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It’s too easily forgotten that when Ronald Reagan sought the Republican nomination for president in 1980, the view even in his own Party was that the tax cuts he desired were inflationary. Yes, you read that right, Reagan was viewed as radical for not buying into the impressively obtuse theory that “putting money in people’s pockets” caused inflation.

In fairness to the Republicans in a broad sense, the Democrats of that era similarly believed tax cuts an instigator of inflation. That they did set Reagan up for a wondrous smackdown of Jimmy Carter during one of the 1980 presidential debates. Reagan asked the 39th president why it was inflationary to let the people spend their own money, but not so when government was spending our money.

Forty-two years later, it seems the Democrats have unlearned what Carter learned the hard way in front of a national audience. In a front page article in yesterday’s New York Times, economics reporter Alan Rappeport signaled a desire within the states to reduce a variety of taxes. The problem, according to Rappeport, is that “economists warn” cutting taxes “could exacerbate the very problem lawmakers are trying to address. By putting more money in people’s pockets, policymakers risk further stimulating already rampant consumer demand, pushing prices higher nationally.”

Not surprisingly, one of the “economists” warning about the downside of tax cuts is often wrong, never in doubt Harvard professor Jason Furman. Furman told Rappeport that “all these tax cuts in states are adding to inflation.” In attempting to explain Furman’s analysis, Rappeport indicated that tax cuts apparently have a downside because the economy is “at full capacity,” and “additional spending power would drive up demand and prices.” We’re all Jimmy Carter now, or something like that.

Perhaps some Republicans reading this are chuckling, but they would be wise to withhold their laughter. More than they’d like to admit, their neo-inflationist economic arguments of the moment resemble those of their confused opponents. But for now, let’s focus on the Democrats and Furman.

For one, there’s no such thing as an economy at “full capacity.” All production stateside is a consequence of global cooperation and the division of work with humans and factories around the world. To insinuate that the U.S. economy is at “full capacity” is to operate under the assumption that the U.S. is an impregnable island of economic activity. Quite the opposite, really.

Furthermore, Furman’s analysis ignores that all demand is a consequence of supply. This is important, because implicit in his argument is that if states “allow” Americans to keep more of what they earn, the act of doing so will constitute “additional spending power.” No, not at all. Our work is our spending power.

It’s all a reminder that in any economy, demand mirrors supply. While at any time there’s an excess or deficit of disdained or much-desired goods, in a broad sense we can only demand insofar as we supply. It’s sad that something so basic rates stating, but it does. Which means government can’t enhance spending power in the economy by “putting money in our pockets” as much it can reduce the spending power it extracts from our pockets. Demand springs from supply, which means tax cuts merely shift spending power back from government to those who produced the spending power in the first place: us.

Of course, the above truth is a reminder of the impressively obtuse arguments presently being made by neo-inflationists on the Right. Though they claim to be “supply siders,” their argument that government spending is creating “excess demand” reveals their closet Keynesianism. Their arguments imply that demand created by our wasteful federal government is driving up prices. Except that such a view defies simple economic logic.

Indeed, while there’s no argument about the wastefulness of our federal government, the simple truth is that it cannot increase “demand.” Only production enhances demand, and government produces nothing. It just confiscates a portion of the production of the people and redistributes it. Get it? With government spending there’s no increase in demand as much as there’s a shift of demand from one set of pockets to another.

That all demand begins with supply speaks to the foolishness of both sides. The Left claims putting more money in our pockets causes inflation, while the Right claims putting more money of others in our pockets causes inflation. Both sides are confused.

Both sides also miss that there’s an ocean of difference between rising prices and inflation. This is important simply because the price of a good can increase for all manner of reasons, including demand outstripping supply, but none of this is inflation. That is so because as logic indicates, a rising price for a certain good logically implies a falling price for another.

Inflation is a decline in the value of the unit of measure used to facilitate exchange; in our case, the dollar. Notable here is that measured in gold, the dollar is the same price today as it was when Joe Biden entered office; while that same greenback is up against most foreign currencies. It’s something to think about. Inflation is about monetary decline, but there’s been no decline in the dollar in recent years.

The paradox of the present is that tax commentary has regressed to what prevailed in the 1970s, while inflation has been redefined altogether to something non-monetary. Stupid times.

John Tamny is editor of RealClearMarkets, Vice President at FreedomWorks, a senior fellow at the Market Institute, and a senior economic adviser to Applied Finance Advisors (www.appliedfinance.com). His most recent book is When Politicians Panicked: The New Coronavirus, Expert Opinion, and a Tragic Lapse of Reason. 

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