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How do we solve the inflation crisis? By cutting taxes and gov’t spending

Dec 17, 2021


We’re struggling with the highest inflation numbers we’ve seen in decades. The thing is, inflation is like a boulder rolling downhill; once it starts moving, it’s almost impossible to stop.

But the not-so-distant past may offer a solution. I’m talking about the theory of supply-side economics. It helped former President Ronald Reagan get us out of the crippling one-two punch of inflation and recession when he was elected in 1980. We increased supply, which helped stop rapid price hikes. Then he delivered big tax cuts that put more money in people’s pockets, and we went into a long period of tremendous growth.

Right now, consumer confidence is plummeting as prices are at their highest in nearly 40 years. President Biden seems to be in denial about just how big a problem inflation is at the moment. But it’s time the White House wakes up and starts taking action, before it’s too late.

The recent inflation numbers at 6.8% a year, the highest in 40 years poses a real problem. The reason it’s a real problem is once inflation sets in, it’s very hard to stop the normal pattern for stopping it is to raise interest rates, very decisively, uh, breaking the back of the inflationary pressure. That means restricting the money supply. And that means businesses and individuals can’t find surplus capital or surplus cash. So you normally, the result has been in the past that they have tried to defeat inflation by causing very deep recessions. And in fact, one of the reasons Ronald Reagan got elected in 1980 is they had the worst of all worlds. The inflation was going up, the unemployment was going up, Reagan invented what he called the misery index, which was combining the two. And all of a sudden it became a real symbol to people that it just wasn’t working.

We’re drifting back into a similar path pattern. The historic breakthrough was art laffer and the development of what was called supply side economics. Because the challenge here is inflation is caused when you have too many dollars or too much money, but dollars in the U.S. sense, and too few goods and services.

So you’re bidding up the goods and services because you have surplus money. One solution is to squeeze the money and that causes enormous pain and very high unemployment. The other solution, which Art Laffer the economist had created, and Ronald Reagan and Jack Kemp had adopted, was to, in fact, increase the supply. And that’s why it’s called supply side economics.

And the theory was if we just create more goods and services, they’ll mop up the money without pain. It turned out to work. Reagan passing a three year tax cut led to about a 30 year period of growth before the politicians screwed it up again.

Uh, and I think it’s really worth looking at as a case study. You’re gonna see a real fight here between those who pretend there is no inflation that really the current Biden white house view, those who believe the only way to solve inflation is with pain. That’s the traditional Keynesian demand side view. And those of us who believe that the real answer is to get to a balanced budget by controlling government spending. But at the same time cut taxes to allow people to have more money and more investments to actually grow the economy. So it absorbs the inflation that I think would be the right solution. The debate over this will become one of the biggest issues of the next three years and is something really worth paying attention to.



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