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The American economy seems to swing wildly from overheated to periods of recession.
What about the people who lose their jobs in a recession? We need to have a scheme to mitigate the boom-bust effects of the economy.
The federal government needs to do a better job of keeping full employment by borrowing money to fund more infrastructure work when unemployment goes up and paying back the borrowings when unemployment goes down.
There needs to be a line item in the federal budget of about 5% to pay interest on the debt. When the Fed reduces the interest rates to encourage borrowing, the federal government would increase borrowing to keep the interest payment constant and spend the money on projects. When the Fed increases the interest rate, the projects would be reduced to keep the interest payment constant.
In addition, there needs to be an inflation tax which increases income tax withholding rates during periods of inflation and uses the money to fund 401K type retirement funds for the tax payers whose withholding went up.
Q. What causes inflation?
A. Inflation occurs when there is more money to purchase goods and services than there are the quantity of goods and services available. When the price of a product goes up, business will generate more of the product. So, some inflation is good. But, the rate of inflation needs to be managed to prevent destroying wealth.
One way to control inflation is to tax the sale of the product which is in limited supply to reduce the demand. A national sales tax provides a mechanism to rapidly change the tax on any given product to keep inflation for that product under control.
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