Try The Supply Side

Everyone is worried that the “shock therapy” of rapid Fed interest rate hikes to slay inflation could crash the economy. Our CTUP board member John Childs, a financial wizard, has a better idea worth considering…

“Try a supply side solution to inflation that would require policies which lower, not raise, the cost of money, a synonym for capital. We should look at that other major factor in the capital cost equation, the tax code.

The cost of capital is computed on an after-tax basis. Anything that lowers that cost will increase investment activity and ultimately the supply of goods and services. So examining the tax code, one can see that some of the obvious inflation fighters would be: Immediate expensing of all capital investments; lowering, or eliminating, the capital gains tax; indexing capital gains for inflation; and simplifying the code so billions aren’t wasted on tax compliance.

Lowering capital gains taxes and — or either — indexing for inflation would liberate vast amounts of capital locked in suboptimal investments because of the tax penalty of moving. Improving the mobility of capital not only increases the available supply but it allows it to flow into higher and better uses. In other words, more capital, more efficiently employed: a supply-creating twofer.

The last component of supply creation is labor. Right now we are finishing up a labor experiment that could hardly have been better designed to increase inflation by raising the price of labor. We have been paying people not to work. In other words, we have been incentivizing a reduction in the supply of labor.

If the government is determined to print and distribute money, it should reward Americans for working.  How about a $1,000 sign up bonus for going back to the job?”

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