Thoughts on the “Inflation Reduction Act of 2022”?

[DogOfDanger]

It's good legislation, as is typical of Democrat administrations. It reduces the budget deficit and makes investments in areas which will benefit the greatest number of people, rather than being a budget from extremist Republicans which tends to blow up the budget (read, steal money now for the rich and make the average person pay for it in the future), which basically destroys civilization for the benefit of a few rich people.

Eh, in real world terms inflation effects the poor more than it does the rich... the poor are the ones that can't afford gas and food, where those things make up a third of their budget. To a rich person... they don't even notice the difference. Climate change is an important issue to address, but not really for the cause of reducing our current inflation... Investing in it might reduce inflation in the very long term, like after most cars and trucks are electric (it's gona take many decades) ... assuming the stimulus actually makes the critical difference in the adoption of that technology, which is questionable. But if you really wanted to address inflation in the short term you'd reincentivize domestic oil drilling. Inflation is a short term problem in that people could already barely scrape by prior. Also... you say another bill would steal money for the rich - the bill is for 700B$... clean energy companies make money the same as dirty energy companies. The issue is what's practical and needed.
If you want to deal with climate change that's fine, I think we do need to address it, but it's not addressing the current problem with inflation.

[Poptart]

Eh, in real world terms inflation effects the poor more than it does the rich... the poor are the ones that can't afford gas and food, where those things make up a third of their budget. To a rich person... they don't even notice the difference. Climate change is an important issue to address, but not really for the cause of reducing our current inflation... Investing in it might reduce inflation in the very long term, like after most cars and trucks are electric (it's gona take many decades) ... assuming the stimulus actually makes the critical difference in the adoption of that technology, which is questionable. But if you really wanted to address inflation in the short term you'd reincentivize domestic oil drilling. Inflation is a short term problem in that people could already barely scrape by prior. Also... you say another bill would steal money for the rich - the bill is for 700B$... clean energy companies make money the same as dirty energy companies. The issue is what's practical and needed.
If you want to deal with climate change that's fine, I think we do need to address it, but it's not addressing the current problem with inflation.

Yeah I doubt this bill is our silver bullet to inflation. I think the idea is that these policies, when taken as a whole, have a net deflationary effect on the economy. A reduction in the deficit is a reduction in public spending and the overall level of demand, which in theory should lead to lower prices over time. Allowing Medicare to negotiate prices with prescription drug companies is a policy that directly targets healthcare spending and should reduce costs for consumers and the federal government. Increased enforcement of existing tax laws reduces demand by lessening the deficit and taking money out of the economy that would otherwise probably be spent on consumer goods. I guess that investing in clean energy should increase supply over the long term, but yeah I agree that won’t change the $10 price tag on bacon at my grocery store. I also wonder how car buyers will take advantage of the EV tax credits when there’s already a shortage of electric vehicles that will probably get worse when car buyers see a $7.5k slash in price

These policies have an overall deflationary effect on the economy. I suspect the magnitude of this effect won’t be enough to solve inflation by itself. Monetary policy is set by the federal reserve, not congress. I think the name of the bill is mostly just political marketing.

[DogOfDanger]

A reduction in the deficit is a reduction in public spending and the overall level of demand, which in theory should lead to lower prices over time.

Increased enforcement of existing tax laws reduces demand by lessening the deficit and taking money out of the economy that would otherwise probably be spent on consumer goods.

I've heard this said a couple times, but it doesn't make sense to me. If the reduction in the deficit was achieved through a reduction in government spending then yes, people would have less money and they could spend less on consumer goods... such a bill would be appropriate if there were some kind of money bubble, like if the public had large amounts of excess money and this was driving inflation. The policy would need to be targeted toward the segment of the public that had the excess cash, which... those that live off entitlements aren't exactly rolling in cash. But there isn't a large spending bubble out there today anyway, far from it...
But if you reduce the deficit by increasing corporate tax rates, as this bill did, that's not going to reduce the publics available cash. It'll reduce companies available cash... I don't see how that would translate into less consumer spending and inflation reduction. Not unless you mean to drive wages down, dry up jobs, or reduce the number of goods on the market... it's not a targeted policy aimed at a specific spending bubble, it's just slowing down the whole economy.... It will take a long time for these effects to accrue... and there isn't a spending bubble anyway, what's driving inflation is the price of gas, and that's a supply problem. The solution would be to drill domestic oil. Democrats ideas prohibit them from doing that... so, instead of addressing the issue directly we have this weird logic about how increasing corporate tax rates will dry up consumer spending somehow, which isn't even the problem...
You can slow down the economy all you like, the price of gas won't drop until you fix the supply problem, in the meantime you're just creating stagflation.

Allowing Medicare to negotiate prices with prescription drug companies is a policy that directly targets healthcare spending and should reduce costs for consumers and the federal government.

What amazes me in hearing this is that Medicare wasn't already able to negotiate prices with drug companies. So to me this sounds like more of a marketing slogan than a serious policy change, because it seems like something that should have been done a very long time ago for reasons totally unrelated to inflation. If they couldn't get it done then.... why are they doing it now? I haven't actually read the bill, admittedly.

I guess that investing in clean energy should increase supply over the long term, but yeah I agree that won’t change the $10 price tag on bacon at my grocery store. I also wonder how car buyers will take advantage of the EV tax credits when there’s already a shortage of electric vehicles that will probably get worse when car buyers see a $7.5k slash in price

Agreed

These policies have an overall deflationary effect on the economy. I suspect the magnitude of this effect won’t be enough to solve inflation by itself. Monetary policy is set by the federal reserve, not congress.

Certainly moving to electric vehicles will have a very stabilizing effect on the economy long term, and I'm fine with that policy. It's not going to reduce our inflation now, as you've pointed out... but it's generally a good idea, and I could live with this part of the bill. Im probably gona buy myself an EV in the coming years

I think the name of the bill is mostly just political marketing.

Yes, that's what it all comes down to - the midterms are in less than 3 and a half months. The democrats are getting killed in the polls and that's mainly due to inflation, they have to address this.. so here comes along a bill, it's named the "inflation reduction act". The vast majority of the public are not going to read the bill, or understand it, thus whether it actually addresses inflation is actually irrelevant - inflation reduction can be accomplished by releasing oil from the strategic oil reserves for the next 4 months - which is what they're also doing. What matters is that the bill contains material for important talking points, and satisfies the constituents, which means raising the corporate tax rate and incentivizing electric vehicles - regardless of how this effects inflation.

[Poptart]

It will take a long time for these effects to accrue... and there isn't a spending bubble anyway, what's driving inflation is the price of gas, and that's a supply problem. The solution would be to drill domestic oil.

Higher oil prices drive up costs in other areas, but inflation was rising before the price of oil went up, and the steady decline in gas prices we’ve seen for over a month isn’t mirrored by a decline in overall prices in the economy. I agree that the US could drill more oil, I’m just not that gas prices are the primary cause of this inflation.

I've heard this said a couple times, but it doesn't make sense to me. If the reduction in the deficit was achieved through a reduction in government spending then yes, people would have less money - they'd be bogged down in paying for more of their own expenses - and they could spend less on consumer goods... such a bill would be appropriate if there were some kind of money bubble, like if the public had large amounts of excess money and this was driving inflation. The policy would need to be targeted toward the segment of the public that had the excess cash, which... those that live off entitlements aren't exactly rolling in cash.

Can you explain what you mean by money bubble? I’m not familiar with that term. Increased tax enforcement will target higher earners because it’s more profitable to recover unpaid taxes from high earners who owe more taxes. Tbh all of this is nothing compared to the amount of money in the economy. I agree with you that the bill is unlikely to reduce inflation in any meaningful way, I was just trying to explain why it’s technically deflationary. It reminds me of weighing yourself after you pee and hoping the scale will go down lol.

[DogOfDanger]

Higher oil prices drive up costs in other areas, but inflation was rising before the price of oil went up, and costs of other goods haven’t mirrored the steady decline in gas prices we’ve seen for over a month. I agree that the US could drill more oil, I’m just not that gas prices are the primary cause of this inflation.

Well what do you think is driving inflation? When gas increases... the prices of goods have to increase, it costs more to ship them. So gas will definitely contribute to some portion of the issue. It might take a while, probably more than a month, for the problem to correct itself after oil prices begin reducing... But there might be other reasons too, I'm not an economist, and have never really studied economics.

Can you explain what you mean by money bubble? I’m not familiar with that term.

By money bubble I mean some portion of consumers that have a bloated amount of cash available to spend on consumer goods, causing the prices of the goods they consume to increase... often it happens because of some government program injecting the cash... but it can also happen naturally, the gold rush is one example of it happening naturally... Best example coming to mind is the student loan bubble... I paid 250$ for a calculus book from the university bookstore, and it came without a cover to save students money. I buy alot of books... 50$ is an expensive book. It's rare that I see books above 70$. A 250$ book is something you'd only find in a university bookstore, or in the list of current, standard university textbooks.
And that happens partly because the textbooks are standardized, but also because there's this giant swell of cash available (pretty much everything on campus costs double what it should). Basically there's a homeostasis maintained between the money supply and the cost of items.
So to reduce the inflation - reduce the price of the $250 book - you could theoretically pop the student loan bubble.. the book would return to an affordable price. Thus the government can roll back its spending and reduce inflation.
This bill doesn't cut spending, this bill is simply raising the corporate tax rate... it's reducing the money that's in the hands of the companies, not the consumers... and it isn't clear to me how this actually is claimed to translate into a reduction in inflation, the only way I can think of is it may stagnate wages or reduce job growth... eventually reducing the total money that the public has across the board. But you wouldn't do this, since it has effects across the board and only may reduce inflation after this long chain of effects... really you'd find the cause of the inflation and address it in a targeted manner. But tbh I think the whole thing is just an elaborate ploy never really designed to reduce inflation, just intended to prepare for the midterms.

Increased tax enforcement will target higher earners because it’s more profitable to recover unpaid taxes from high earners who owe more taxes. Tbh all of this is nothing compared to the amount of money in the economy. I agree with you that the bill is unlikely to reduce inflation in any meaningful way, I was just trying to explain why it’s technically deflationary. It reminds me of weighing yourself after you pee and hoping the scale will go down lol.

It's aimed at the companies though, not the rich consumers, so how does this effect inflation? How does a company drive inflation?

[Poptart]

Well what do you think is driving inflation? When gas increases... the prices of goods have to increase, it costs more to ship them. So gas will definitely contribute to some portion of the issue. It might take a while, probably more than a month, for the problem to correct itself after oil prices begin reducing... But there might be other reasons too, I'm not an economist, and have never really studied economics.

I don’t know tbh. I think a combination of factors—most of which boil down to intermittent disruptions to supply chains and unusual changes in demand—threw the economy out of whack and created a situation where supply cannot keep up with demand. I think the high cost of oil is one of those factors and a main driver of inflation.

There’s a controversial theory called “wage push inflation” which says that increasing wages lead to inflation when businesses raise prices to keep up with their growing cost of production, of which cost of labor is the largest share. Some people suggest that wage increases are contributing to inflation because unemployment has sustained at bottomed out levels for a long time now, and businesses offer higher wages to workers who are short in supply.

It's aimed at the companies though, not the rich consumers, so how does this effect inflation? How does a company drive inflation?

It’s for individual tax payers. Apparently rich people have a lot of unpaid taxes

[Poptart]

Certainly moving to electric vehicles will have a very stabilizing effect on the economy long term, and I'm fine with that policy. It's not going to reduce our inflation now, as you've pointed out... but it's generally a good idea, and I could live with this part of the bill. Im probably gona buy myself an EV in the coming years

I’m excited about the move towards electric vehicles, too. I expect my next car will be an EV, but that’s a few years down the road for me since I don’t really need a new car. Plus I’m waiting for better EV charging infrastructure to pop up, and I’d want to live somewhere with room to store a power generator in case of an outage. But yeah, I’m excited for electric cars. It’ll be interesting to watch the shift.