Friday, October 08, 2004

Tax Five - Inflation

(Sorry for the delay of post but blogger was down last night)

It’s Friday, evening is coming, and I’m finally getting to this final post on The Five Taxes. What is the fifth tax – Inflation.

How do Bush and Kerry stack up on this last tax?

I don’t’ mean to sound trite, but except for the power to appoint members of the Federal Reserve every 6 years and the President’s use of the bully pulpit either for or – as is more often the case – against the Fed, the President doesn’t have much of an affect on inflation.

First, I believe that first and foremost, inflation is a monetary phenomenon. This means that the level of inflation is determined by how much money the Federal Reserve is releasing into the system. From my book:

To maintain stable prices, the amount of money circulating within an economy
should grow at the same rate as the economy. So as businesses produce goods, a
proportionate amount of dollars should be printed.

This is a relatively new explanation of inflation.

Many economist and - I believe - most citizens think inflation is caused by a lot of people working and buying stuff and driving up prices. This is known as the Phillip’s Curve. This simply isn’t true as has been proven by history. I don’t think I can hold your interest long enough to describe it, but that’s it.

Inflation is caused the by Fed printing too many dollars.

I’m giving this one to Bush. Bush gets this one because I haven’t heard him scapegoat Alan Greenspan at all for the economic downturn. It would have been very easy to demagogue this issue. Bush could have done this and appointed a successor. It would have been politically easy to do and has been done in the past.

Kerry’s comments on the Fed have been non-existent and his actions benign.

That said, I don’t think either candidate or 99% of the Congress knows the first thing about inflation and it's causes.

Bush wins this one.

So in summary:

Tax One - Direct Taxes - Bush Wins!
Tax Two - Trade Restrictions - Kerry Wins!
Tax Three - Immigration Restrictions - A Draw
Tax Four - Regulations - Bush Wins!
Tax Five - Inflation - Bush Wins!

So the Pure Investor will grudgingly vote for George W. Bush. He's not happy about Bush's trade and immigration policy and there's lots of room for improvement for on the regulatory front, but between the choices's Bush.

Stay You.

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