Regulating inflation.

Discussion in 'Economics & Trade' started by Brett Nortje, Apr 18, 2017.

  1. Brett Nortje

    Brett Nortje Well-Known Member

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    It so occurs that every year or month or so often, the price of things go up. this is not a natural occurrance as it is due to one product starting the inflation - one product goes up, and, for the owners and management of the other products to be able to afford that product they must put their prices up, see?

    So, how do we regulate inflation so that it does not go up any more? this would be down to introducing a tax for rising prices, where the product would be taxed to the state if they were to raise the prices. this would be called a, for lack of a better term, 'inflation tax.' maybe sometimes the tax would make sense to the business to have the tax and raise the prices, point is it will slow down inflation to a great degree, and, everyone that is poor or just mere customers will benefit.

    Now, the thing we could not control was oil. if we were to put this tax onto oil too, or, observe that nowadays there are people creating petrol out of wood, as, oil is aged wood, liquified, then we could control the rising prices to a near perfect point.
     
  2. Deckel

    Deckel Well-Known Member Past Donor

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    Inflation really isn't the bigger problem. In a service economy, services are not being taxed in the way goods are which is making it increasingly difficult for state and local governments to raise revenue streams in connection with rising prices. Slap a 5% tax on medical and legal services and the economy would be booming.
     
  3. Ritter

    Ritter Well-Known Member

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    You do know that prices are not raised "just like that", but that it is actually the result of increased demand, right? Why should a company/entrepreneur who produces something people want be punished?
     
  4. Tim15856

    Tim15856 Well-Known Member

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    I read a long time ago that interest rates were used to keep inflation in check. Maybe not so anymore. The government wouldn't want to see the interest on the US debt skyrocket.
     
  5. Brett Nortje

    Brett Nortje Well-Known Member

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    Finding a way to stop or reverse inflation would sound good to any tax paying customer or citizen, and, they would vote for it. this means i want to come up with 'a way' because people would like to hear about it, i suppose?

    So, if we were to cut zeroes off the currency every now and then, within the circles that money is spent, like salaries and prices and exchanges, first of all people would say it is a very strong currency, yes? then, the amount of money kept in the bank accounts would not change, allowing a splurge each time the prices 'are cut.' this will work like a clearance sale, or, a good start to owning a home, but, how do we regulate it?

    If we were to observe the banks are private, then they could keep as much money as they like, and, would want to keep more of this lovely worthwhile money. then, the businesses also being private, would score off of their accounts remaining the same, while they get to pay their staff less, yes? the state would receive a huge lump sum at the time to spend too, so they are also fine. the only person who is not fine is the people selling goods or providing services, so, how do we cut them in on the deal to sell goods at less or not increase their prices?

    Well, in a free market, they could sell them for whatever they like, except if they all sold them for less, the price of living would go down, yes? this means the actual managers and owners would score for their private lives if they can 'avoid sticking someone in the back.'
     
  6. Liberty_One

    Liberty_One Active Member

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    You don't seem to understand the cause of inflation. Inflation is caused by government policy, not businesses just raising prices every now and then. If you want to stop inflation, the solution isn't some tax or price controls, it's to end government control of the money supply, which is the true cause of inflation.
     
  7. iamanonman

    iamanonman Well-Known Member

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    Why do we want to stop inflation? What problem is being addressed by that?
     
  8. tharock220

    tharock220 Well-Known Member

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    Keynes got the idea many years ago that controlled inflation was necessary for the economy. Inflation is controlled by limiting the demand for money. When the risk free interest rate is low it become a less enticing investment, but when it goes up saving become yields greater returns with less risk. It also decreases the demand for money and slows down the speed that capital moves through the economy which leads to the idea that higher interest rates are bad for the economy.

    What's happening right now is counter intuitive to what Keynes postulated. The truth is things are supposed to become cheaper, not more expensive ignoring near term fluctuations. Computers were $2000 back in 1995, and now you can buy one for a few hundred. Animating, editing, CAD, etc had to be done on very expensive custom ordered machines, now they can be done on Macs out of the box. There's no reason for a house purchased in a well developed neighborhood to triple in value in a matter of years with no sort of improvements done.

    The other issue is the US is a services and consumption economy. 80 years ago investments were more often put into productive activities. Now if you try to stimulate growth by increasing the supply of money people just buy stuff with it and the end result is no net gain.
     
  9. Longshot

    Longshot Well-Known Member

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    You mention inflation, but don't define it. Please define it.

    For extra credit, please describe how inflation could occur in a barter economy (one in which money doesn't exist).
     
  10. Brett Nortje

    Brett Nortje Well-Known Member

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    Every time prices go up, there is less money in the reserve bank. if inflation was kept in check, then there would be a more stable economy, where people may earn more and pay less, of course.
     
  11. Brett Nortje

    Brett Nortje Well-Known Member

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    If the state did not control it, who would? it seems that there will be somebody in control of the price of goods, and, without the state getting involved, for example, there would be monopolies forming very fast, or, welfare would nearly not exist, as the state would not have any control.
     
  12. AGWisFAKEsillyBABYKILLERS

    AGWisFAKEsillyBABYKILLERS Well-Known Member

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    I understand you don't like inflation but their is reason behind this big picture..
    First off their is infinite money in the federal reserve bank.. Infinite absolutely.. They can print as much money as they want at any time..
    Inflation is not "goods costing more", really goods cost the same amount of value but it is the value of the money itself decreasing.. 2 loaves of bread is still worth a cheeseburger or 10-15 minutes of your time but now that costs $3 instead of $2 because the $$dollars themselves are worth less now..

    Inflation is no accident, it is 100% on purpose and kept constant and for good reason.. It is all about consumerism economy..
    So, if you have $10 and you know that your $10 will only be worth the equilavent of $8 of todays value in one year then it is a wise decision to spend that $10 NOW while it is still worth as much as possible.. Money constantly decreasing in value is the goal to keep it flowing..

    If you had $10 but in a deflation environment you knew next year it would gain in value and be worth the equivalent of $12 then it would be a wise idea to save those $$dollars because they would increase in value.. So you wouldn't spend them, you would just save them, the money wouldn't flow, and it would be bad for the economy..

    Investing has a lot to do with beating inflation, you invest in stocks or property hoping to choose the right places to dump your inflating $$dollars so the actual value of your holdings remain steady or even grow.. If you ever calculate a long term make sure to account for inflation because $$dollars wil not be worth what they used to when the time is up..

    Say you put $100 in a book in 1980 and saved it until today.. This was a terrible "investment" and you basically threw away a ton of value.. You have the same amount of $$dollars, but now they aren't worth **** compared to what they were when you saved them.. It is all a strategy to make you spend that money to geep the economy going, money flowing, rather than money getting stuck somewhere and taken out of the economy until you decide to spend it..

    Interest rates have EVERYTHING to do with inflation..
    When loans are made that is money being created out of thin air, the money did not exist until you borrowed it, look it up..
    What causes inflation is the increase of the supply of money..
    Think of it like this.. If only 1/10 people have the brand new iphone then the demand is greater than supply, everyone wants an iphone so people are willing to exchange a large value for one..
    Now, imagine every person has 10 brand new iphones, then they wouldn't be worth crap because everyone has plenty and do not need anymore, they are then worthless as far as value..

    If I found say 1,000 tons of gold on my property and the world found out then the value of gold would TANK (go down) because the supply increased while the demand stayed the same, even before I sold it off, because traders would know the effect and take advantage of the situation..

    So if you create a whole bunch more $$dollars then $$dollars are then worth less because their is an increased supply and the dame demand..

    The interest rate on loans directly effects inflation because like I said the money created for the loan comes out of thin air and increases the supply..
    So if you lower interest rates then many more people will take out loans because it is easier to beat that interest rate and profit so a lot more money gets created..
    If you raise the interest rate then it is harder to beat that interest rate with your investment so a lot less people will take out loans because it is harder to win..
    Inflation is controlled by the interest rate in this way..

    K, that should cover it.. Their are some great youtube videos on this subject.. Our monetary system is quite complex..

    With fiat currency, $$dollars, the interest rate and therefore amount of inflation is controlled by some guys that are supposed to have the best interest of the American economy in mind.. They could do anything at any time and are unpredictable, could act on other interests, or could make mistakes.. Fiat currency $$dollars are a very very bad ting to save and basically guarantee you will lose if you save $$dollars because that is the entire point of the monetary policy..

    Bitcoins on the other hand also inflate BUT their are no shady dudes controling the inflation.. The inflation for the rest of time is written in code so you can know NOW exactly how much inflation their will be at any time in the future and exactly how many Bitcoins will exist at any time in the future..

    A "problem" with Bitcoins right now is that noone is spending them, the money isn't flowing, because the price keeps going up up up you would be a fool to spend them therefore people HOLD them and do not spend them..
    Not really a problem for an investment, but if an entire economy ran on Bitcoins and nothing else it would be a huge problem because noone would spend and everyone would just save and the economy would gringd to a halt because money wouldn't flow because everyone is only saving the currency itself..

    Bitcoin is going up and up and where it stops noone knows..
    Bitcoin just put up a new all time high today :) worth more than ever.. $$dollars constantly put up all time lows in terms of real value bacuse they are designed to do just that..

    BTW every fiat currency in the world is designed to inflate so when the $$ goes up AGAINST the EUR or CNY whatever it just means that it is losing value slower than the other, never gaining.. If the $$ or any currency actually gained in value over time it would be an economy crippling crisis.. So monetary theory goes..

    [​IMG]
    Bitcoin/USD$$

    [​IMG]
     
    Last edited: Apr 26, 2017
  13. Kenny Naicuslik

    Kenny Naicuslik Member

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    Dear mister Brett Nortje,

    I made this account specifically to reply to you, because it is quite honestly one of the absurdest economic policy proposals I have read in a long time(and that is saying a lot).
    You seem to not understand what money, inflation or economic incentive is so let us start at the beginning:

    1. What is money?

    Before I explain this to you any further, I will first explain to you what money actually is because I don't think you know. I don't blame you for it, most people don't. Money is such an important part of our daily lives that it is easy to forget what it actually is. In theory a dollar is merely a piece of paper that says the federal reserve owes me a piece of gold. And since the value of gold is relatively constant, this means I can barter things with other people without having to deal with the practicalities of pre-monetary trade.

    2. What is inflation?

    Let me get this straight right away: Inflation is not the same as higher prices! Inflation means each dollar bill I own represents a smaller amount of gold in the federal reserve. This happens because the government spends more money than it has, and borrows the rest of the money it needs from the federal reserve. The federal reserve in turn prints more money to borrow to the government, without increasing the amount of gold in its vaults. This means every dollar in circulation is worth a smaller amount of gold. If a bike was worth two pairs roller blades before, it still his. However if I first sold my bike for 60 dollars and bought the roller blades for 60 dollars, I now might sell my bike for 80 dollars and but the roller blades for 80 dollars. Inflation is when the goods in question are still worth the same amount relative to each other, however the intermediate currency used to trade them has become worth less. If tomorrow the roller blades factory blows up and my bike is subsequently worth only one pair of roller blades instead of two, that is NOT inflation. That is merely the free market adjusting for a decreasing in supply while the demand stays the same.

    3. This being said, why is your proposal a very bad idea?

    Let us say I produce sunglasses, and own a factory that is capable of producing a thousand pairs of glasses a month. In order to survive, I trade these sunglasses for money, which I then use to pay my rent, food, insurance, etc. This is my economic incentive for producing glasses. So let us say I make an average profit of four thousand dollars a month from selling these glasses, and from that money I spend 3000 dollars on my other expenses. Now inflation happens, I now still earn four thousand dollars a month however all of my prices have gone up by much more. The cost for me to produce the sunglasses have increased because I have to pay higher wages for my employees and my rent, food, insurance, etc has increased as well. In order to pay for these increases in costs I will have to raise the prices of my sunglasses. (By the way, the effect of inflation are not as simple and direct as I am stating them here, however I am simplifying them for the sake of argumentation. If you want to know more about inflation I can recommend some books or answer some questions.)

    Now, let's say your bill has passed and I can no longer increase the prices of my sunglasses. This means I can no longer pay my living expenses and the salary of my employees from my income selling sunglasses. This means I will simply stop doing so. Period. I will not produce my sunglasses if the government destroyed my incentive for doing so. Now in the case of sunglasses, this isn't all too big of a deal for society as a whole. But the same will happen for bakers, butchers, farmers, etc. Price fixing(which is what you are proposing) has only one possible result: You will increase a shortage of EVERYTHING. Have you ever seen the pictures of people waiting in line to get bread in socialist/communist countries because of a shortage? These things happen as a direct consequence of government price fixing.

    So please remember, whatever you do: Don't mess with the free market!

    Yours sincerely,

    Some Dutch guy with a passion for economics.
     
  14. OldManOnFire

    OldManOnFire Well-Known Member

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    It's not registering with me how increasing taxes on business and consumers will create a booming economy?
     
    Longshot likes this.
  15. Deckel

    Deckel Well-Known Member Past Donor

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    Why is a hamburger taxed but a Will not?
     
  16. OldManOnFire

    OldManOnFire Well-Known Member

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    All service's taxable income is subject to either personal or corporate income taxes. The attorney who makes your 'will' will have taxable income from what they charge you. The person/company mowing your lawn as a service must pay taxes on the taxable income portion. Your hamburger is taxed at the retail point but not at the wholesale point...but the company making the hamburger meat is paying taxes on their taxable income...
     
  17. Deckel

    Deckel Well-Known Member Past Donor

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    And goods are taxed as well, but that is not the same thing. By not taxing services, state and local governments lose out. There simply is no logical reason one should be taxed and the other not.
     
  18. Longshot

    Longshot Well-Known Member

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    On a free market, without state intervention, the supply of money would be controlled by the same mechanisms that control the supply of corn, computers, and clothing. Supply and demand.
     
  19. OldManOnFire

    OldManOnFire Well-Known Member

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    I get it that the more we tax the more tax revenue is generated. I'm thinking about a medical service which costs $12,000 for materials and meds and $320K for doctors services. I'm thinking no problem charging sales tax on the materials and meds but how about adding a 7% sales tax to the $320K? My mind is stuck in the economy from decades ago in which most consumer items were goods and a small percentage of services. You're talking about adding 7-8% sales tax to my stock broker's commissions, to the services provided by the bank teller, to the services provided by the wait-staff at the restaurant, to the guys mowing our lawns, to the parking lot attendants, to the hotel staff, etc. etc. etc.
     
  20. Deckel

    Deckel Well-Known Member Past Donor

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    in some places, there are already taxes on hotels. The real problem with taxing medical services isn't that you have to pay, but figuring out how much you have to pay and who has to pay it withing the whole insurance complexity. If your billed charges are $300K and you insurance only allows $80K and pays $75K and makes you pay $5K, there are arguments going lots of different ways as to what amount should the tax be based upon and whether or not insurance will be footing the part for the part they pay.
     
  21. OldManOnFire

    OldManOnFire Well-Known Member

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    A tax on services should mean a tax on services...period. It will be too convoluted to break down services into taxable and non-taxable services. I still prefer not taxing services and just let personal and business income taxes do their job. If we don't have enough federal tax revenue then no problem with sales/excise taxes but keep them simple...
     
  22. Deckel

    Deckel Well-Known Member Past Donor

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    Then we tax the $300K billed surgery on $300K instead of the $80K actually paid. Works for me. It will discourage overpricing to make it look like insurance saved you a bundle.
     
  23. drluggit

    drluggit Well-Known Member

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    So, first, I'd suggest that "price" sometimes also reflects "value". Improving the "value" of something doesn't necessarily equate to inflation. Perhaps if you'd start from a position that inflation is a reflection that the underlying "value" of a currency isn't the same as the value attributed to a commodity, you'd have some basis for a conversation.

    If a price of a commodity goes up, it may reflect one of two things, scarcity or enhanced value, or it can mean the devaluation of the currency used to obtain it with. If it is the former, that doesn't inherently represent a bad thing. If it's the latter, it might.

    The real question is the balance between currency and value, the stability of that value, and the perception of future value of it. Things like prices are then tied to that sequence.
     
  24. Kenny Naicuslik

    Kenny Naicuslik Member

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    I do not understand your line of reasoning.

    These are the facts:
    1. Good are taxed
    2. Taxation reduces the purchasing power of the consumer
    3. The economy suffers if the consumer has less purchasing power

    This might just be me but the logical conclusion from these facts would be that we should stop taxing goods, right? Not tax services as well and hurt the economy even more.
    How exactly would it help our economy to tax services? What is your argumentation? Because the only argument I've read from you so far is "why shouldn't it?".
     
  25. Deckel

    Deckel Well-Known Member Past Donor

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    As was stated, because state and local government need the money. "Hurt the economy" is an tired canard. Not having roads hurts the economy; not having an educated workforce hurts the economy; not having police officers and firemen and ambulances hurts the economy. Tax cuts have a low multiplier effect. Targeted investment credits are more effective than "tax cuts".
     

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