Fed Chair Powell Indicates He’ll Keep Bolstering Growth in Public Debut

The dreaded New York Times has the article Fed Chair Powell Indicates He’ll Keep Bolstering Growth in Public Debut. Below is an excerpt with emphasis added by me.

Randal K. Quarles, the Fed’s vice chairman for supervision, said Monday that the tax cuts could increase the country’s economic capacity, allowing faster growth without faster inflation.

This is complete economic nonsense. Tax cuts do not of themselves increase economic capacity. They increase buying power. If some of that buying power goes into industrial investment to increase economic capacity to produce consumer goods, then our capacity to satisfy consumer demand increases. If the tax cuts are used primarily to increase attempts at extra consumption, they could very well let loose the forces of inflation. If the increase in consumption occurs too fast for increased capacity to keep up with consumption, then that is the definition of inflationary pressure.

If the tax cuts are “invested” in extra military capacity, then the wages paid to military/industrial complex workers will increase consumer demand, without any concomitant increase in capacity to satisfy that consumer demand. So how our government decides to spend its budget and how our private investors decide to spend the tax cuts will have a huge impact on whether or not we get inflation.

People who have so little grasp of economics ought not be in charge at the Federal Reserve. The people in the rest of the executive branch who are spending and in Congress who are deciding what to spend it on, need to have a deep understanding of the economics because they have so much concentrated spending power to impact the economy.

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