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Demosthenes's avatar

What is the proper policy response to inflation? How would you solve it?

Asked by Demosthenes (13787points) 1 month ago

What should governments do to combat inflation? I hear a lot of complaining about it being due to whoever is in power. So if you were in power right now, what policies would you enact so that prices of commodities on store shelves would decrease?

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6 Answers

RedDeerGuy1's avatar

I would rejigger supply management to encourage food growth. No more asking farmer’s to not produce maximum amounts of food/meat/dairy.

Dutchess_III's avatar

We throw out too much food as it is @RedDeerGuy.

RedDeerGuy1's avatar

@Dutchess_III lots of food never makes it to the store. Sorry I don’t have a link.

JLoon's avatar

Hmmm… There was another thread here recently with some good discussion on more or less the same question : https://i.fluther.com/231383/what-is-the-lag-time-between-increasing-money-supply-and-inflation/

I haven’t fully implimented my plan for world domination so I won’t be able to save everyone until Thursday.

But while you’re all waiting, we should probably agree on one thing: Politicians suck when it comes to really understanding the economy. They all talk garbage about it, just like fat over the hill jocks talk about how they could have gone pro in high school, but when you actually check almost none of them have accomplished anything. Except when it comes to making things worse. Politics has an unlimited potential to make everyone’s life worse.

And we’re about to see more proof. At the moment Democrats are getting the blame because they promised too much and delivered too little. Republicans will sit back and win the midterms on a wave of pissed consumer votes – But they don’t have shit for a real plan, except for settling scores. That’s what we’ll get. More blame, more empty arguments, more dead end legislation, more posturing for nutcase extremists, but nothing that will really help the rest of us.

So what would I do different? I’d try to be like a good doctor – first do no harm. Don’t promise, don’t blame, don’t lie, and do as much as possible to keep the patient comfortable and alive. I think that means telling everyone that a political solution isn’t realistic because in our system politicians don’t run the economy. Business, finance, and consumers do – but they never run it perfectly.

Then besides telling the truth for a change I’d also take direct action on the three issues that hit consumer wallets hardest : energy & fuel prices, food costs, and housing expenses. There could be executive orders or other policy to release more oil from the strategic petroleum reserve (still at over 550 million barrels), increase benefits and eligibility for EBT food assistance, and extend forbearance & reduced payment plans for federally backed mortgages. All of those options could provide quick short term relief that would ease the strain on over one third of households.

But the fact is inflation and recession move in cycles and react to forces outside monetary policies and political agendas. Explaining that with honesty and common sense, while reassuring people by taking practical steps that can help day to day is what matters. Good leaders listen, don’t talk bullshit, and don’t get in the way.

But who knows where we can find someone like that…

seawulf575's avatar

You first have to understand what is causing the inflation. There are a number of things that are contributing but as a politician, you have to be brave enough to be honest about the reasons. And once you actually understand what is causing the inflation, you need to take appropriate actions, regardless of how counterintuitive they may seem. Example: When you cut taxes, it seems like you are going to make things worse because the government will be bringing in less money. But what actually happens is that people feel they have more money (less money being taken from them) and so they go out to spend more. That increases the demand on goods and services creating more jobs and therefore more tax money.

Entropy's avatar

Milton Friedman said “Inflation is always and everywhere a monetary phenomenon.”

I’m not sure I agree with how strong that statement is, but it’s mostly correct. We have inflation because for the last few decades we’ve been printing money recklessly to cover govt borrowing. We haven’t SEEN the inflation because the rise of developing economies has caused a rapid rise the DEMAND for dollars which has hidden just how sharp the rise in supply has been. We also had a reform in the mid 90s that changed the way we calculate inflation in order to DELIBERATELY underreport it so as to reduce SSI COLA payments.

If you want to reduce inflation, stop borrowing so much at the govt level, and that will allow the Fed to stop printing so much money. It really is that simple.

Now, it is true, the pandemic and the supply chain problems at US ports has also contributed to price spikes…but most economists are now coming around to the reality that the supply chain is not the main driver of inflation.

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