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The premise of this idea is my theory that, despite what overpaid economists like to tell us, inflation in nonessential goods and services can be countered most effectively, and even reversed, simply by the public spending less. That's how market economics work, or how they used to. Businesses would
raise their prices, and when they realized they were selling less because of that, they'd be forced to lower their prices again or go out of business. At some point, Americans stopped being frugal. We stopped withholding our hard earned money from greedy corporations and sort of... caved, I guess.
We just resigned ourselves to paying whatever these companies want to charge for life's little luxuries, living beyond our means and not saving anything. 60% of us have no retirement-specific savings account, and 24% of us have no savings at all. Whenever we get a pay raise at work, our spending matches it almost dollar for dollar. Because of this, big businesses know that whenever wages go up, they can raise their prices again safe in the knowledge that we'll keep buying and buying and buying.
I've actually come around on the topic of immigration, a topic I used to take a hardline conservative position on. I bought into the bullshit claims from the right that immigrants harm the economy by hoarding their hard earned money and sending it back to their home countries instead of spending it in our economy by shopping as carelessly as we do. If you, too, bought into that kind of thinking, consider what it actually means to think that: that being frugal and saving your money is BAD for the economy. That's the economic argument against immigrants, in a nutshell. How did we ever let ourselves get suckered into thinking that?
So, the problem has been identified. The cause has been identified. But what needs to be done to fix it? Well, we need to convince Americans to start saving their money more, and I think I know a way to do it: make savings accounts tax deductible for citizens in the lower income brackets, but only if certain annual growth metrics are met. Say, if your savings account balanced increased by X percentage over the last 12 months, you get to claim X amount as a deduction.
This would encourage Americans to save more, which naturally has its own benefits to them individually, and it would help counter inflation because every dollar saved is a dollar not spent, and merchants will feel that loss acutely and be forced to bring their prices down to remain competitive. To convince consumers to take a dollar out of that savings account and give it to them instead they're gonna have to start offering more bang for that buck.
https://www.gov.uk/...-savings-low-income
Government supported savings scheme, 50% bonus on qualifying savings balance. [pocmloc, Jan 05 2024]
https://www.gov.uk/...ounts/how-isas-work
[hippo, Jan 05 2024]
Economics of the Post-War Consensus:
https://en.wikipedi...he_Affluent_Society
Excellent in parts ... [pertinax, Jan 06 2024]
Multidimensional money
Multidimensional_20money
... and the economic and political problems of efficiency [pertinax, Jan 06 2024]
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Government support schemes to encourage low income savings already exist (see link). The exact mechanics of a given scheme depend on (1) the national rules on taxes, benefits, etc, (2) wider economic management such as interest rates, monetary inflation (as opposed to price inflation), and (3) keeping the lawmakers's corporate donors on side. |
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I like that idea, the UK version I mean, except that mine differs in a fundamental way. A savings matching scheme means you're actually taking money out of higher income earners' pockets to put into the lower earners' bank accounts, which here would almost certainly be seen as wealth redistribution... to propose that here would be almost certain political suicide. A tax deduction instead would be a lot more palatable to the upper crust and thus more likely to gain political support. I think proposing it directly as a means of countering inflation is also a novel idea, have you seen that anywhere? (There's no snark in that question, I ask it honestly) |
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Hippo, interest is such... what's the term I'm looking for... small potatoes? That might appeal to a UK citizen, but y'all are a different breed. Only 13% of UK citizens report having no savings. That's a huge difference, and I don't think offering a deduction on the interest is going to be enough to sway an American from our shopping habits. |
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What I think is novel about my approach is coming out and saying that convincing citizens that spending less on nonessential goods and services is a solution to inflation. You look at things like our economic stimulus payments the government sent out during the pandemic, and economists have said that contributed a lot to inflation... but they leave out important details on WHY and HOW it did that. |
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Is this idea something like what’s called an ‘ISA’ in the UK? To encourage saving everyone can put up to £20,000 (in cash or investments) into an ISA every year Then, the interest or capital gains resulting from this is tax-free. (Ah, you responded to the link before I posted this comment - yes, so you’re trying to address the dire lack of *any* savings for most people)
While I’m here, two things that are horribly wrong with the US tax system:
1) Everyone has to file tax returns. This is ridiculous. Everyone spends time and money amassing data to tell the IRS what they already know. It’s a waste of time and is a result of lobbying from the tax-filing industry. I live in the UK and, because my tax affairs are reasonably simple, do not have to file tax returns at all. Relevant to this idea though, I think the complexity of tax filing acts as a brake on people doing advantageous things with their money (unless they’re very rich and can pay for expensive accountants)
2) Taxation without representation. There are two countries in the world that tax citizens on their worldwide income, the USA and Eritrea. US citizens overseas have to pay tax to the IRS but have no political representation in the USA if they have no permanent address there. |
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The ISA was linked to before your link, I posted a reply to that one already. I agree our tax system is fucked up, I'm HOPING that can be reformed. This idea is meant as something of a start to that. |
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No, the first link ‘Help To Save’ is government contributions to personal savings and not the same as an ISA, which is tax relief on savings and which is used much more widely |
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Ahhh ok I confused that. It sounds similar though.... You're only making the interest (and capital gains) deductible. |
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I don't know enough about these things but "tax deductions" seems to me to be a very US-centric thing. I would guess many people making use of Help to Save will not be paying income tax, because they earn less than the threshold of about £12k. Of course they pay other taxes such as VAT, NI, booze and fag duty etc. but those are not in any way "deductible". |
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So much for the first part of the idea (which is written second), and which I tried to summarise in my original comment as depending on //the national rules on taxes, benefits, etc// which means any proposal has to be tailored quite exactly to each jurisdiction. |
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The second part of the idea (which is written first) is perhaps much more terminal. I think in general that inflation is not caused by increased consumer spending; I don't think consumers have that much power. Partly there are different kinds of inflation; this idea seems to be addressing RPI or CPI i.e. price inflation, the cost of "non-essential" goods and services. (who decides what is essential? Is a house essential? You could live in a tent or a van. Is a phone essential? But I digress). I would suggest that price inflation is merely a symptom of monetary inflation, i.e. the creation of more money in the system. More money chasing the same amount of goods and services = higher prices. Of course the amount of goods and services is meant to increase as a result. |
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The increase in money in the system is largely driven by bank lending for mortgages and credit cards. The easy way to shrink prices of everything is to hugely tighten up the regulations on bank lending for houses and credit cards. i.e. to reverse the financial de-regulations of the c.1980s onwards. Unfortunately this would also completely crash the entire banking and shadow banking systems and destroy the world economy making 2008 look like a busy afternoon of normal trading. |
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But where would that money come from, A1? Taking it from other people who paid their taxes? |
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ISAs? Don't make me laugh. ISAs are garbage. The interest rates are hilariously dire, because the banks have realised that a) there's less tax to pay, and b) no-one wants to take the money out, (because they can't put it back in if rates improve) - so they've got oligopoly lock-in, meaning they can pay lower interest than current accounts and eat the difference. |
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It occurs to me that, if monetary inflation leads to price inflation, as economists say it does, that supports my theory. More money being injected into the economy leads to inflation. Saving money sequesters it, it takes it OUT of the economy, so this would be a direct counter to both monetary inflation and price inflation. |
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a1, while those 40% paid no federal income tax, there are still other taxes they paid. One potential idea would be to issue chipped sales tax exemption cards, which would exempt them from X amount of sales tax on, say, necessary goods and services like fuel and prepared foods, like restaurants or cab/Uber rides. For what's necessary, I was looking at the types of businesses that were not required to shut down during the pandemic, but of course that could be negotiated in the language of the bill. |
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The US federal fuel tax is $0.18 per gallon, that might be worth something to a lot of folks. |
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//Saving money sequesters it, it takes it OUT of the economy, so this would be a direct counter to both monetary inflation and price inflation.// |
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Actually, no. Not unless you keep it under your bed or something. |
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If you save your money in a bank, the bank can lend that money to someone else. And what happens then if they don't immediately spend it all? Well, they keep the unspent fraction in a bank until they need it... So then the bank can lend that money out... and so on.
(This is why a 'run' is so problematical for banks - they don't actually have all that money sequestered away, they're lending the same money out multiple times.) |
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(n.b. not an economist, don't take my word for it - this is just my understanding) |
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That's different though. Loans aren't usually used for the sorts of lower level luxuries lay people are buying, like sodas and smartphones and TVs and videogames and movies, etc. You get a loan for things that most poorer folks aren't buying at all, like new cars and houses. Different sector of the economy. But why don't poor people get loans for those sorts of things? Because they have crappy credit caused, in large part, by crappy spending habits that they can't actually afford, so they can't get APPROVED for those loans especially nowadays with lenders tightening their belts under all the increased scrutiny from the housing market crash in 2008. |
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Encouraging the poor to save more of their money would also likely help raise many of their credit scores because they'd become more money-conscience as they watch their savings grow. Get their credit scores up, and build a savings account, and more poor people will be able to get into the house buying market. As fewer people rent, rent prices will come down. |
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I see this as an absolute win! |
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////Saving money sequesters it, it takes it OUT of the economy...//
Actually, no. Not unless you keep it under your bed or something.
If you save your money in a bank, the bank can lend that money to someone else… //
Did *no one* watch It’s A Wonderful Life over Christmas? |
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//At some point, Americans stopped being frugal.// |
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We can be fairly precise about that point. It was part of the Post-War Consensus. See link. |
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Now there was a good reason for this change, which we touched on in the discussion of "Multidimensional money". See next link. |
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The problem you have to deal with is, the production of *essential* goods and services requires fewer and fewer employees as technology advances. |
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But all the *other* people still want to consume those essential goods and services (e.g., they still want to eat). |
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And if many people start cutting back on their consumption of non-essentials, how are all those non-essential workers going to earn a living? One important point to remember here is that, in designating a worker non-essential, we are not saying they are lazy, nor that they have *chosen* to be useless; it's just that, in a highly-automated economy, they're just not needed for essential production. |
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Up to a point, people can shift towards providing non-essential services for the super-rich. One of my cousins, for example, makes his living moving other people's yachts around the world, because their owners are too busy to sail across an ocean themselves. However, there may be a limit to how much production the super-rich can absorb. Also, there may be a problem with a world in which ever larger numbers of workers become ever more dependent on ever smaller numbers of employer / customers. |
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//Did *no one* watch It’s A Wonderful Life over Christmas?// |
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Did *you* not watch that long-running series, "Quantitative Easing", [hippo]? |
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A few years ago, I inherited some money. And at first, I invested it in shares; after all, I wanted to imagine that I was providing liquidity to productive enterprises, which both provided employment and supplied customer demands. And I spent a lot of time reading discussions between other investors. |
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As investors, many of us wanted to invest in companies that provided things that consumers would be spending money on in future. However, many of us also noticed that most consumers were not getting any richer - and many of them were getting substantially poorer, once housing debt and student debt were factored in. |
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Therefore, let's invest in essentials; people can't help spending on those. But how does that play out in practice? I actually experimented with investing in a company which held agricultural land in Latin America - because people have to eat, right? But that did not make money. What *does* make money is buying up finite stocks of housing and housing land. I emphasize "finite". Because this "investment" does relatively little to increase the supply of housing; what it does is to extract rents from working people who, having been outbid in the purchasing process, have no choice but to rent somewhere to live. |
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Imagine poorer people saving up more money. They put in the bank. The bank lends it to rich people (who are better credit risks). The rich people then buy up housing, and thereby help to keep the poor people poor. |
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To this point, what I've just said looks pretty negative towards this idea, and also agrees with what Galbraith would have predicted back in the 1950s (in fact, he'd already seen some similar things in the 1930s). |
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However, there are some good points in this idea, corresponding to some problems in that old Post-War Consensus. |
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You see, what Galbraith published back in 1958 made a lot of sense ... in a world of 3 billion people, where there was nothing wrong with burning fossil carbon. But we live in a world of over 8 billion people, where there is something very wrong with burning fossil carbon. Therefore the post-war culture, that the Baby Boomers gave to us - the culture that said "Relax, and consume fun stuff - there's plenty to go around" - that culture doesn't work any more. We need to change that culture. In particular, we need to think frugally. To that extent, I agree with this idea. However, the *kind* of frugality we need is different from the kind of 19th century frugality that Dickens used to encourage, because automation has advanced so much further than it had, say 150 years ago. See my previous anno. |
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//Did *you* not watch that long-running series, "Quantitative Easing", [hippo]?//
“Now in cinemas! - It’s A Wonderful Life 2: Quantitative Easing” |
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