Better Way to Kill Inflation

Avraam Jack Dectis

January 16. 2023,

January 21, 2023 added implementation notes in response to comments.

OVERVIEW

We accept as a given that when inflation becomes excessive that interest rates must rise and the unemployment and significant injury to large industries are unavoidable.

This is not true and a result of bedrock unquestionable assumptions that are actually faulty.

I will deconstruct those assumptions and describe a less injurious way to deal with inflation.

DECONSTRUCT

The FED uses the available tools to deal with inflation, as it should, but it is encumbered by a lack of less injurious tools.

There is a series of wrong assumptions that have led to this situation.

Those assumptions are:

1) Income tax is considered progressive

2) Consumption taxes are considered regressive

From those two assumptions, we have built an economy that is equilibriumphobic.

The easiest way to understand the fallacy of those assumptions is the Theorem of Proper Taxation.

Theorem of Proper Taxation:

The Theorem of Proper Taxation consists of four assertions:

1) The purpose of national taxation is to control inflation.

2) The only time money causes inflation is when it is spent.

3) Therefore, the only time nationwide taxes should affect is when money is spent.

4) Ergo — consumption taxes are far preferable to income taxes.

It may not be immediately obvious why the Theorem of Proper Taxation repudiates the above two assertions, so an example is required.

In an income tax environment, demand is inadequately constrained by the income tax, and investors with access to capital can buy up houses and other hard assets, driving up the prices without penalty.

In a consumption tax environment, every capital outlay that is not for an intermediate good pays consumption tax. Thus investors will see greater risk to buying up assets and if they…