Much of inflation is being driven-by corporate concentration, so the answer is to not tax wealthy individuals but corporate profits at much higher rates:

https://scholarworks.umass.edu/econ_workingpaper/343/

> not tax wealthy individuals but corporate profits at much higher rates

Most wealthy individuals would take a haircut if corporate holdings were worth less. It mostly has the same effect.

It's not like Bill Gates has all of his wealth in cash.

Sure, but the parent was talking about how taxing wealthy individuals would not tame inflation because of their (relatively) small impact on demand. The same is not true about how corporate profits filter back into the economy.

> We raise interest rates in an inflationary environment because we want people to accumulate wealth in the form of financial assets instead of spending on real things.

Yes and no. The Fed has a not-so-subtle goal of taming inflation in part by capping asset prices with its interest rate hikes.

> Inflation is excess demand for goods and services

Correction, inflation is either from excess demand or constrained supply - the reasons for inflation matter when trying to address the problem.

> inflation is either from excess demand or constrained supply

Inflation is always about the balance between supply and demand

> the reasons for inflation matter when trying to address the problem

Less than one might think based on the either or thinking. Even when a change in supply causes inflation, reducing the demand side will bring it back down.

The exception being for specific items where demand is not very elastic in the short term, such as fuel or basic food items.

But even increasing interest rates (a demand side intervention) may not affect those prices by much, it will affect other prices enough that aggregate demand can stay low.

My understanding is that, at the whole economy level, it is in fact neither of these things, but instead too much money in circulation. If the government prints more money, then the amount of goods/services each unit will buy will fall. Through ultra low interest rates and QE, governments have been doing a lot of money printing.

That is an economic theory expressed by a particular economic school but it is not universally believed by economists.

And like most economic theories it’s very hard to (in)validate in the real world.

What are the arguments here? If it didn’t cause inflation, the USA should abolish taxes and just print trillions of dollars and buy everything in the world, and give each resident a million dollars a month as basic income.

You're conflating several distinct things here:

- The nominal quantity of money ("print trillions of dollars")

- Aggregate demand ("buy everything in the world")

- The velocity of money ("give each resident a million dollars a month")

Increases in the quantity * velocity of money drive inflation in the long run: prices do not equilibrate immediately but have to be dragged up (or not, as the case may be) by supply and demand.

So what are the arguments for why not to just print as much money as the government needs?

If many people believe printing trillions of dollars doesn’t matter, then I’d like to hear why. I’d like to not have taxes…

The government needs money to buy goods and services. Extra cash chasing the same pool of goods and services is definitely inflationary.

It also needs money to do weird, dark magic with bank balance sheets so that businesses can continue to acquire the capital to maintain and grow the supply of goods and services. It’s less clear what extra money sloshing around the financial system does. In the post-2008 era, people were freaking out about it not doing enough.

I appreciate your response, if I wanted to educate myself quickly here, is there a layman's textbook you would recommend?

Some people (including me) actually do think this is exactly what the USA should do.

I think people think printing money causes inflation, and in general “know” that you shouldn’t “spend more than you make”… but I think things are different when you can print money.

It would actually be a very efficient means of fund raising (vs the current tax code), as well as fighting income inequality (the basic income), and even if it did cause inflation, that’s basically just a very efficient progressive wealth tax (when coupled with a universal basic income).

In 5 years a roll of TP would cost $1.4T, but we could just remove a few zeros every year or so, amiright?

Inflation is the most regressive form of taxation there is. I'm in favor basic income, but if you try to just print it all, prices will increase to the point that there won't actually be a meaningful increase in purchasing power.

Imagine if the Fed just printed up 10 million dollars for everyone tomorrow. Do you think everyone would then be wealthy?

I mean, to some degree, that's what the US has historically done and can do, as a consequence of being the world trade (and therefore reserve) currency.

A side effect of that position is decreased sensitivity (aka inflation) of that currency to money printing.

Because you're effectively amortizing each new dollar's dilution of value against {everything the US uses dollars for} + {everything the world uses dollars for}. Which is a much larger denominator than national-only currencies.

(And side note that being a trade currency is somewhat of a Faustian bargain, because it carries an expectation/obligation that you will create sufficient amounts of your currency to facilitate international trade)

If the US keeps using the dollar as a fast pass to imposing unilateral sanctions internationally, and de-dollarization expands, there will be a very different level of correlation between monetary policy and dollar inflation.

The argument that is peculiar to the Austrian school is that monetary policy is the _only_ thing that causes inflation. Not that it can’t contribute to it.

And personally I think the last 15 years have done a pretty good job as a counterpoint to that school. The whole QE regime was chugging along without generating a large amount of inflation and then we had both the supply and demand numbers go bonkers. Then inflation.

I think this period will be studied for years (though because it’s economics I doubt there will be much decided).

Sounds like you've independently invented MMT.

'All models are wrong, but some are useful'.

In terms of policy making, the independent central banks of many countries (e.g. BoE) have been mandated to follow this model pretty closely - when inflation (a primary metric against which they are judged) rises (like now), interest rate increases and 'QT' are the response.

I'd prefer to see fiscal policy being used more - then the expansion/contraction of the money supply can be better directed for social good, and interest rates can remain nearer their 'natural' level in terms of correct pricing of time/risk.

Governments don’t create money, commercial banks do. Read the Bank of England paper

Indeed! But governments can control the money creation process by adjusting interest rates (specifically the rate that banks can borrow from the central bank), and market operations like QE

This is more of a political / philosophical view than economic. It's a less rigid extrapolation of the gold standard argument. Not to equate the two, but there's a connection.

Ah the gold standard was about pegging the amount of money in circulation to the quantity of Gold 'in the world', roughly speaking.

Of course with a growing economy this makes no sense, as you need more money to facilitate this growing exchange of goods and services, and so the gold standard is inherently deflationary (see also Bitcoin).

(Fiat) Money of course is just a signalling mechanism, it is not 'real' - money supply / velocity / inflation are concepts for understanding the mechanism, not much politics or philosophy involved.

Strictly, inflation is too much money chasing too few goods/services. Hence money printing (with low interest rates facilitating credit expansion, and QE activities) causes inflation, and the reverse will reduce it.

True that the rich will tend to save money thrown at them, but they also tend to sink it into assets (like property) hence the 'everything bubble'. As you point out, wealth taxes won't move the needle on the price of bread, but may help reduce the costs of housing.

That’a not ‘strictly’ what inflation is, it’s how the Austrian school defines it. But it’s much complex than that (monetary velocity etc.), so trying to model the economy using the quantity theory of money tends to not yield useful results.

Agreed that velocity is an important component, but I hope we can also agree that dumping large amounts of money into the economy (ultra low rates and QE) will result in price rises.

At the whole economy level, I'd suggest that supply and demand don't really cause inflation - at least, not the kind of disfunctional inflation that we should guard agains. For example, if the supply of bread is reduced, then necessarily people will eat less bread (and price signalling will ensure that it is the poor that eat less bread). So long as this does not trigger e.g. a wage price spiral or other pathological effect, then this is 'fine'.

Assets being overvalued is a different thing from inflation. It's true that the cost of housing is up, but that's also borne out in rents - there is more too it than rich people having too much money to offer for purchases.