Suppress inflation and 'grow' the economy

[Tedx]

The role of tax.

So why do we tax in that case? Well, firstly, because the government has to control inflation, of course, it could not spend the amount of money created for it every day by the Bank of England without inflation very quickly going out of control. So, the government taxes to reclaim the money it has already spent, and by doing so, it controls inflation

...and theres more.

https://www.taxresearch.org.uk/Blog/202 ... le-of-tax/

[Bubblesofearth]

The role of tax.

So why do we tax in that case? Well, firstly, because the government has to control inflation, of course, it could not spend the amount of money created for it every day by the Bank of England without inflation very quickly going out of control. So, the government taxes to reclaim the money it has already spent, and by doing so, it controls inflation

...and theres more.

https://www.taxresearch.org.uk/Blog/202 ... le-of-tax/

The bit about tax to control inflation doesn't make sense to me. HMG spends money in the economy which will have an effect on prices. In the short term, whether this money comes from borrowing or taxation is irrelevant from the pov of inflation. Longer term HMG needs to balance it's books (or at least appear to be doing so) or risk lack of confidence in the bond markets.

The rest of the article about redistribution etc I agree with.

BoE

[Nimrod103]

The role of tax.

So why do we tax in that case? Well, firstly, because the government has to control inflation, of course, it could not spend the amount of money created for it every day by the Bank of England without inflation very quickly going out of control. So, the government taxes to reclaim the money it has already spent, and by doing so, it controls inflation

...and theres more.

https://www.taxresearch.org.uk/Blog/202 ... le-of-tax/

The bit about tax to control inflation doesn't make sense to me. HMG spends money in the economy which will have an effect on prices. In the short term, whether this money comes from borrowing or taxation is irrelevant from the pov of inflation. Longer term HMG needs to balance it's books (or at least appear to be doing so) or risk lack of confidence in the bond markets.

The rest of the article about redistribution etc I agree with.

BoE

Of course it doesn't make sense. It is the ravings of a left wing fringe academic economist, who has a particular axe to grind in that he thinks companies and people should be taxed a lot more. Taxation does not take money out of the economy if it is just used to pay for more stuff, or higher public sector wages and benefits. It just recycles it.

Money creation causes the inflation, and the Govt has to get the borrowing down, or this inflation misery will just continue.

[servodude]

The bit about tax to control inflation doesn't make sense to me. HMG spends money in the economy which will have an effect on prices. In the short term, whether this money comes from borrowing or taxation is irrelevant from the pov of inflation. Longer term HMG needs to balance it's books (or at least appear to be doing so) or risk lack of confidence in the bond markets.

The rest of the article about redistribution etc I agree with.

BoE

Of course it doesn't make sense. It is the ravings of a left wing fringe academic economist, who has a particular axe to grind in that he thinks companies and people should be taxed a lot more. Taxation does not take money out of the economy if it is just used to pay for more stuff, or higher public sector wages and benefits. It just recycles it.

Money creation causes the inflation, and the Govt has to get the borrowing down, or this inflation misery will just continue.

Nonsense.

What you tax can make a difference
It's a way of transferring money - inflation is just one result or measurement in the "financial system"
If it were electronics where you put your capacitor determines whether you create a low pass or high pass filter; i.e. completely orthogonal results via the same mechanism depending on where you put it (and what you want to measure)
So stop talking tosh and put your agenda twaddle back where you found it

[Tedx]

Inflation is caused by lack of competition.

[dealtn]

The rest of the article about redistribution etc I agree with.

The most pressing thing said is

It's time we understood tax.

i assume he has mirrors in his house and politely suggest he starts with himself.

[Spet0789]

Of course it doesn't make sense. It is the ravings of a left wing fringe academic economist, who has a particular axe to grind in that he thinks companies and people should be taxed a lot more. Taxation does not take money out of the economy if it is just used to pay for more stuff, or higher public sector wages and benefits. It just recycles it.

Money creation causes the inflation, and the Govt has to get the borrowing down, or this inflation misery will just continue.

Nonsense.

What you tax can make a difference
It's a way of transferring money - inflation is just one result or measurement in the "financial system"
If it were electronics where you put your capacitor determines whether you create a low pass or high pass filter; i.e. completely orthogonal results via the same mechanism depending on where you put it (and what you want to measure)
So stop talking tosh and put your agenda twaddle back where you found it

Taxes can be used to control inflation but only if the money raised isn’t spent in the economy. For example if you reduce government borrowings or spend it abroad.

[vand]

Sunak, like all politicians, doesn't know his a$$ from his elbow when it comes to inflation and economics, or at least he has been school in the neoclassical doctrine which treats the sympton without understanding the cause.

If you have ever successfully lost weight and kept it off for more than 5 yrs you know that you don't treat your excess caloric consumption by cutting your mealsize, you change your diet and fix your metabolism so that they require less calories to feel satiated and healthy, and if everything is in working order this automatically leads to a reduction in caloric consumption.


Likewise, for an economy that is experiencing excess inflation and faltering growth, you don't tackle it by just trying to fight inflation. You have fix the underlying structural causes that lead to loss productivity and inefficient resource allocation, which in time leads to better economic performance which automatically then reduces inflation.

Unfortunately all governments think they can just treat symptoms without addressing causes, and it is usually a long and painful process of doing everything that doesn't work before making the painful adjustments that are really needed to cure the deeply embedded structural issues

[Mike4]

Sunak, like all politicians, doesn't know his a$$ from his elbow when it comes to inflation and economics, or at least he has been school in the neoclassical doctrine which treats the sympton without understanding the cause.

If you have ever successfully lost weight and kept it off for more than 5 yrs you know that you don't treat your excess caloric consumption by cutting your mealsize, you change your diet and fix your metabolism so that they require less calories to feel satiated and healthy, and if everything is in working order this automatically leads to a reduction in caloric consumption.


Likewise, for an economy that is experiencing excess inflation and faltering growth, you don't tackle it by just trying to fight inflation. You have fix the underlying structural causes that lead to loss productivity and inefficient resource allocation, which in time leads to better economic performance which automatically then reduces inflation.

Unfortunately all governments think they can just treat symptoms without addressing causes, and it is usually a long and painful process of doing everything that doesn't work before making the painful adjustments that are really needed to cure the deeply embedded structural issues

What are the deeply embedded structural issues that need curing, please?

[Nimrod103]

Nonsense.

What you tax can make a difference
It's a way of transferring money - inflation is just one result or measurement in the "financial system"
If it were electronics where you put your capacitor determines whether you create a low pass or high pass filter; i.e. completely orthogonal results via the same mechanism depending on where you put it (and what you want to measure)
So stop talking tosh and put your agenda twaddle back where you found it

Taxes can be used to control inflation but only if the money raised isn’t spent in the economy. For example if you reduce government borrowings or spend it abroad.

Reduce government borrowings I would agree with. Spending money abroad doesn't destroy the money or pay down debt. The foreign entity can buy stuff from the UK, like exports or UK real estate or water companies, and the money comes back into the UK economy potentially generating some inflation.

[vand]

Sunak, like all politicians, doesn't know his a$$ from his elbow when it comes to inflation and economics, or at least he has been school in the neoclassical doctrine which treats the sympton without understanding the cause.

If you have ever successfully lost weight and kept it off for more than 5 yrs you know that you don't treat your excess caloric consumption by cutting your mealsize, you change your diet and fix your metabolism so that they require less calories to feel satiated and healthy, and if everything is in working order this automatically leads to a reduction in caloric consumption.


Likewise, for an economy that is experiencing excess inflation and faltering growth, you don't tackle it by just trying to fight inflation. You have fix the underlying structural causes that lead to loss productivity and inefficient resource allocation, which in time leads to better economic performance which automatically then reduces inflation.

Unfortunately all governments think they can just treat symptoms without addressing causes, and it is usually a long and painful process of doing everything that doesn't work before making the painful adjustments that are really needed to cure the deeply embedded structural issues

What are the deeply embedded structural issues that need curing, please?

Too complex tax code
Too much corporate red tape
Overinvestment in housing at the expense of business
Crowding out of market prices in government dominated sectors
Overprotection of electoral sacred cows - NHS, Education, Pensions

[Nimrod103]

What are the deeply embedded structural issues that need curing, please?

Too complex tax code
Too much corporate red tape
Overinvestment in housing at the expense of business
Crowding out of market prices in government dominated sectors
Overprotection of electoral sacred cows - NHS, Education, Pensions

I agree with you, though I would suggest these are all symptoms of the malaise, rather than the cause itself. That underlying cause is not being able, as a country, to live within our means. In fact there is an apparent complete lack of interest or motivation to encourage work and productivity, we care too much about the dead weights in society, and as a result we have borrow to maintain our standard of living. This can only end in one way.

[servodude]

Nonsense.

What you tax can make a difference
It's a way of transferring money - inflation is just one result or measurement in the "financial system"
If it were electronics where you put your capacitor determines whether you create a low pass or high pass filter; i.e. completely orthogonal results via the same mechanism depending on where you put it (and what you want to measure)
So stop talking tosh and put your agenda twaddle back where you found it

Taxes can be used to control inflation but only if the money raised isn’t spent in the economy. For example if you reduce government borrowings or spend it abroad.

I think I can see what you're suggestion (redirection of tax revenue to affect supply of money?)

But i take a pretty catholic view on the use of the word "control" (forgive me, it's in my nature as a control engineer ) ; it doesn't just mean restrict, suppress etc in my head

I'll try and waffle in an explanatory manner for a bit:

The BoE (or any central bank) really has only one lever (output or effector - i.e. base rate) and only one input (whatever measure of inflation is in vogue)
- which will work for small deviations in a system without much disturbance
- it's like your steering wheel to keep you on the road while your cruise control keeps your speed constant

So if "stuff" were becoming "more expensive" because of the disposible income of people who had mortgages (and their analogues) being too high then a bit of a twist on the wheel could curtail it
But similarly if the govt thought stuff were becoming "too expensive" it could add x% to any/or every tax; and thus reduce discretionary headroom.

Both mechanisms notionally remove or add available funds (which we presume will modify inflation via supply v demand mechanism) - but they affect different parts of the system to do so

Arguably the govt has much more scope (more levers and choice of what to do with the results) that the central bank.
No one would suggest a central bank levy a windfall tax on profiteering energy producers that could be redirected towards consumer bills?

Sometimes turning the steering wheel isn't enough; you've got to change gears and hit the pedals.

Looking at slices of the system in isolation feels more ideological than practical - which helps the political class more than everyone else
and I didn't even touch on how the time constants are different for various parts

-sd

[1nvest]

No one would suggest a central bank levy a windfall tax on profiteering energy producers that could be redirected towards consumer bills?

XOM returns in US dollars saw $10K invested at the start of 2021 rise to $30K at the end of 2022.

How Japan avoids such cases is to bind firms into mid/longer term supply contracts, reasonable profits, but that avoids extreme profits. Volatile energy prices have knock on effects right across the economy, stability is better. How that stability is imposed is a government/state matter.

Inflation is just another form of taxation.

[servodude]

No one would suggest a central bank levy a windfall tax on profiteering energy producers that could be redirected towards consumer bills?

XOM returns in US dollars saw $10K invested at the start of 2021 rise to $30K at the end of 2022.

How Japan avoids such cases is to bind firms into mid/longer term supply contracts, reasonable profits, but that avoids extreme profits. Volatile energy prices have knock on effects right across the economy, stability is better. How that stability is imposed is a government/state matter.

Inflation is just another form of taxation.

I can see similarities if you only look at one side of it, e.g doesn't matter to me when I buy my beer how much goes to the governement this week vs that last, only that the price has gone up
- but it will years from now if that money has not made its way in to public health infrastructure (which it is more likely to do as tax than profit to a brewery)

The point about volatile energy costs is important - given this is an immediate driver of the costs of everything else ( and a geared one from the point of view of the end consumer) which in the short term gets picked up (and mistaken?) for "inflation" (in the sense of "that which can get ameliorated by base rate changes')

Some places/countries don't have their energy suppliers on a purely profit driven model; they've regulated the market, or hypothecated production or maintained ownership - that works much better as a control of "energy cost inflation" than making it more expensive to borrow money

Going back to the car analogy - if the only lever you have to adjust for bumps in the road is the one that raises and lowers your seat you can expect a bumpy awkard ride as you go for it after the event every time you notice a bump
- better off to put suspension at the wheels ( and then iterate THAT design as you realise you need them to be independent and you want dashpots as well as springs!)

- sd

[Nimrod103]

XOM returns in US dollars saw $10K invested at the start of 2021 rise to $30K at the end of 2022.

How Japan avoids such cases is to bind firms into mid/longer term supply contracts, reasonable profits, but that avoids extreme profits. Volatile energy prices have knock on effects right across the economy, stability is better. How that stability is imposed is a government/state matter.

Inflation is just another form of taxation.

I can see similarities if you only look at one side of it, e.g doesn't matter to me when I buy my beer how much goes to the governement this week vs that last, only that the price has gone up
- but it will years from now if that money has not made its way in to public health infrastructure (which it is more likely to do as tax than profit to a brewery)

The point about volatile energy costs is important - given this is an immediate driver of the costs of everything else ( and a geared one from the point of view of the end consumer) which in the short term gets picked up (and mistaken?) for "inflation" (in the sense of "that which can get ameliorated by base rate changes')

Some places/countries don't have their energy suppliers on a purely profit driven model; they've regulated the market, or hypothecated production or maintained ownership - that works much better as a control of "energy cost inflation" than making it more expensive to borrow money

Domestic energy prices are volatile in the UK because the Govt has chosen to go down that route. We are quite dependent on imported oil and gas, which are priced at World prices.

Our Govt has choosen to raise windfall taxes on UK oil and gas production, but that has directly led to companies drastically reducing investment in North Sea production. The Govt cannot raise taxes on imported oil and gas. BP and Shell may be making good profits at the present time (offsetting partially the big losses they made during Covid), but they cannot be overly taxed on non UK production because they will just up sticks and move elsewhere. Harbour Energy already has. Which would not be good for UK plc.

Successive Governments (with mass media and popular support) have moved in a big way to decarbonize energy production, but as a result of political decisions made under Blair and when there was a LibDem Energy minister, no investment was made in nuclear. To get the wind turbines built, they had to build a commercial model which favoured wind energy by tying returns to gas. Meanwhile they took great pleasure in dynamiting coal fired power stations. Volatility of electricity prices could have been avoided if we had had 5 years of coal stockpiled at 10 thermal power stations. But we decided we didn't want that, and now we live with the consequences.

[1nvest]

Inflation is just another form of taxation.

I can see similarities if you only look at one side of it, e.g doesn't matter to me when I buy my beer how much goes to the governement this week vs that last, only that the price has gone up
- but it will years from now if that money has not made its way in to public health infrastructure (which it is more likely to do as tax than profit to a brewery)

Money creation induces inflation. In crude terms the creator gets to print/spend (benefit) at the cost to all other money in circulation being devalued.

When money was gold (One Pound gold Sovereign coins), as gold is finite so inflation broadly averaged 0%. The crown/state had to pay to borrow other peoples gold (money) paid interest that was like a real rate of return (more gold returned in total than what was borrowed). As of September 1931 that ended, when the law was changed to have all bank payouts in the form of paper pound notes instead of Sovereign/gold coins, leaving the crown/state free to print/spend, induce inflation, that combined with taxation meant the state could in effect borrow for free. Indeed there was little need to borrow, when you can print/spend instead, but Gilts are still maintained as pension funds have to buy them by law and those pension assets can be raided via inflation/taxation.

Sunak's gross incompetence has directed the UK towards and into stagflation. Higher prices, higher inflation, no growth. Trillions of new money created and wasted/lost, inducing higher taxation and inflation, inciting otherwise inward investment to instead be redirected elsewhere along with a flight of domestic capital.

[servodude]

I can see similarities if you only look at one side of it, e.g doesn't matter to me when I buy my beer how much goes to the governement this week vs that last, only that the price has gone up
- but it will years from now if that money has not made its way in to public health infrastructure (which it is more likely to do as tax than profit to a brewery)

Money creation induces inflation. In crude terms the creator gets to print/spend (benefit) at the cost to all other money in circulation being devalued.

When money was gold (One Pound gold Sovereign coins), as gold is finite so inflation broadly averaged 0%. The crown/state had to pay to borrow other peoples gold (money) paid interest that was like a real rate of return (more gold returned in total than what was borrowed). As of September 1931 that ended, when the law was changed to have all bank payouts in the form of paper pound notes instead of Sovereign/gold coins, leaving the crown/state free to print/spend, induce inflation, that combined with taxation meant the state could in effect borrow for free. Indeed there was little need to borrow, when you can print/spend instead. But Gilts are still maintained as pension funds have to buy them and those pension assets can be raided via inflation/taxation.

Sunak's gross incompetence has directed the UK towards and into is stagflation. Higher prices, higher inflation, no growth. Trillions of new money created and wasted/lost, inducing higher taxation and inflation, inciting otherwise inward investment to instead be redirected elsewhere along with a flight of domestic capital.

Still can't see the argument there for why taxation is inflation?

Inflation measures the increase in the amount of money (looking at it unilaterally from that side)
Taxation describes/directs the path of some of that money.

[1nvest]

Volatility of electricity prices could have been avoided if we had had 5 years of coal stockpiled at 10 thermal power stations. But we decided we didn't want that, and now we live with the consequences.

You might expect a good government to have pre-prepared plans for the likes of pandemics, energy/financial extremes ...etc. But not ours, ours just wing-it. Parliament doesn't do its job, is just a vanity fair and (individual) get-rich-quick means, largely in the pockets of money than serving those that elect it.

Australia for instance has (had?) a already passed Bill/law whereby at the stroke of a pen it can/could confiscate all physical gold within the country at a price set by the state in the event of extreme financial conditions/circumstances. Japan has policies that dilute down extreme energy circumstances, that nip the otherwise knock-on effects such as we're now seeing in the bud. Instead of good force majeure terms written into contracts/law successive UK governments have been lazy/incompetent to the extent that Parliament is more a liability that a asset.

Energy firms/bankers ....etc. being able to make great gains at taxpayers expense is all too indicative of just how far we are along the lines of Parliament NOT serving the people. Bribery/corruption is rife, MP's don't even respect the laws they set themselves.

[1nvest]

Still can't see the argument there for why taxation is inflation?

Inflation measures the increase in the amount of money (looking at it unilaterally from that side)
Taxation describes/directs the path of some of that money.

The printer/spender benefits - directing where that money is spent, whilst all other notes are devalued (paramount to having been taxed).