Returning to our hypothetical, instead of taxing people another 25% of their production, simply print 33% more dollars and spend it. Now $133 dollars compete for 100 widgets. Since printing presses don’t make widgets, each widget now sells for $1.33. Government gets its additional 25% of production but people now pay 33% more for everything they buy.
How are people uninformed? They just got taxed an additional 33% and didn’t even know that it happened. Governments love this new scheme.
Adding perspective and reality to our hypothetical, Congress just passed a $1.9 trillion “relief” bill using “printed money,” on top of a $2.3 trillion deficit. With our current money supply (M1/M2) of about $20 trillion, this represents a 21% increase in our money in circulation. Prices will follow – remember, all is proportional.
But wait, doesn’t the Consumer Price Index (CPI) show that “inflation” is running only about 2%? Yes, but CPI conveniently excludes items such as stock holdings, real estate and energy. Those prices are exploding despite our pandemic-slowed economy. Those with substantial holdings in stocks and real estate can now appreciate where the source of income inequality is coming from. In other words, deficit spending increases income inequality in the name of reducing it.
A $4.2 billion deficit represents a cost of $12,000 per person on top of existing taxes. Of course, by throwing a bone to the uninformed masses in the form of small stimulus checks, the government sells itself as the hero while quietly pocketing the change.