Reducing spending and implementing monetary policy are effective strategies for combating inflation by reducing demand growth.
Investing in climate change and green energy initiatives can help reduce inflation in the long term by promoting innovation and energy efficiency.
Deep dives
The basics of inflation
Inflation occurs when demand exceeds supply and prices rise. To combat inflation, the rate of demand growth needs to be reduced, which can be achieved by reducing spending and monetary policy.
Taxation as a tool to fight inflation
The Inflation Reduction Act includes new taxes on big corporations, such as a 1% tax on stock buybacks and a minimum tax of 15% for large companies. These taxes aim to reduce demand and slow down the economy, but their impact on inflation is limited.
Climate spending and its impact on inflation
The Inflation Reduction Act allocates over $350 billion towards climate change and green energy initiatives. While these subsidies stimulate spending and demand in the short term, they are expected to generate long-term savings by promoting innovation and energy efficiency, which could help reduce inflation in the future.
Congress just passed the biggest, most ambitious climate bill in history. And it's called ... the Inflation Reduction Act of 2022. What's with that branding? And what can the bill teach us about actually fighting inflation? | Subscribe to Planet Money+ in Apple Podcasts or at plus.npr.org/planetmoney.