With interest rate rises, the people in the most debt suffer the most. With tax rises, the highest paid suffer the most, and the govt has extra revenue to help the ones struggling the most. This is never considered by any govt. Why not?
In: 1129
Because the core issue is money supply.
When there is more money in circulation the price of everything goes up because there is more money chasing the same goods.
When the fed raises rates the money supply expansion slows down and thus inflation slows down. When they lower rates supply increases and so does inflation. During Covid we printed trillions of dollars adding a LOT to the supply in short order and roughly a year later we saw major inflation. If you understand this money supply issue the inflation was very much not shocking. Printing money has a consequence, it causes inflation. Society pays the bill when it decides to print more money to do things.
Raising rates is not about hurting people in any way, it’s about controlling money supply. It just so happens that changing things always hurts some people.
Taxing people doesn’t change the money supply, it just moves the money supply around. It wouldn’t do much to hurt inflation unless the government took the collected taxes and burned the dollars to reduce the money supply.
Apologies that this answer is long winded but this topic isn’t easy to eli5. Best I can do there is think about total money available.
If we all traded sea shells and today a loaf of bread costs 5 shells, and in our town there are only a total of 1,000 shells that we have collected for trading then that price will largely stay at about 5 shells. If tomorrow someone from another village shows up with 2,000 shells in a sack and hands them out to everyone our loaf of bread is going to go up to about 10 shells. Not because of the bread value increasing but because there’s more shells chasing the same goods.
Latest Answers