Sunday, January 29, 2006

More Effective Inflation-Fighters

Many Economists, not just this Author, suggest that the Fed has already raised the Benchmark rate too high. The Fed, on the other hand, insists there exists significant pressures in the Economy to incite Inflation--driven by the high Cost of Energy. The pity lay in the fact both assessments are particularly sharp and accurate. What is there to be done?

The first element which must be understood consists of the fact that the Economy is a flexible system, continually reacting, altering, and responding to new pressures in a manner to flow around constraints. This is accomplished through alteration of Business practices, change of the Product mix, and switching between financing instruments. Reliance upon one institutional framework to control Inflation cripples the effort, as the Economy constucts shields against from such interference. The Fed may have done all it can in the Inflation fight, and it is not enough.
Effective controls on Inflation may have to be disbersed between alternate areas.

This Author also believes that Deficits are too high, and Taxation remains the greatest Inflation fighter appliable. He also believes We dare look to the Past for appropriate economic controls, their current lack of appeal coming only from present-day economic theories, many of which have already been discounted to some degree by contradictory economic data in the real World. Previous economic initiatives have often shown a better record.

There will now be a howl among almost all Economists--Liberal and Conservatives. This Author immediately calls for a 10% Surtax upon all Federal taxes, until such time as the United States military is no longer engaged in active Field operations. The Fed could comfortably reduce the Benchmark Overnight rate to 3.75%--a effective rate which will not hinder marginal-Profits industries. The stress on Taxpayers would not be excessive, nor would economic incentive be curtailed to great degree. The final gain results in higher Tax revenues at a time when We have an extremely profligate Government; One so spendthrift that this Author would call for terms in such Surtax legislation that it could only be spent to reduce the Deficit. lgl

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