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I wanted to dig up this old thread. I never got any creative answers about this.
If we can print money, why do we bother taxing (at the federal level)? Wouldn't it be the same reduction of purchasing power to print the government's revenue into existence, instead of collecting it via taxes?
The feds get their power through taxation.
Only way to get rid of it is if there is no more federal government. Unless you think politicians are going to voluntarily give up power.
To start, understand how the 1913 Federal Reserve Act affected how we use money. Prior to the Fed Act, Money was backed by gold. If you find old US Bills, you will see that they say “redeemable in Gold”. In this case, inflation could not exist unless new Gold was found. Inflation is essentially too much money chasing after too few goods, and if there is never any new money, you would never have inflation. If money were backed by gold, and a dollar had the same relationship to an ounce of gold, $1 now would be the same as $1 in 1000 years. The Federal Reserve Act changed all of that. It essentially gave the Fed the power to create and destroy money. That means that now, US currency is backed by nothing. Not Gold, just faith. At a 50,000 foot view, that is the history of money in the US. So now, how does creating new money work?
The Fed creates new money and distributes it to economy through the issuance of debt. Let’s say Congress needs $2 million. It issues T-Bills, which are held by the Federal Reserve along with that $2 million of created dollars. Now, the government can spend the money, which ultimately ends up in the hands of us – the people. We just created a new money supply. But how did this cause inflation? Suppose the government estimated that it needed $2 million to cover the growth of the economy (the more people exist, the more money is needed in the US economic system, so to prevent deflation and to prevent a shortage of money, new currency MUST be printed). However, the government overestimates the economic growth, and then there is more money than there was demand. If the $2 million growth in money supply is a 5% increase in total money supply for the country (just to make up a few numbers), but economic output only grows by 2% in the same timeframe, inflation would be roughly 3%. Accurately matching the creation of monetary supply with organic economic growth is difficult, and inflation occurs when this is not accurately done. Governments realize they will not be 100% accurate in this effort, so they overproduce money, as that only causes inflation. The only alternative is to UNDERproduce money, which causes shortages where the typical citizen simply doesn’t have money at all (rather than having money that is simply devalued)
Relying on tax revenue keeps the same money circulating in the system, which by definition cannot cause inflation. Constantly printing money (due to the reasons listed above) will (almost always) cause some degree of inflation due to the inaccuracy in matching monetary creation with economic output. Therefore, taxation is favorable purely from the standpoint of controlling inflation for the sake of stability in the nation's economy.
I tried to keep from writing too much on it (and I tried to stay away from the technical economic theory behind inflation), but I can go into greater detail if you want.
I wanted to dig up this old thread. I never got any creative answers about this.
If we can print money, why do we bother taxing (at the federal level)? Wouldn't it be the same reduction of purchasing power to print the government's revenue into existence, instead of collecting it via taxes?
I seriously can't believe anyone with at least a high school level macro econ education doesn't understand why its not a good idea for a government to simply print all the money it needs. Go ask Zimbabwae how that's working out for them.
(to be fair, he did apparently purchase 2 castles.)
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