Taxe rates matter.
Truman took the presidency in April 1945. In December 1945 a tax reduction act was passed.
https://www.jstor.org/stable/2144666
The FED is not really doing much but bring asset prices down. I get why some people are against that. I get why I am for that.
Our tax reduction was in 2017. If we really need to know where the inflation came from it was 2017 as if the pandemic were to have never happened.
Once I see the hard right turn from that author and some of his sycophants, water game he is playing becomes useless, several counter arguments in the comments make more sense than that tool does. I try to resist the Mute button, however there are times…
In 1946, the supply constraints were mainly an artifact of the war. Both Europe and Japan had significant parts of their manufacturing capacity destroyed. But the US was untouched. So we became the manufacturer for the world for a while. (Slightly overstated, but we had an awful lot of the manufacturing.) Yes, prices rose, but we kind of gave ourselves the first pick of the production. That’s much different from today where we are dependent on overseas production and don’t have the ability to produce more at home. Then there was the Marshall Plan to rebuild Europe’s manufacturing capabilities. That’s the kind of fiscal stimulus needed to cure supply shortages quickly.
If we had a domestic version of the Marshall Plan to repatriate manufacturing, then I’d feel a bit differently.
1974 and 1979/80 are more instructive. They are more similar to today’s issues. The real failure was to keep inflation under control after the 1974 oil shock.
While on the surface it might look like oil is the problem again today, I suspect it’s not. Yes, there was a bit of an initial shock from the war in Ukraine and the resultant sanctions. But the reality is that the buyers and sellers just shuffled things around a bit. Instead of selling to Europe, Russia is now selling to the far East. Those purchases have freed up supplies from elsewhere to go to Europe. All is not completely settled yet and there are still a few imbalances here and there (most significantly natural gas in Europe). But there is no real long-lasting and wide spread oil shortage. It’s just supply and demand rearranging the deck chairs on the ship.
The real issue is the hangovers from the pandemic. That has disrupted supply, and the disruption is ongoing. The shipping issues are in the process of getting straightened out, although much like oil and gas, that’s not completely done yet. The biggest issue is Chinese manufacturing. China is still pursuing a policy of shutting down entire cities to control Covid outbreaks. Those shut downs affect whole supply chains. It may only be a few parts, but missing just one part can keep a car makers from selling 10s or 100s of thousands of cars. And the same can happen all over the place. The lack of just a couple of components is causing disruptions all over the economy.
So just like in 1974, we have an ongoing supply problem. And just like in 1975 - 1980, if we don’t raise interest rates sufficiently to control inflation, it will get out of hand and make things worse.
In order, yes, no. Yes, the economy likes stability. No this movement in the Fed’s interest rate is not herky-jerky. The Fed told us what they were going to do in January 2022: raise rates. The Fed raised the rate in March 2022, and told us they were going to keep raising rates. In May they raised the rate and told us they would keep doing so. In June and July and September, they raised the rate and said they would keep raising the rate. There is nothing herkey-jerky about this. They have been giving consistent guidance since at least January of this year, and they have been doing exactly what they said they would do.
That stock market participants choose to think otherwise is to their own detriment.
Going back to our automobile, the Fed has control over only the accelerator and the brake. Congress and the executive branch have the steering wheel. There is a cliff in front of us and the road turns to keep from going over the cliff. The politicians aren’t turning the wheel. So the Fed is applying the brake. If the politicians would turn the wheel, the fed could get off the brake. The Fed is the one looking out the windshield while the politicians are busy arguing over which radio station to play and ignoring the road ahead.
–Peter
Hawkwin,
I am unsure of that there are two other cost factors. The infrastructure to supply and use the gasoline may be very inflationary and the cost of the negative externality is climbing fast as climate change costs rise.
We all pay more than at just the price at the pump.