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Memories of the 28th Century

How Much" Eliminating Inflation

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I don't often think about inflation, but it is present whenever I buy anything, and it is not as benign as some would have us think. There are many measures of inflation, but I like to use a few things to show the change in proportion. You may not remember it, but in 1820 an ounce of gold was worth $20. That same ounce of gold would have sold for $35 in the 1960'a. But that isn't comparable, because the market for gold was highly regulated.

Another comparison is in the cost of labor versus living expenses. In the 1950's, many families lived on a single paycheck, and they had multiple children and owned a house, etc., and they managed nicely on that single pay check. I remember being on a halftime job and surviving nicely on the pay, including paying rent, etc.

That was only a few years ago, but since then many businesses decided to become greedier, so some costs increased faster than pays did. Even when everything increases at the same rate, some things get out of line over the years. Italy tried to keep everything in proportion, scala mobile or moving scale. And they used that for decades, but there were too many things that needed to be untied because external problems made them disproportionate.

Generally, there are two reasons why things change in value at other than the average rate: external factors and novelty. External factors include that changes that happened in the petroleum industry. The $5 barrels of oil of the 1950's were unnaturally cheap, but determining the appropriate value is impossible, because the target keeps moving. The electronics industries are excellent examples of how novelty affects value. This crummy little laptop I am using is more powerful than any computer was in 1960; I can't imagine how much it would have been worth on the market at that time.

Another factor in inflation is the nature of our money. The U.S.A. Creates dollars that are backed by government debt, and an effort is made to make the dollar drop in value, so that the Treasury Department can pay off bonds with dollars that are worth considerably less than the value of the dollars that were paid for the bonds, when they were issued. That required inflation of more than three percent per annum. That is the baseline, and there have been particular items that moved at other rates.

Real estate is one thing that has inflated at more than the base rate for many years. Some of the inflation can be blamed on government policy, but a large part of it is due to the way that market operates, and some of the people who work on pushing values up. The mortgage interest deduction is a huge advantage to some people, but it has made it more advantageous to buy real estate than to rent, while int an unregulated world the two would be worth about the same.

Another thing pushing inflation has been the capital gains tax rate. I have no problem with people winning in capital markets, but income is income, and it should all be taxed similarly. Making an adjustment for the time and trouble of managing an investment is fine, but using a different rate is not reasonably.

And I am a firm believer that all persons in the U.S.A. should be subject to the same laws, and the laws should treat everyone equally. If corporations are to be considered “persons before the law”, then they will have to be treated the same as actual humans, but I think it would make more sense to consider corporations as a type association. Flattening the tax burden could be done by considering all income the same and eliminating most deductions from income. Ordinary costs of doing business would be allowed on a cash basis to eliminate the possibility of playing games.

Simplified taxes like that would tend to improve compliance.

The final tax rate can’t be determined until after we lean the compliance rate, but a rate of 10 to 20% would seem reasonable, and this system should allow us to pay down debt, which would decrease or eliminate inflation. A rate of that size should be able to cover the country’s expenses and start to pay down debt, as long as politicians don’t decide to waste more of the people’s money. Eliminating the inflation would make it easier to pay down debt as time passed, so we should give it several years to start showing results, but within a couple of decades, we might not notice inflation any more.

Some people might claim that inflation is unavoidable and/or desirable, but there have been centuries when there was no inflation, and we should see that again.