Tuesday, September 18, 2007

No tax cuts please, we prefer inflation

It's been revealed this morning that earlier this year Cabinet was considering personal tax cuts of up to one billion dollars, but the idea was knocked on the head because advice was received that tax cuts would be inflationary.

That was bad advice. Tax cuts are not inflationary.

However, here's something that really is inflationary: carbon taxes and fuel surcharges that are going to raise the prices of fuel, of electricity and of food.

So, to summarise, the government decided to abandon the idea of tax cuts on the mistaken view that they would be inflationary, yet they've now decided to stampede towards new taxes that have the absolute certainty of being inflationary -- ignoring meanwhile, their own rampantly and inflationary spending binge with our money.

Would you perhaps call these examples of an ideological burp? Or just sheer bloody incompetence? As Gerard Jackson said earlier this year of the very successful Australian tax cuts, "One can only wonder at the intellectual powers of [people] who fear the so-called inflationary consequences of tax cuts while blithely ignoring the Government’s massive monetary expansion."

Labels: , , , , ,

7 Comments:

Anonymous Anonymous said...

Oh, but it's okay Peter, the Government are going to subsidise low income earners so they can afford the higher energy costs, thus, it's just the productive sector that has to shoulder the burden of the higher costs again.

Of course, it means a new class of beneficiary tied to Nanny's apron springs (if Working for Families did yoke them in, this should), and, obviously, the country being an even less desirable place to do business, but that's the socialists for you. Bleed the hand that feeds them until it dies, with the whole population enslaved to the State.

Mark Hubbard

9/18/2007 10:25:00 am  
Anonymous Anonymous said...

... edit:

... apron strings (if Working for Families didn't yoke them in, this should)...

Mark

9/18/2007 10:26:00 am  
Blogger Matt B said...

I'm not sure about the inflation argument except as it relates to monetary policy. What is the problem with price increases when they properly reflect scaracity?

The problem with inflation is not that prices go up, it is that it introduces distortions in the pricing system that damage efficiency in a subtle way. It is not simply the fact that prices increase that is the bad thing about inflation, because price increases are highly desirable when there is greater scaracity.

So I don't think inflation is a reason to reject environmental attempts to create scarcity and thus raise prices. There are plenty of other reasons to oppose environmental measures like this.

I simply do not understand the tax cut/inflation relationship. Inflation is the product of more money chasing the same number of goods. Why a tax cut should introduce more money than goods into the economy over anything but the very short run I don't know.

9/18/2007 10:29:00 pm  
Anonymous lgm said...

So Matt, you think that it is a good idea to artificially create scarity? That is, people should be forced to be less productive and less goods and services should be available for them as well. Wow! Impoverish the people.

Goodness, gratious. You'd have made a good little totalitarian indeed.

LGM

9/19/2007 04:20:00 am  
Blogger Matt B said...

So Matt, you think that it is a good idea to artificially create scarity?

Yes, if that correctly internalises externalities. Making pollution more scarce by taxing it is a good idea.

As I said in my post, I don't think it is an appropriate measure for many environmental issues.

Totalitarianism has precisely nothing to do with this.

9/19/2007 08:42:00 am  
Anonymous LGM said...

Artificially creating scarcity is an act of totalitarianism, especially when you promote it to satisfy your own arbitrary idea of "correctness" (as in correctly internalising externalities- whatever that line of BS is supposed to mean).



LGM

9/19/2007 08:53:00 am  
Blogger PC said...

MATT B: Y0u said "price increases are highly desirable when there is greater scarcity."

And you're right. Absolutely right. But (first point) these new price rises are promised not because of genuine scarcity, but because of rampant political correctness.

And (second point) whatever the reason for the price rises, the Reserve Bank will move to dampen down the price rises, and in so doing they'll distort genuine price movements -- and these price signals are crucial to the proper functioning of the market.

You say: "So I don't think inflation is a reason to reject environmental attempts to create scarcity and thus raise prices."

Not on its own, no -- as you say, there are plenty of other reasons to reject this nonsense. But it is a reason to reject Cullen's claim that he ruled out tax cuts because he's concerned about creating inflation.

Since tax cuts don't cause inflation (they just change who's spending the money) he's not just wrong in fact, but he's also lying.

You say, "The problem with inflation is not that prices go up, it is that it introduces distortions in the pricing system that damage efficiency in a subtle way."

Again, quite true. And if genuine price increases are dampened down artificially in the vain pursuit of price stability, then that introduces even greater distortions, as M.A. Abrams explained in a recent 'Free Radical':

In an economically progressive community (that is, one where the real costs
of production per unit are falling and output per head is increasing), any
additions to the supply of money in order to prevent falling prices will be
hidden inflation; and in a retrogressive community, (that is, one where output
per head is diminishing and real costs of production are rising), any
contraction of the supply of money in order to prevent rising prices will be
hidden deflation. Inflation and deflation can occur just as well behind a stable
price level as when the price level is rising and falling...

Thus, in the case where [economic progress] due to increased saving is
corrected by additional money for consumers, the result is to prevent any
[increase in the efficiency] of production; and where a fall in prices due to
improved knowledge is corrected by additional money, the result is to force a
transition to less [efficient] methods. In both cases the fruits of
progress are rejected because of a determination to keep prices stable.
Moreover, in both cases the correction of the attempted advances has involved
the abandonment of some of the higher stages of production where certainly some
of the factors used are highly specialized and these will therefore become
unemployed as a result of the transition.

9/19/2007 09:57:00 am  

Post a Comment

Respond with a polite and intelligent comment. (Both will be applauded.)

Say what you mean, and mean what you say. (Do others the courtesy of being honest.)

Please put a name to your comments. (If you're prepared to give voice, then back it up with a name.)

And don't troll. Please. (Contemplate doing something more productive with your time, and ours.)

<< Home