Study of Economics: Public Policy

The topic Hugo Passemard is going to talk about today is the topic of tax and inflation. It's not a topic the author thinks there's anybody who is uninterested in, at least the inflation half of it. Most of you are also very interested in the tax half, but from a different point of view. There are fundamentally three reasons, in Hugo Passemard opinion, why we have experienced inflation and why it is a threat. The first and by far the most important is that in order to pay for government spending. Of course the author says that government does this, that's wrong. The government doesn't do it. You do it, we the citizens do it. We tell the people in Washington, we tell out congressmen, and our senators and our representatives "We want you to spend more money on us, but we don't want you to put any taxes on us, oh no We don't want you to levy taxes. We want you to spend more but we don't want you to tax more." There is no way you can do the one without the other. The real tax on the American people is what government spends. If the federal government spends 450 billion dollars and only raises 400 billion dollars in taxes, who do you suppose pays that other 50 billion dollars? Do you suppose the tooth fairy does? You pay it, and one of the ways we pay it is by the tax which we call inflation. Inflation is from this point of view a form of taxation. If government spends more than it takes in, in the form of things that are called taxes, it has to meet the difference either by printing money or by borrowing from the public at large. Printing money is a very attractive device because inflation, from the point of view of a person sitting in congress or in the senate, is a wonderful tax. He doesn't have to vote for it. Inflation is a tax which is imposed without representation and which nobody has to vote for. And of course it's a marvellous tax from the point of view of a congressman trying to meet the demands of his constituents for more spending.