Comment on US Federal Reserve raises interest rates for the first time since 2023
CubitOom@infosec.pub 19 hours ago
I almost never hear economists explain why rasing rates is supposed to lower inflation. Or why it’s the only tool used to try to combat inflation.
The reasoning behind how increasing interest rates reduces inflation, is that it makes it harder for companies to get loans and keep people employed.
Literally, the fed increasing rates means they want to make more people unemployed, because they think inflation is caused by workers spending too much of their expendable income.
This is flawed logic in a K shaped economy, or an economy that is under pressure due to a lack of goods because of war and tariffs.
Rasing the interest rates, will not help reduce inflation rates or help the fed meet their 2% goal. This will only hurt workers, and increase federal debt.
There needs to be a plan to address the actual issues that are causing inflation.
Every rate increase is a hope that people lose jobs. And it simply isn’t going to resolve our issues.
Literally, the fed increasing rates means they want to make more people unemployed, because they think inflation is caused by workers spending too much of their expendable income.
That’s not what they think, it’s just the only tool the Fed has left at this point to try to lessen the overall impact of inflation. They can’t raise taxes. They can’t end Trump’s stupid fucking wars. Those are all functions of Congress doing their fucking jobs.
pmtriste@lemmy.world 18 hours ago
That’s because the actual way to lower inflation, raising taxes (especially on the ones who have most of the money), is deeply unpopular with the people who control the government (the ones who have most of the money). Also, everyone likes to pretend the government has a “budget” that equals the taxes it brings in, rather than taxes and spending being the mechanism by which we can control inflation and the tool to improve the economy. That isn’t the narrative they’ve been writing all these years.
its funny how republicans always talk about raising taxes depress the economy yet when we have high interest rates they fight raising taxes on the rich.
iopq@lemmy.world 15 hours ago
Raising taxes on the poor would combat inflation better because the poor spend all of their money
pmtriste@lemmy.world 12 hours ago
Oh, maybe I should address your comment from your perspective. I imagine what you’re suggesting is that microeconomically taxing the poor would combat inflation because they would have less money to spend. For one, I was speaking macroeconomically, not microeconomically. Speaking from a microeconomic perspective, if you’re assuming that supply is inelastic and demand is elastic, then lowering demand (by lowering the amount of free cash of people spending it) makes sense, except that the poor aren’t primarily spending money discretionarily. They spend money because they have to in order to survive. So decreasing their money doesn’t actually help to reduce their spending, because that demand is inelastic. You have to tax people who are making discretionary spending choices. From a “percentage of spending spent on discretionary purchases perspective”, you’re still taxing the rich, because at this point even the middle class is struggling.
iopq@lemmy.world 5 hours ago
Of course it would reduce demand, poor people would just skip meals. Just because it’s not discretionary doesn’t mean they would still spend the money they don’t have
This has been found multiple times, giving money to poor people boosts spending more than giving it to rich people. So if you want to cut spending, doesn’t it follow you take it away from poor people? You can’t have it both ways
pmtriste@lemmy.world 12 hours ago
That’s actually not true at all. Raising taxes on the poor is less efficient exactly because they spend all their money. The purpose of taxation in this scenario is to increase buying power by reducing monetary supply. If you tax the poor, you weaken the economy because they are already spending all their money. The rich, who don’t spend all their money, are objectively a much better place to tax because it weakens the economy less through a lower decrease in spending. If you tax the poor more, the government ends up having to spend extra just to offset the loss of spending from the poor (which then increases the monetary supply, lowering the effectiveness of the tax).
To put another way, government spending is how the government can positively impact economy by increasing spend in targeted areas, but this spending causes an increase in monetary supply, which causes inflation. The offset to this is for the government to tax the money back out of the monetary supply, which lowers inflation, but if they tax the poor then they are decreasing overall liquidity (because the poor reinvest all their money into the economy directly by spending it). So from a monetary supply perspective, the most effective taxation would be on “idle” money, or a wealth tax.
iopq@lemmy.world 5 hours ago
Yes, weakening the economy is the point. That’s how you get the inflation down. A rich person might put $1000 into a bond fund. A poor person would spend it on necessities they have been putting off for a while. Which causes more inflation?