Why Democrats Can't Handle Inflation
As much as I enjoy watching Democrats flail when they get in office, this inflation problem destroys everyone. We must take this seriously and aggressively work to get it under control. What are your thoughts on the optimal solution(s)?Quote:
Also, as with many economic phenomena, inflation is driven both by fundamentals (supply of money and supply of goods/services) and by expectation (expected future supply of money and expected future supply of goods/services). Expectations are part of the vicious cycle in which workers demand more wages to keep up with the cost of living, and those higher wages drive prices up further. They also disrupt business planning, which further constricts the supply of goods and services.
There are only two fixes for inflation: reduce the supply of money, or increase the supply of goods and services. How do you reduce the supply of money? There are four ways to do this:
[ol]Slash public spending, so the government is injecting less money into the economy. Raise interest rates, which puts recessionary pressure on the economy. Raise taxes without raising spending, so the government is extracting more money from the economy. Incentivize a shift from spending to savings, which reduces the amount of money chasing goods and services. [/ol]
Increasing the supply of goods and services can really only be done by government by lowering the cost of supply either by reducing regulatory burdens, eliminating environmental roadblocks to drilling and other development, cutting business taxes, reducing trade barriers, or pursuing other efforts to get government out of the hair of business.