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Comment by mempko | Hacker News Reader

For the US government it's a matter of political will. Where is the political will?

The political will is trying to balance a large existing debt at increasing interest rates, a significant primary deficit even in a good economy, rising military threats from China, a strong Republican desire for tax cuts, extremely popular entitlement programs that no one wants to touch, and an aging population with a declining birthrate

Modern monetary systems function through two main channels: government spending and bank lending. Every dollar in circulation originates from one of these sources - either government fiscal operations (deficit spending) or bank credit creation through loans. This means all money is fundamentally based on debt, though "debt" has very different implications for a currency-issuing government versus private borrowers. Government debt operates fundamentally differently from household debt since the government controls its own currency. As former Fed Chairman Alan Greenspan noted to Congress, the U.S. can always meet any obligation denominated in dollars since it can create them. The real constraints aren't financial but economic - inflation risk and the efficient allocation of real resources.

https://www.youtube.com/watch?v=DNCZHAQnfGU

The key question then becomes one of political priorities and public understanding. If public opposition to beneficial government spending stems from misunderstanding how modern monetary systems work, then better education about these mechanisms could help advance important policy goals. The focus should be on managing real economic constraints rather than imaginary financial ones.

The last four years have been nothing but a lesson in how much everybody hates inflation and how absolutely toxic it is to re-election campaigns

Yes, people hate inflation, because inflation creates a demand for more money! Inflation means there is not enough money for people. So why did prices go up, is it just because of fiscal spending?

The relationship between inflation and monetary policy is more complex than often portrayed. While recent inflation has created financial strain for many Americans, its root causes extend beyond simple money supply issues. Recent data shows that corporate profit margins reached historic highs during the inflationary period of 2021-2022. For example, in Q2 2022, corporate profits as a percentage of GDP hit 15.5%, the highest level since the 1950s. This surge in corporate profits coincided with the aftermath of Trump's 2017 Tax Cuts and Jobs Act, which reduced the corporate tax rate from 35% to 21%. This tax reduction increased after-tax profits and may have given companies more flexibility to pursue aggressive pricing strategies. Multiple factors contributed to inflation:

Supply chain disruptions created genuine scarcity in many sectors, particularly semiconductors, shipping, and raw materials Demand surged as economies reopened post-pandemic Many companies used these market conditions to implement price increases that exceeded their cost increases The corporate tax environment created incentives for profit maximization over price stability

For instance, many large retailers reported both higher prices and expanded profit margins during this period. The Federal Reserve Bank of Kansas City found that roughly 40% of inflation in 2021 could be attributed to expanded profit margins rather than increased costs. This pattern suggests that market concentration, pricing power, and tax policy played significant roles in inflation, alongside traditional monetary and supply-chain factors. Policy solutions should therefore address market structure, tax policy, and monetary policy to effectively manage inflation.

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