Although taxation might reduce inflation, it seems to me that it would highly depend upon what the government did with the money. Certainly, if the money was taxed and no additional money was spent, the economy would slow down considerably -- but this is something no democratic government could ever do. So, it depends upon how efficient the money is then spent. If the money is spent wisely, so that it does the most good for the most people, then it should have a multiplier larger than 1.0, in which case it should fuel inflation. The only thing that would help is the delay between receipts and legislators seeing a budget surplus to distribute. But if the money is wasted on WPA-like programs of paying one group of people to dig holes and another to fill them back in, then it might be more efficient at destroying money.
Some economists say that many government programs have a multiplier greater than 1.0, but I don't know if I believe them.
But fractional reserve banking might be a faster, and less visible, way to achieve the same ends: if you increase the reserve requirement, you decrease the multiplier. This will almost instantly reduce the money supply, thereby reducing inflation -- almost through the same mechanism as taxation.
And reasonable people, who by dint of being reasonable are afraid of things like "fractional reserve banking" and "multipliers," will be none the wiser.
There will be no immediate political impact, and it is likely that when there is an impact, it won't be directed at the perpetrators.
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timeasmymeasure
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Date: 2023-01-21 04:35 pm (UTC)Some economists say that many government programs have a multiplier greater than 1.0, but I don't know if I believe them.
But fractional reserve banking might be a faster, and less visible, way to achieve the same ends: if you increase the reserve requirement, you decrease the multiplier. This will almost instantly reduce the money supply, thereby reducing inflation -- almost through the same mechanism as taxation.
And reasonable people, who by dint of being reasonable are afraid of things like "fractional reserve banking" and "multipliers," will be none the wiser.
There will be no immediate political impact, and it is likely that when there is an impact, it won't be directed at the perpetrators.