The Weekly Blip: Friday 14th April 2023

Inflation, Substack's Fundraising, Digging into Online Forums

In this weekly Blip:

• A Simple Theory of Inflation

• Substack’s Latest Fundraising

• Investigative Journalism with Online Forums

A Simple Theory of Inflation

The Fiscal Theory

John Cochrane’s recent book proposes the following theory:

Prices (inflation) adjust so that the real value of government debt equals the present value of taxes less spending.

A few core concepts:

• The present value of taxes less spending depends on a) taxes and b) spending.

• Taxes depend on economic growth (and tax rates).

• If government debt is increased (as it was in 2021), then inflation increases to reduce the real value of that debt to match the future value of taxes less spending.

A few implications:

• Interest rates don’t necessarily need to be raised to stop inflation. Rather, real economic growth needs to increase OR government needs to cut real spending OR government needs to increase taxes (although increasing taxes beyond a point presumably cuts economic growth).

• High government debt isn’t bad in itself, but it is bad if it is high relative to the future value of taxes that can be collected less government spending.

There’s a Youtube video here of John Cochrane, but it’s somewhat hard to follow. Instead I recommend asking ChatGPT some questions, as I have done here.

Substack's Latest Fundraising

Upsides and Downsides

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