Stagflation – Argument for: Bernanke is inflating into a coming recession. voila – stagflation.

Deflation: as Mark points out – deflating housing market.

Ian Welsh @ 195

If you raise taxes you need to start spreading it around. Number of ways you can do that. I’d rebuild the country’s energy net, and set up a way to refit all buildings for energy efficiency and production (there are market ways to do this, another post perhaps). But in gross economic terms – take the money, spend it on other things – schools, infrastructure, research, etc…

That is the answer I was looking for. Good discussion.

This way of “sanitizing” money can be fantastically great, as FDR showed. But, if it’s just wasteful ‘bridges to nowhere’, then it’s just wasteful and stupid. Common wealth has been easier for government to manage, but finding ways to allow individuals to build wealth without so much risk and without it contaminating the basic cash economy is needed too.

We used to save in banks. That was pushed aside as people found that moving that money into the economy stimulated the economy and everyone wanted that. Now we have a thriving economy, so maybe we should re-stimulate savings in various forms. Savings invested in homes can still work, but only so long as Street manipulators can’t ruin it for everyone (as we’ve recently seen in the ‘mortgage crisis’).

Other ways to manage wealth should be found too. After all, there’s a whole world out there that’s not yet developed in a big way. What is everyone to do when it does develop?

this is a fascinating article. i haven’t read the likes of it before.

“… a way of sterilizing money so it did not generate inflation..”

that’s a new idea for me.

I think the idea of having national health care or an insurance policy or a nice big home is another way to sterilize money, except the speculators found a way to interfere by pumping and dumping.

We need more ways for people to have wealth, not just here in America, but anywhere, so we can have a money supply which grows and grows with our wealth, but doesn’t interfere with the cash economy (causing disruptive inflation).

…
could one infer that greenspan and clinton/rubin allowed the u.s. technology bubble to proceed so that foreign investment could be “reduced” in the trillion dollar losses of the tech bubble bursting?

It wouldn’t be the first time the Wall Street wizards encouraged investment from abroad, only to ‘dissipate’ it into their pockets. Remember what happened the last time Japan’s economy was really clicking? There’s a lesson in that: it’s that free market economics is somewhat akin to a mugging and it doesn’t work as well as when government is there as a policeman.

Oklahoma kiddo @ 135

I am led to understand that we spend $12,000,000,000 per month on the wars. If that suddenly stopped, what effect if any would that have on our economy?

…uh, free up $12 Bil for domestic consumption, per month…???

Not really. We’re borrowing it, so our national debt would stop growing. But, we borrowed real money from somewhere and if they stop lending they have to find somewhere else (hopefully productive) to invest. Think of all the lost productivity tossed down the black hole of Iraq.

Ian, One more thing maybe two rates one over 400,000 also. I have a real problem with unearned income taxed differently than earned income.

To me the difference isn’t in what was done to earn the income/interest, so much as what activity we decide to tax. We don’t want to disrupt the economy in any significant way and we don’t want to tax part of our people more than others (in general). So, do we tax consumption, investment, profits, all revenues, or what?

Generally we’re coming to the conclusion that we shouldn’t tax a person’s basic cost of living at a standard Americans feel is deserved, but that we should tax “profits” regardless of how they’re “earned”. This includes newly begotten inherited income.

So, decide what is needed for a decent standard of living and exempt that — maybe 35,000, maybe 60,000. Then decide what rate we need to tax everything else at to get the needed revenues for government without harming business too much.

Another way to accomplish much the same thing is to tax consumption (one rate for all), but to exempt certain kinds of “necessities” like housing, food, medical care, gasoline, etc.

I’d prefer, over time, to get away from an IRS which has an incredible database of people’s financial information and to an anonymous system. It might not be easy to do in one step, as the latest presidential commission on tax reform suggests, but it might be a long-term goal achieved in increments.

It probably wouldn’t pay to change the tax system dramatically in the midst of also changing the health care system.

egregious @ 69

Hey Ian,

Do you see hyperinflation in our future? I don’t see any other way to pay down the national debt.

Or deflation, or stagflation. But one of the three. Yes. Right now the bets seem to be against deflation and for some sort of inflation. That’s Bernanke’s bias.

It seems to me, at least with regard to the housing market, there has been inflation and it has to deflate. That means somebody is going to lose paper wealth. If Durbin’s bill is good and effective it will be the speculators who lose and not people who just wanted to have a nice home to live in.

With respect to the rest of the economy I see some inflation, but it keeps on clicking at a good pace, so it must not be outpacing incomes by very much.

But, with the growing world economy and consumption of natural resources at a faster pace there could well be inflation on a world scale. In any event, the big picture is much bigger now and much more complicated. I hope we have a lot of people looking over these issues (and that includes bloggers).

Still, what’s next is more of Bush, so we might easily end up in a recession before his term is over. It’s very unpredictable since this administration’s thinking has been so devoted foreign affairs.

The foreclosure problem has a real solution, to be introduced by Senator Durbin. This bill will enable people to file Chapter 13 and change the terms of their mortgages to match the value of their homes and pay that off in 30 years at a court-approved market rate. …

Durbin is a great Senator!

This plus Senator (and presidential candidate) Chris Dodd’s recent work makes Progressives proud!

What does god have to do with this?

~~~ModNote: Edited for content to clear filters.~~~

This is a reference to Adam Smith’s invisible hand of market forces in his seminal treatise, The Wealth of Nations.

Adam Smith was no right wing neo-con, his book was a push back against the Hobbesian doctrine of authoritarian control to keep barbarism at bay.

Ian, I still think that all income should be taxed the same with one deductible of 60000. That would take politics out of the equation. Anything above 60000 would be taxed probably at 20 percent. The deduction would have to change with inflation of course. I’m not sure how I would tax corporations though. For those that think that’s not progressive just calculate what rate you are paying. If you earn 100,000 and pay 10000 in fed taxes that’s 10 percent.

Totally disagree. That sort of flat rate direct taxation is very regressive. One’s propensity to save increases with income and so does one’s ability to contribute to the greater good – that is the essence of progressive direct taxation.

I have very little time for those shout unfair to progressive direct taxation because they ignore that most wealth, and with that the ability to generate higher incomes and cultivate higher social status, is inherited, not earned. What is so fair about inherited wealth trumping those not born into the aristocracy?