Deflation
during the Great Depression was indeed caused by a weak economy. But that was
an exception. Usually, deflation results from economic strength, when the supply
of goods grows more rapidly than the supply of money. Prices fall, and the
economy thrives, helping the poor most. The government should stop fearing deflation
and quit enabling the build-up of debt.
Another
misunderstanding: The reduction of tax rates, referred to as “tax cuts,” is
believed to cause government revenues to fall, increasing the deficit.
The
“tax-cut” label, implying a reduction of government revenues, is misleading. When
tax rates are reduced, government takes a smaller share of peoples’ incomes,
which stimulates the economy. More people find work. Income rises, and government
revenues go up, not down. Assuming government spending remains level, the
higher revenues cut the deficit.
When
corporate tax rates were reduced at the beginning of 2018, spending rose
substantially. It was this, not the lower tax rates, which increased the deficit.
Cutting
tax rates is good policy. This year’s reduction and the cancellation of
damaging regulations are why the unemployment rate is the lowest in fifty
years. The government should cut tax rates more, cancel more regulations, and, oh
yes, spend less.
