(07-28-2022, 07:14 PM)mikesez Wrote: Senators Schumer and Manchin have announced an agreement on a greatly reduced version of Build Back Better that they are calling the Inflation Reduction Act. Sinema is a maybe, and it's possible that other Democrats will object due to the lack of a SALT deduction increase.  But if they all vote yes, this will be law.

Inflation occurs when there is an excess supply of money, a shortage of supply of goods and services, and an urgency of demand.  All three ingredients are necessary.  The excess supply of money has been building for 20 years now, but it wasn't until last year that the other two ingredients lined up.  The bill promises to reduce the deficit and therefore the rate of money creation.  However the deficit reduction is very small, hardly noticeable, I think.  Probably within the margin of error of any economic prediction.  But the bill doesn't touch the other two factors.  It's not clear that Congress really can touch these factors, at least not with a policy that has any chance of passing.  These two factors will eventually dissipate on their own, I think.

The bill will raise some taxes on some corporations and hedge funds, but these increases are small.  ITG Republicans like to insist that every business will automatically pass on any new cost to consumers, so they insist that prices will increase further as taxes go up, creating more inflation.  But an actual conservative knows that a business is always trying to get the highest price they can get, they price what the market will bear, regardless of cost.  If the market is competitive, it may be difficult to pass new costs on to consumers.  And not every corporation will face higher taxes.  Corporations that aren't taking a lot of exemptions and deductions probably won't see their tax bill change.

The bill promises to reduce carbon emissions, but I'm not sure of the details there.

What do you think?

I agree with a lot of your points.  As it stands now, I don't think anything in this bill will curb inflation because it doesn't touch the two biggest factors, supply chain and oil prices. If you want to curb inflation you need to end the proxy war with Russia and figure out a way to get energy costs down.  Oil drives the cost of everything.  I don't know what the answer to the supply chain problem is since it's a global problem, I guess it's more domestic production of items.  I do think the new bill that will bring more domestic production of chips is a good start.

To your point about business passing excess costs onto consumers, you're right they may or may not be able to do that, but they can and will look to cut operational costs to maintain or enhance their bottom line, and generally that involves layoffs, hiring freezes, or pay freezes/decreases.

With an economy that is shrinking and in recession, typically the two levers you can play with to boost growth are cutting taxes and reducing interest rates, and here we are in a recession increasing interest rates to levels we haven't seen in years and contemplating creating larger tax bills for those responsible for creating jobs.  Seems a little backwards to me, but here we are.

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