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PaperclipPerfector  2d ago (text post)   1477 thread views

Small-Scale Question Sunday for February 2, 2025

Do you have a dumb question that you're kind of embarrassed to ask in the main thread? Is there something you're just not sure about?

This is your opportunity to ask questions. No question too simple or too silly.

Culture war topics are accepted, and proposals for a better intro post are appreciated.

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I know inflation is just what it’s called when prices get higher, but I don’t understand how all prices get higher just because of a tax. Intuitively there must be someone printing money, or else an increase in dollars spent here would mean fewer dollars spent somewhere else.

In fact I think this is why the Austrian school actually defines inflation as an increase in the money supply. Transfer payments, i.e. taxes, e.g. tariffs, are not inflation.

Right. Not just the Austrians, I think; my high school Econ class was very Keynesian, but I’m pretty sure it used the same definition.

Regardless:

Next, I will direct all members of my cabinet to marshal the vast powers at their disposal to defeat what was record inflation and rapidly bring down costs and prices.

The inflation crisis was caused by massive overspending and escalating energy prices, and that is why today I will also declare a national energy emergency. We will drill, baby, drill.

I think tariffs stand in opposition to this layman’s understanding of inflation because they suppress the supply of consumer goods. If there’s a mechanism by which they do boost supply, or if they actually help the Austrian money-supply definition, I want to hear about it!

The amount of goods and serviced provided can decrease, too. Producers can't lower prices very much without losing money (there's a reason prices are sticky downwards) while consumers can't pay more to maintain consumption (with a stable money supply). So you have less economic activity for the money supply, with inflation as the proportion between them changes for the worst (just on the other side of the equation).

This was one of the reasons that I insist that policy decisions were the major drivers of Covid-era inflation. Not only were massive supplies of money printed and distributed, but governments banned or severely restricted major sectors of the economy for a long period of time. That money is going to go somewhere.

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