Of course, they also pay for it in taxes too, so there’s that.
Bottom line is that there’s really no such thing as a free lunch, and when the government gives out FREE MONEY!!!, you’re likely to pay for it one way or the other.
You dole out $19 billion to your residents, they are going to primarily use those funds to purchase goods and services, thereby increasing demand. When demand goes up with a constrained supply, prices go up. Pretty simple.
But a lot of those goods and services that they buy are produced and sold across the entire country, and the demand for them is measured in terms of national demand. Since the only people getting the subsidies are in CA and the additional CA demand pressure is diluted by non-CA lack of additional demand pressure, the inflationary effect is less than the complete amount of the subsidy.
Sound right to me ! Thanx
Man, the OP has aged poorly.
The petroleum industry will raise the price of gas 10 cent on speculation of a incoming storm! They and the pharmaceutical industry are the cover boys of what sucks with unchecked capitalism & with there long money arm of lobbying in will never change! Yet tax dollars subsidies them 10s of billions a year !
Even price controls, while in most situations are not good, are however valid in some situations. The situations with medicine and drug prices in the US are so asinine that denying that price controls can not be used is really silly. But the main point here is that student loan forgiveness does fall in a fuzzy area, how good it will be will depend on how much and who has his/her debt forgiven. And there are a lot of reasons why to consider loan forgiveness, when taking into account the situations of the ones being in debt.
(Thread here from Bharat Ramamurti, National Economic Council Deputy Director)
However, one has to notice that even the proposals coming from Biden so far are not about complete forgiveness, so a lot of what many sources from the right are telling their readers and viewers about loan cancellation is a lot of hooey.
The problem is really coming from ideologies that are totalitarian (and currently the Republican Party in the US is too cozy with authoritarianism), about the way solutions should never be implemented.
In what way? The two paragraphs I quoted fit precisely the way people are viewing inflation today.
Here’s another quote, Americans Have an Uneasy Feeling, and Inflation Is a Big Reason Why by James Ellis:
Price increases have a unique power to make people fear life is spiraling out of control.
In a 1997 paper for the National Bureau of Economic Research titled Why Do People Dislike Inflation?, Nobel laureate Robert Shiller and a team of graduate assistants interviewed hundreds of people in the US, Germany, and Brazil. While few of those ordinary Joes knew much about the economic term in question, they were all uniformly against it. Even when one researcher told a survey respondent that inflation might help raise his wages, he remained steadfastly opposed. “I suspect that an important difference between economists and laymen is that, to some extent, we speak different languages,” wrote Harvard’s N. Gregory Mankiw in his review of Shiller’s project.
Inflation is a concern. But these are not the 70s, and hyperinflation is not going to happen. The price of gas has gone down $0.42 in the last month. Unemployment is lower than its been for 40 years.
As Ellis’ article points out, inflation is one of number of issues that people are seeing and the one that hits closest to home. Its also one that can’t be quickly changed and that the President has little power against, so it’s become the number one right-wing issue to be used against Biden.
The reality is that record numbers of people are also piling into airplanes at raised prices and then complaining that airplanes are full of people. If and when that stops I’ll start being worried about the economy as a whole, but that’s not going to happen either.
No, these are not the 70’s - this time it could be worse. We are far more in debt, and have printed far more money than we ever did in the 70’s. No one is suggesting hyperinflation, but persistent double-digit inflation would be bad enough if it continues for a long time. And that’s one of the possible scenarios if we don’t smarten up and stop throwing money around willy-nilly.
The producer price index inflation just came in at 11.3%. Expect next month’s CPI number to come in higher than this month’s, because the producer price index shows the rise in all the intermediate products that go into the final products we buy. If producers pay more this month, consumers pay more next month.
No one knows where inflation will go. It’s a complex phenomena. But we know that we are still running expansionary policies - real interest rates are -5.3%. Governments are still borrowing like mad, and the Fed is still printing $60 billion per month. Their ‘tapering’ is just a slowdown of the rate of monetary expansion. So while the absolute amount of inflation is unpredictable, the way to bet is that it will continue to get worse for some time.
My prediction is that we are heading for stagflation. The supply side is still a mess, demand is still high because of supply chain issues, and we are about to crater our energy systems. In the meantime, our idiotic leaders are likely to respond to any slowdown with more spending to ‘ease the pain’, but which will just make the problem worse and thwart the central bank’s meagre attempt to shrink the money supply.
And get ready for unemployment to start to rise. Lots of firms have already announced cutbacks or plans to cut back. College enrollment is down 1.3 million this year, and those people will be looking for jobs instead. The only thing that might save some jobs is that real wages are falling fast, and the real value of the minimum wage is dropping. That’s a negative feedback that will help, if our stupid politicians can resist the impulse to ‘fix’ it.
Another thing that might slow inflation is that the giant bubble of money aent out in the last Covid relief bill will soon be spent, which will lower demand and encourage people to go back to work. You mentioned how low unemployment is, but that only measures those actually looking for work. If you look at the labor participation rate, you’ll see that it’s still significantly below pre-pandemic levels. In fact, so far only a little more than half of the job lossds during the pandemic have been recovered. That’s not good.
My guess is that the real break in inflation will come via a deep recession that shrinks the money supply through large numbers of bankruptcies, cratering of investment capital, the collapse of the real estate and tech bubbles, etc. Reality will assert itself, and a soft landing is not guaranteed.
Adam Smith once wrote to a colleague who worried that his country had been ‘ruined’, “There is a great deal of ruin in a country.” By that he meant that a modern economy can withstand a lot of damage before it is actually ruined. This is a property of complex systems - antifragility.
Unfortunately, this has allowed people to advocate for and attempt ruinous policies and get away with it for a long time, and for malinveatments and corruption and other issues to accrue for a long time. But another property of complex systems is that if the imbalances get too strong they can collapse siddenly and unexpectedly. See: Zimbabwe, Venezuela, Argentina, and most recently Sri Lanka.
The main forces affecting inflation building this winter include food shortages from the war in Ukraine, terrible ‘green’ policies cutting fertilizer use, and the ongoing problems with shipping, China’s economy is in trouble and production is down due to Covid lockdowns, and massive energy shortages in Europe and to a lesser degree North America. All of these forces are both inflationary and anti-growth. Let’s all hope there is still a lot more ruin left in these countries.
Sorry, but I know history, those did not collapse suddenly and unexpectedly. I knew it for the other countries, but I was not so sure about Sri Lanka, but there is also evidence that you did miss a lot:
After the civil war ended in 2009, then President Mahinda Rajapaksa took out massive foreign loans to pay for war expenses and, more importantly, to start flashy infrastructure projects to attract tourism and reward cronies. In a vicious cycle, the government had to turn to foreign lenders, such as the Chinese, to help service already existing debt because they had limited foreign reserves. Rather than focus on economic reforms that might increase those reserves, the Rajapaksas implemented several tax cuts to shore up political support.
I think you are going for so much hyperbole that the arguments are once again underwhelming.
Every economist is predicting a recession, though the predictions are all over the place as to when it will start, how severe it will be, and how long it will last. We have a deep and long lasting history of picking through the welter of predictions and choosing the one that came closest as somehow being more prescient than the others. Few are so prescient more than once, however. And many are wrong every single time.
Is it worth noting that most money is created by banks, not by “the government printing more money?” That is just a metaphor, not a description of reality. The monetarist arguments of Friedman have been discredited. There is no “objective” analysis of inflation: it is all about distributing wealth and thus is a very politicized question, meaning much depends on whose ox is being gored and how much power they have. Also, as noted above, there has been so much propaganda about the dangers of inflation–“Weimar! Zimbabwe! The 1970s!”–that fearmongering pretty much shapes public opinion. Ooh, the price of gas has gone up 10 cents! Meaning it costs my BIL in his Silverado $3.00 more to fill up. This is even for us plebes money in seat cushions, but people flip over it. Inflation is a problem, but lowering people’s wages and putting people out of work–the hoped for effects of “tight money”–are not the answer for most of us.
Get ready for medicine shortages, followed probably by government subsidy of drug manufacturers. Also prepare for less investment in pharma.
Between 2000 and 2018, the pharma industry recorded net income of 1.9 trillion dollars. That’s just over $100 billion per year. Their profit margins are higher than thevS&P 500, but inline with other high-risk industries. Of you reduced pharma profits to that of less risky investments, somehow while still maintaining investment, you could claw back about 30% of that, or around $30 billion through price controls. Americans spent $547 billion on pharmaceuticals last year, so you might be able to reduce prices by 5%, at the risk of causing shortages and killing investment in Pharma. That would be a bad tradeoff.
Student loan forgiveness is such a bad idea I can’t believe anyone thinks that it’s a good idea.
First, it’s a wealth transfer to college graduates, who earn more money on average than the people who’s taxes wouod pay for it. It’s a regressive policy. Why should a working class family be taxed to pay off the student loans of a doctor who makes four times what they do? It’s obscene. It should be especially obscene to progressives.
Second, it generates crazy moral hazards. Why would others pay off their student loans in the future, instead of holding out for debt forgiveness?
Third, it’s inflationary, It’s essentially another helicopter drop of printed money on people who will then consume more.
Fourth, it encourages students to take out as much student debt as they can, which will cause tuition to rise and administeative bloat to increase in universities.
Fifth, it undermines the rules of civil society. Once you selectively use government to absolve some people of their contractual obligations, others will wonder why they keep their own commitments. It will look unfair to those without student debt, because it is.
There is nothing good about student loan forgiveness in this way. If you want to help the truly destitute students, allow their debts to be discharged in bankruptcy. At least that won’t look like a free ride.
If you want to help without moral hazard, make universities responsible for at least some student debt, so they stop enrolling people in programs that won’t lead to decent jobs, or enrolling people who can’t cut it and are likely to drop out.
The only reason Democrats are pushing for student loan forgiveness is to energize young Democratic voters at the expense of everyone else.
Did not happen in Europe and in many other countries of the world, so no, besides showing that you did not read the linked article, your arguments are even more underwhelming then.
And speaking of underwhelming arguments…
Saying that is just more demonstration that you did not check what Bharat Ramamurti, National Economic Council Deputy Director linked to, those were not “nobodies”
One more thing, this also forgets that besides not being an option to discharge student loans in bankruptcy in the US… As it has been pointed many times in the past, most Republicans don’t want to do anything about that injustice too, so it is very unlikely to happen, and even less if they control congress after the November election.