The Right-Wing Should Be Sweat-Drenched Hysterics—About Deflation! “Soak The Rich, Who Cares?” Will Be New Global Anthem

A Benjamin Cole post

Okay, this will take some explaining, but deflation is a tax-dagger pointed right at the purses of the wealthy in developed nations.

It goes like this: In high-tax developed economies (i.e., the West and Japan), deflation results in explosions in cash in circulation. Evidently, people and businesses start to save in the form of cash, and then start doing transactions in cash to avoid the tax-man. Dealing in cash becomes socially acceptable.

The problem is people and businesses in the underground economy do not care about taxes. The state needs more money for welfare and warfare? Fine, let ‘em raise taxes!

And who pays income taxes? Who will be left operating legitimate aboveground businesses?

Cash Is King

We see now in the United States more than $4,200 in circulation per resident, and perhaps double that in Japan, the latter long in the throes of deflation, and where many businesses do not “take plastic.” In Europe, euros in circulation have exploded by 66% to €3,600 per resident since 2008 and deflation, despite a stagnant economy and population.

Academic economists have ignored the cash economy—one that cannot be measured, and which only indirectly contributes to official data. The official data is increasingly inaccurate, one might add.

Academics are left with the dubious stance that U.S. cash is offshore and in suitcases doing drug deals. Because they saw that in the movies?

And what explains the explosions of euros and yen in circulation?

The Upshot

So, we in the West we are heading towards deflationary bifurcated economies, one half aboveground, regulated, expensive and taxed, and one half untaxed, unregulated and less expensive.

Oh, guess which is the growing part of such economies?

Of course, disrespect for the law and state can be contagious; see Prohibition in the United States. Once cheating on taxes becomes a virtue…well, see Greece.

Maybe it is better to live with prosperity, an above ground economy and 3% inflation or so.


3 thoughts on “The Right-Wing Should Be Sweat-Drenched Hysterics—About Deflation! “Soak The Rich, Who Cares?” Will Be New Global Anthem

  1. All too, too, sadly, true. Have you been watching the UK General Election debates? Your meta-story is spot on.

    Leftie politicians competing to raise taxes on an ever shrinking pot, as the real economy goes underground and the few remaining taxpayers are condemned to moaning about tax avoiders and evaders. What a lovely society.

  2. James In London: Fascinating that you see the same things I saw in Los Angeles. An underground economy was developing—at least that is what I saw anecdotally, although I was active in the cabinet and furniture trades, and got around quite a lot. Illegal labor, rents paid in cash, even factory buildings being bought for cash. If you hire a millwright (to fix woodworking equipment) he wants $50 an hour in cash.

    People collecting disability and then offering to work off the books for $10 an hour. No one is ashamed anymore–“doing what you gotta do.”

    Craigslist, basically a free local classified ad website in every major city, now make grey markets fun and easy!

    In America, the lefties want to tax everything, and the righties want to pay no taxes. So let’s borrow money and tax the middle class!

    Thanks for you recommend James. I think this is a huge issue.

    I think government and academic America is unaware what is going on.

  3. Where is Arthur Laffer when you need him? Where is the new Laffer? No one gets promoted for saying the Emperor has no clothes.

    Corporates make bigger and bigger profits and pay less and less tax. Individuals make less and less income and pay more and more tax. No wonder arbitrage breaks out. Academic economists seem oblivious or uninterested or have other agendas for social reconstruction.

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