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Originally Posted by sebastian_dangerfield
It is, but that assumes taxpayers with disposable income pulling back on spending voluntarily.
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It assumes that magic happens and current consumption perfectly offset future expected taxes. That's nuts in particular because it assumes not only that people are rationale economic actors when they are not, it also assumes that the rationale belief is that there will be future tax increases to pay back today's deficit. There is almost no reason to believe that.
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In a nation of taxpayers unable to save anything
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I have no idea what you're talking about. Right now, we are a nation of taxpayers saving at way above historic levels.
I know you like to dismiss that as the result of mortgage defaults and corporate hording, but that's rather beside the point. Right now, we are a nation saving too much.
We don't have sinking wages overall. We have growing wages overall, but not at a rate fast enough to catch up to the big decline in aggregate incomes (NGDP) that began in 2008.
Granted, we also have a distribution problem that can mean that top-end incomes can grow while the middle class you are so focused on stay fairly flat, but that's a different and trickier policy problem. The first order problem is that aggregate incomes are too low (not enough NGDP).
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(which cannot be fixed via Fed created inflation, as has been demonstrated thus far)
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I don't know how you think anything has been demonstrated. The Fed has not tried to create inflation, or better yet, NDGP growth. To the extent that the Fed has wavered at all from it's 2% inflation rate target, it's to become comfortable with below-target performance.
The economics and finance professions (and the 1970s) did us an incredible disservice by driving home the notion of real returns, growth rates and interest rates. The world is nominal, and most economic actors make their decision in nominal terms. Falling/weakly growing nominal incomes (NGDP) means falling/weak consumption, falling/weak investment and falling/weak employment.
Until the Fed recognizes that that's what matters and not measured "inflation" and interest rates, we're going to have bad monetary policy for times like these.
