<h3>tl;dr</h3>
<p>The solutions you propose are not viable. First, structural reforms such as more competition will only have one time effect on some prices. Inflation is the growth rate of aggregate price level, one-time reduction in some prices will not address the issue.  Second, optimal wealth taxes are somewhere in the ballpark of 0% so that is no starter. Next income taxes are good redistribution tools not inflation fighting tools. Hence even if they could somewhat help with inflation if used just to siphon money from circulation as opposed to redistribution it would not help poor to use them that way instead of using them for redistribution.</p>
<p>Finally, conclusion that interest rate hike is regressive is based on false premises, and hence the conclusion is incorrect as well. These false premises have to be first corrected.</p>
<h3>Correction of False Premises in the Question:</h3>
<blockquote>
<p>In concrete terms, higher central bank interest rates seem intended to impoverish the masses.</p>
</blockquote>
<p>There is absolutely no evidence for that. In fact research shows exactly the opposite effect. It is low interest rates that are leading to more income and wealth inequality, and higher interest rates lead to lower income and wealth inequality. This was proven in important work of <a href="https://www.sciencedirect.com/science/article/pii/S0261560617301894?casa_token=J3GYcXddfH0AAAAA:M196r1HFeJDYlOWnKpaUw7IDF6-YOTTgX7m1pNA8xy9RCHzrvyOWuhuJsOG6qp3V13uKYKXWh5I" rel="nofollow noreferrer">Berisha et al (2018)</a>, who draw upon a century worth of empirical data.</p>
<p>This is because low interest rates increase value of stocks, financial assets housing prices etc, from which higher income groups benefit disproportionally. The main positive effect on low income groups of low interest rates is that they stimulate economy so they can decrease unemployment, but this works only in short term when economy is in recession caused by shortfall of aggregate demand. It does not help when unemployment is caused by supply-side issues.</p>
<blockquote>
<p>That is, the direct impacts of the rate increases are: to reduce the disposable income of mortgaged home owners;</p>
</blockquote>
<p>This is also not correct. Higher interest rates only affect flexible interest mortgages. Empirically most mortgages around the world are fixed interest mortgages that are unaffected by  increase in the interest rates. Empirically in the US the most popular type of mortgage is 30-year fixed rate mortgage. Empirically most of the time the share of this type of mortgage was above 70% of all mortgages (see Green, 2014 Introduction to Mortgages &amp; Mortgage Backed Securities pp 41-45).</p>
<p>In some countries adjustable rates mortgages are more popular but almost everywhere in the world there is significant amount of fixed rate mortgages. So the claim that this will negatively affect most mortgage holders is simply false. It will affect minority of mortgage owners who decided to take on the interest rate risk by choosing adjustable rate mortgage over fixed rate mortgage.</p>
<blockquote>
<p>to make businesses less able to afford to expand and thus to provide fewer jobs, leading to more unemployed people ... as well as housing rent increases.</p>
</blockquote>
<p>There is no evidence that unemployment can be indefinitely lowered by expansionary monetary policy. This can only work in short-run when there is a shortfall of aggregate demand. In the long-run employment depends on long-run productive capacity of the economy, this is just macro 101 (e.g. see for example Mankiw's Macroeconomics).</p>
<p>I do not think any serious economist would claim that currently economies such as US or EU or Australia are suffering from shortfall of aggregate demand. Hence this could be valid point in periods such as Great Depression or Great Recession, it is moot point now.</p>
<p>Next higher interest rates reduce price of housing and rent in aggregate. At best there could be some heterogenous effects in some cases, but generally speaking higher interest rates reduce rents for most people (see <a href="https://www.sciencedirect.com/science/article/pii/S0264999313000576?casa_token=DemSTE2nFBcAAAAA:WuQIWYiyp5tgRI1Qzh4Ck8NSFcZLgfLbgb2CdvNMoZLLDFfiTKEfZH-WbCUxDbD5JAHOE_2cwVQ" rel="nofollow noreferrer">Nneji et al 2013</a> &amp; Manganelli et al 2014).</p>
<p>Hence most of your premises are false meaning the conclusion higher interest rates are somehow regressive is false as well.</p>
<h3>Proposed Solution 1:</h3>
<blockquote>
<p>Reducing term lengths of intellectual property protections to spur competition (i.e., removing the impediment for new domestic competitors to break in to consolidated sectors, in order to drive down prices and prevent monopolistic price gouging while also promoting long-term efficiency),</p>
</blockquote>
<p>Structural policies such as these cant solve inflation as they do not address the causes of inflation. Such policy that you describe could be considered desirable if the patents are due to lobbying set longer than efficient from societal perspective, but it is not policy that can solve inflation.</p>
<p>Inflation is the positive growth rate of price level so it cannot be solved by structural policy that will lead to one time-drop in some prices. Profit maximizing monopolies can't charge and increase their prices as they please as that would not be profit maximizing.</p>
<p>The difference between optimal monopoly and perfectly competitive pricing is markup that depends on elasticity of demand (see  Peitz and Belleflamme Industrial Organization: Markets and Strategies). In a model of perfect competition price (<span class="math-container">$p_c$</span>) will be equal to marginal costs (MC):</p>
<p><span class="math-container">$$p_c = MC$$</span></p>
<p>In monopoly case or some sort of market with few firms and market power the optimal profit maximizing pricing will be given by:</p>
<p><span class="math-container">$$p_m = \frac{1}{1-\eta} MC$$</span></p>
<p>where <span class="math-container">$\eta$</span> is the reciprocal of the elasticity of demand.</p>
<p>First, as clearly seen from the optimal profit maximizing formulas even monopolies can't charge prices willy-nilly if they care about being profitable. The prices they can charge depend on elasticity of demand. More inelastic demand means higher prices, more elastic demand means lower prices. In case the demand is perfectly elastic monopoly  price will be exactly equal the perfectly competitive price. Hence, in some cases reducing or even abolishing patents might lead to no price changes.</p>
<p>However, even in case where it leads to price changes because <span class="math-container">$p_c &lt; p_m$</span>, this would represent one-time drop in prices. That cannot stop continuous inflation. If inflation, increases by 5% per year, every year, because of underlaying causes such as continuous increase quantity of money in the economy, then one time  drop in prices won't solve the problem. Consider an analogy: if you leave the tap in your bath tub open, taking one bucket of water will not prevent the water level rising even if temporarily there is one-time decrease in water level. What you have to do to stop water level from rising is to stop extra flow into the bath tub.</p>
<p>Hence this is not inflation fighting policy. It is also not clear if the policy would be progressive as to my best knowledge there is no statistics showing that poorer people spend more money on patented goods than richer people and a priori there is no reason to assume they do.</p>
<h3>Proposed solution 2:</h3>
<blockquote>
<p>Collecting a special levy on behalf of the central bank, in the form of an additional wealth or income tax (i.e. so that the burden of the reduction in money supply is primarily directed at the population segment with the most surplus, so that the wealthy reduce their consumptive demand and their funding of business, and the secondary diffuse fall in revenue will be biased toward providers of luxuries).</p>
</blockquote>
<p>First, the wealth tax would not be feasibly because literature shows that optimal top marginal wealth taxes, even in case of Rawlsian social utility function (the most redistributive social function there is - welfare functions where government only cares about poor and completely disregards interest of any other classes than poor), are somewhere in range 0-5% or max I ever saw 10% (see <a href="https://onlinelibrary.wiley.com/doi/abs/10.1111/j.1468-0262.2005.00630.x?casa_token=K4LCPDGfCbQAAAAA:bdnkPEyRKeZXVTMiEtUk-3wO5rz32k6hUYXuoY-qqkoHKgB5WDzmwmuMZmYhc1DcHCU_nTUaoAkmUjE" rel="nofollow noreferrer">Kocherlakota 2005</a>; <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3403782" rel="nofollow noreferrer">Fama 2019</a>; <a href="https://www.brookings.edu/wp-content/uploads/2019/09/Saez-Zucman_conference-draft.pdf" rel="nofollow noreferrer">Zucman and Saez 2019</a>) or discussion in the famous Mirrlees Review: Dimensions of Tax Design).  Also, note the consensus seems to still be zero or very close to zero.</p>
<p>The reason why the optimal wealth taxes are so low even with the most redistributive social preferences is that they create very large behavioral responses that distort economy (e.g. see <a href="https://academic.oup.com/qje/article/135/1/329/5584349?login=true" rel="nofollow noreferrer">Jakobsen, Jakobsen, Kleven, &amp; Zucman, 2020</a>), they are very hard to enforce (e.g. large portion of wealth is difficult to price) and they are to a large extent implicit taxes on capital incomes (since company valuation counts as a wealth so they are further implicit taxes on wealth invested in business) and per famous Chamley-Judd result (<a href="https://www.jstor.org/stable/1911310?seq=1" rel="nofollow noreferrer">Chamley, 1986</a>; <a href="https://eml.berkeley.edu//%7Esaez/course/Judd_JPubE(1985).pdf" rel="nofollow noreferrer">Judd, 1985</a>) the burden of capital income tax is in long run shifted to labor (although the results does not hold perfectly in practice).</p>
<p>In addition your wealth tax proposal would be even worse for the poor as the resources would not be redistributed but just syphoned out of the economy. Moreover, since the optimal wealth taxes are close to zero it would not make much difference.</p>
<p>Second, when it comes to income tax there is arguably space to make it more progressive in most countries under Rawlsian criterion. However, no serious economist could claim using these taxes just to syphon money out of the economy instead for redistribution would help the poor.</p>
<p>Income taxes are excellent redistribution tool as they provide the most information about individual's innate ability, they are not inflation fighting tool. This is especially so for taxes aimed at high income individuals who have very small marginal propensity to consume, and investing in the long run actually helps fighting inflation as it allows us to produce more goods and services. Also rich people do not have the same spending patterns as poor people, when people care about inflation it is not because yachts are getting more expensive. Hence trying to use income tax for fighting inflation would be like trying to dig hole with hammer instead of shovel. Moreover, one cannot pursue  2 objectives with single policy tool, using income tax to fight inflation would not allow policy makers to set it up in a way that income is optimally redistributed according to let's say Rawlsian (or other desired) criterion.</p>
<p>Given that there is absolutely no evidence that high interest rates &quot;impoverish masses&quot; it would make no sense to use income taxes to fight inflation instead of using them for redistribution and fight inflation with proper monetary tools.</p>

CC BY-SA 4.0
2022-07-15T15:19:22.853Z
2022-07-15T15:19:22.853Z
1muflon1
<p>The conventional response to inflation is to increase central bank interest rates. This seems regressive. Is there a progressive method to stop inflation?</p>
<p>In concrete terms, central bank interest rate hikes seem <em>intended</em> to <strong>impoverish</strong> the masses. That is, the direct impacts of the rate increases are: to reduce the disposable income of mortgaged home owners; and to make businesses less able to afford to expand and thus to provide fewer jobs, leading to more unemployed people. (A secondary effect is a diffuse reduction in revenue for local providers of nonessentials, as well as housing rent increases.) The goal is that less of the population be able to afford goods and services, so businesses are threatened with diminishing profits if they choose to continue raising prices. (This is commonly described abstractly: that lifting rates &quot;reduces the money supply&quot; to reduce demand and drop prices, which glosses over how the mechanism works.) This seems regressive because the primary effect is on people who suffer from insecure employment and housing stress. This segment of the population is already disadvantaged and vulnerable.</p>
<p>What would happen if instead governments tried:</p>
<ul>
<li>Reducing term lengths of intellectual property protections to spur <strong>competition</strong> (i.e., removing the impediment for new domestic competitors to break in to consolidated sectors, in order to drive down prices and prevent monopolistic price gouging while also promoting long-term efficiency), or</li>
<li>Collecting a special <strong>levy</strong> on behalf of the central bank, in the form of an additional wealth or income tax (i.e. so that the burden of the reduction in money supply is primarily directed at the population segment with the most surplus, so that the wealthy reduce their consumptive demand and their funding of business, and the secondary diffuse fall in revenue will be biased toward providers of luxuries).</li>
</ul>
<p>That is, do alternative mechanisms exist for countering inflation, that would differ in progressivity? How do economists evaluate such alternatives?</p>
<p>(Note, this question was inspired by the Australian reserve bank governor's criticism of a minimum wage increase, which was widely discussed by politicians and media, compared to silence on whether impending &quot;stage 3&quot; tax cuts for top 10% incomes would also cause inflation. For context, this is in a period of global inflation driven by record corporate profit margins, pandemic disruptions, and war against the world's biggest fossil fuel supplier.)</p>

CC BY-SA 4.0
2022-07-15T08:00:08.433Z
Can you provide any reference to peer reviewed academic literature the says high interest rate impoverishes masses? That does not make sense prima facie, high interest rate lowers prices of houses for example and more important rent on houses. People who are actually poor don’t have expensive mortgages but rent. Also many mortgages are on fixed interest. There is also a lot of research showing that actually low interest rate exaggerates income inequality as it boosts value of assets like stocks.
1muflon1
CC BY-SA 4.0
2022-07-15T10:18:13.120Z
Higher interest rates absolutely improve long-term housing affordability, but there is a [reported consensus](https://www.abc.net.au/news/2022-05-06/what-impact-will-interest-rate-rises-have-on-renters/101041194) among economists that in the short term landlords will pass rate rises on to tenants. @1muflon1 can you explain the actual *mechanism* by which you think rates counter inflation, if it differs from my premise?
benjimin
CC BY-SA 4.0
2022-07-15T10:37:16.903Z
then please show actual peer reviewed evidence for that consensus. That article (from non-reputable news organization) cites two "economists" working for private institutions. Actual peer reviewed empirical research shows A) there is inverse relationship between interest rates and house prices (Nneji et al 2013) B) Lower house prices put downward pressure on rents (Manganelli et al 2014). Also, firms cant just always pass costs to consumers. If there are landlords with fixed interest rate mortgages or no mortgages then their lower prices will force other landlords in similar areas to reduce
1muflon1
CC BY-SA 4.0
2022-07-15T10:41:33.170Z
rent to be competitive. Also counter to what? You do not offer any explanation of some mechanism there. You just make an unsupported claims there, you do not explain why there should be such relationship with reference to data or some rigorous model so there is no serious mechanism in your question. There is no evidence that higher interest rates would lead to less profitability or many other things you claim and you do not actually explain by what mechanism the higher interest rates would have those effects
1muflon1
CC BY-SA 4.0
2022-07-16T01:20:19.833Z
One of the biggest charity providers of welfare services advises that [interest rate hikes are increasing poverty](https://www.vinnies.org.au/icms_docs/333121_Statement_-_Interest_rate_hike_to_push_more_Australians_into_poverty.pdf).
benjimin
CC BY-SA 4.0
2022-07-16T09:10:53.417Z
they cite no research to support their claims. Nonprofits sometimes make false claims, for example Greenpeace (the biggest environmental non-profit in the world) is known for making false claims about GMOs (see here https://www.reuters.com/article/us-usa-gmo-nobels-idUSKCN0ZG2UZ), so what is your point? You or that non-profit never provide any empirical evidence or serious research for that claim, its just unsupported opinion. You can find some non-profit organizations that support alternative medicine like Ayurveda yet there is zero scientific evidence for it.
1muflon1
CC BY-SA 4.0
2022-07-16T09:28:25.433Z
look here you have data on central bank interest rate in Australia https://tradingeconomics.com/australia/interest-rate#:~:text=Interest%20Rate%20in%20Australia%20averaged,percent%20in%20November%20of%202020. between 1992-2008 it was always around or higher than 5% - which is much higher than the current one, were those times where masse were completely impoverished? Moreover, data on Australian housing affordability show, that literally housing was more affordable in 2007-2008 when interest rates were near 8% than any year after when interest rates dropped by more than half see
1muflon1
CC BY-SA 4.0
2022-07-16T09:28:27.483Z
https://viz.aihw.gov.au/t/Public/views/HousingAffordabilityFigure2_AW21/Figure?:embed_code_version=3&:embed=y&:loadOrderID=1&:display_spinner=no&:showAppBanner=false&:display_count=n&:showVizHome=n&:origin=viz_share_link
1muflon1
CC BY-SA 4.0
2022-07-16T09:29:55.133Z
like how can you given this data argue that hiking interest rate makes housing less affordable? This is literally data for Australia, clearly you can see there that housing was more affordable in 2007-2008 when interest rates were almost 8% yet housing affordability was better than subsequent years and you now argue that proposed hike of 0.5% from less than 2% will impoverish mases? That is absurd prima facie!
1muflon1
CC BY-SA 4.0
2022-07-16T09:43:19.150Z
Btw, data even show that economic growth in australia was faster in the period when interest rates were high! https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?locations=AU hence people were getting better of faster than now when the interest rates are low, I am not calming this is necessarily causal, point is that it is completely inconsistent with claim that high interest rates somehow hurt masses
1muflon1
CC BY-SA 4.0
2022-07-16T11:57:57.710Z
@1muflon1 it is a mistake to focus on the interest rate level and neglect its time derivative (how quickly it is changing and in which direction). High interest rates give low prices for real estate (when housing stock eventually changes hands), but rising rates increase ongoing costs of leveraged properties already held by existing landlords (immediately).
benjimin
CC BY-SA 4.0
2022-07-16T12:10:54.360Z
between 2007-2008 interest rate was increasing so the derivative was positive also it was increasing much faster than present 0.5 planned increase. Also in 2009/10 when the derivative was negative the housing became less affordable.
1muflon1
CC BY-SA 4.0
2022-07-20T19:01:22.743Z
I think the progressive approach to counter inflation is by doing things that increase the demand on a currency.  This demand can increase by increased export, thanks to increased productivity, which can happen by advancing science and engineering.  It can also happen by forcefully bullying others to increase their demand on your currency, but this bullying approach won't last in the long run.  So the long-term sustainable approach is by advancing science and engineering.
caveman
<inflation><social-welfare><australia>
Is there a progressive response to inflation?
benjimin
# Is there a progressive response to inflation?

(Asked by: username_0 on 2022-07-15)

The conventional response to inflation is to increase central bank interest rates. This seems regressive. Is there a progressive method to stop inflation?

In concrete terms, central bank interest rate hikes seem *intended* to **impoverish** the masses. That is, the direct impacts of the rate increases are: to reduce the disposable income of mortgaged home owners; and to make businesses less able to afford to expand and thus to provide fewer jobs, leading to more unemployed people. (A secondary effect is a diffuse reduction in revenue for local providers of nonessentials, as well as housing rent increases.) The goal is that less of the population be able to afford goods and services, so businesses are threatened with diminishing profits if they choose to continue raising prices. (This is commonly described abstractly: that lifting rates "reduces the money supply" to reduce demand and drop prices, which glosses over how the mechanism works.) This seems regressive because the primary effect is on people who suffer from insecure employment and housing stress. This segment of the population is already disadvantaged and vulnerable.

What would happen if instead governments tried:

* Reducing term lengths of intellectual property protections to spur **competition** (i.e., removing the impediment for new domestic competitors to break in to consolidated sectors, in order to drive down prices and prevent monopolistic price gouging while also promoting long-term efficiency), or
* Collecting a special **levy** on behalf of the central bank, in the form of an additional wealth or income tax (i.e. so that the burden of the reduction in money supply is primarily directed at the population segment with the most surplus, so that the wealthy reduce their consumptive demand and their funding of business, and the secondary diffuse fall in revenue will be biased toward providers of luxuries).

That is, do alternative mechanisms exist for countering inflation, that would differ in progressivity? How do economists evaluate such alternatives?

(Note, this question was inspired by the Australian reserve bank governor's criticism of a minimum wage increase, which was widely discussed by politicians and media, compared to silence on whether impending "stage 3" tax cuts for top 10% incomes would also cause inflation. For context, this is in a period of global inflation driven by record corporate profit margins, pandemic disruptions, and war against the world's biggest fossil fuel supplier.)

**Tags:** inflation, social-welfare, australia

> **Comments:**
> **username_1**: Can you provide any reference to peer reviewed academic literature the says high interest rate impoverishes masses? That does not make sense prima facie, high interest rate lowers prices of houses for example and more important rent on houses. People who are actually poor don’t have expensive mortgages but rent. Also many mortgages are on fixed interest. There is also a lot of research showing that actually low interest rate exaggerates income inequality as it boosts value of assets like stocks.  
> **username_0**: Higher interest rates absolutely improve long-term housing affordability, but there is a [reported consensus](https://www.abc.net.au/news/2022-05-06/what-impact-will-interest-rate-rises-have-on-renters/101041194) among economists that in the short term landlords will pass rate rises on to tenants. @username_1 can you explain the actual *mechanism* by which you think rates counter inflation, if it differs from my premise?  
> **username_1**: then please show actual peer reviewed evidence for that consensus. That article (from non-reputable news organization) cites two "economists" working for private institutions. Actual peer reviewed empirical research shows A) there is inverse relationship between interest rates and house prices (Nneji et al 2013) B) Lower house prices put downward pressure on rents (Manganelli et al 2014). Also, firms cant just always pass costs to consumers. If there are landlords with fixed interest rate mortgages or no mortgages then their lower prices will force other landlords in similar areas to reduce  
> **username_1**: rent to be competitive. Also counter to what? You do not offer any explanation of some mechanism there. You just make an unsupported claims there, you do not explain why there should be such relationship with reference to data or some rigorous model so there is no serious mechanism in your question. There is no evidence that higher interest rates would lead to less profitability or many other things you claim and you do not actually explain by what mechanism the higher interest rates would have those effects  
> **username_0**: One of the biggest charity providers of welfare services advises that [interest rate hikes are increasing poverty](https://www.vinnies.org.au/icms_docs/333121_Statement_-_Interest_rate_hike_to_push_more_Australians_into_poverty.pdf).  
> **username_1**: they cite no research to support their claims. Nonprofits sometimes make false claims, for example Greenpeace (the biggest environmental non-profit in the world) is known for making false claims about GMOs (see here https://www.reuters.com/article/us-usa-gmo-nobels-idUSKCN0ZG2UZ), so what is your point? You or that non-profit never provide any empirical evidence or serious research for that claim, its just unsupported opinion. You can find some non-profit organizations that support alternative medicine like Ayurveda yet there is zero scientific evidence for it.  
> **username_1**: look here you have data on central bank interest rate in Australia https://tradingeconomics.com/australia/interest-rate#:~:text=Interest%20Rate%20in%20Australia%20averaged,percent%20in%20November%20of%202020. between 1992-2008 it was always around or higher than 5% - which is much higher than the current one, were those times where masse were completely impoverished? Moreover, data on Australian housing affordability show, that literally housing was more affordable in 2007-2008 when interest rates were near 8% than any year after when interest rates dropped by more than half see  
> **username_1**: https://viz.aihw.gov.au/t/Public/views/HousingAffordabilityFigure2_AW21/Figure?:embed_code_version=3&:embed=y&:loadOrderID=1&:display_spinner=no&:showAppBanner=false&:display_count=n&:showVizHome=n&:origin=viz_share_link  
> **username_1**: like how can you given this data argue that hiking interest rate makes housing less affordable? This is literally data for Australia, clearly you can see there that housing was more affordable in 2007-2008 when interest rates were almost 8% yet housing affordability was better than subsequent years and you now argue that proposed hike of 0.5% from less than 2% will impoverish mases? That is absurd prima facie!  
> **username_1**: Btw, data even show that economic growth in australia was faster in the period when interest rates were high! https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?locations=AU hence people were getting better of faster than now when the interest rates are low, I am not calming this is necessarily causal, point is that it is completely inconsistent with claim that high interest rates somehow hurt masses  
> **username_0**: @username_1 it is a mistake to focus on the interest rate level and neglect its time derivative (how quickly it is changing and in which direction). High interest rates give low prices for real estate (when housing stock eventually changes hands), but rising rates increase ongoing costs of leveraged properties already held by existing landlords (immediately).  
> **username_1**: between 2007-2008 interest rate was increasing so the derivative was positive also it was increasing much faster than present 0.5 planned increase. Also in 2009/10 when the derivative was negative the housing became less affordable.  
> **username_2**: I think the progressive approach to counter inflation is by doing things that increase the demand on a currency.  This demand can increase by increased export, thanks to increased productivity, which can happen by advancing science and engineering.  It can also happen by forcefully bullying others to increase their demand on your currency, but this bullying approach won't last in the long run.  So the long-term sustainable approach is by advancing science and engineering.  

---

## 1 answers

### Answer by username_1 on 2022-07-15. Score: 1

### tl;dr

The solutions you propose are not viable. First, structural reforms such as more competition will only have one time effect on some prices. Inflation is the growth rate of aggregate price level, one-time reduction in some prices will not address the issue. Second, optimal wealth taxes are somewhere in the ballpark of 0% so that is no starter. Next income taxes are good redistribution tools not inflation fighting tools. Hence even if they could somewhat help with inflation if used just to siphon money from circulation as opposed to redistribution it would not help poor to use them that way instead of using them for redistribution.

Finally, conclusion that interest rate hike is regressive is based on false premises, and hence the conclusion is incorrect as well. These false premises have to be first corrected.

### Correction of False Premises in the Question:

> In concrete terms, higher central bank interest rates seem intended to impoverish the masses.

There is absolutely no evidence for that. In fact research shows exactly the opposite effect. It is low interest rates that are leading to more income and wealth inequality, and higher interest rates lead to lower income and wealth inequality. This was proven in important work of [Berisha et al (2018)](https://www.sciencedirect.com/science/article/pii/S0261560617301894?casa_token=J3GYcXddfH0AAAAA:M196r1HFeJDYlOWnKpaUw7IDF6-YOTTgX7m1pNA8xy9RCHzrvyOWuhuJsOG6qp3V13uKYKXWh5I), who draw upon a century worth of empirical data.

This is because low interest rates increase value of stocks, financial assets housing prices etc, from which higher income groups benefit disproportionally. The main positive effect on low income groups of low interest rates is that they stimulate economy so they can decrease unemployment, but this works only in short term when economy is in recession caused by shortfall of aggregate demand. It does not help when unemployment is caused by supply-side issues.

> That is, the direct impacts of the rate increases are: to reduce the disposable income of mortgaged home owners;

This is also not correct. Higher interest rates only affect flexible interest mortgages. Empirically most mortgages around the world are fixed interest mortgages that are unaffected by increase in the interest rates. Empirically in the US the most popular type of mortgage is 30-year fixed rate mortgage. Empirically most of the time the share of this type of mortgage was above 70% of all mortgages (see Green, 2014 Introduction to Mortgages & Mortgage Backed Securities pp 41-45).

In some countries adjustable rates mortgages are more popular but almost everywhere in the world there is significant amount of fixed rate mortgages. So the claim that this will negatively affect most mortgage holders is simply false. It will affect minority of mortgage owners who decided to take on the interest rate risk by choosing adjustable rate mortgage over fixed rate mortgage.

> to make businesses less able to afford to expand and thus to provide fewer jobs, leading to more unemployed people ... as well as housing rent increases.

There is no evidence that unemployment can be indefinitely lowered by expansionary monetary policy. This can only work in short-run when there is a shortfall of aggregate demand. In the long-run employment depends on long-run productive capacity of the economy, this is just macro 101 (e.g. see for example Mankiw's Macroeconomics).

I do not think any serious economist would claim that currently economies such as US or EU or Australia are suffering from shortfall of aggregate demand. Hence this could be valid point in periods such as Great Depression or Great Recession, it is moot point now.

Next higher interest rates reduce price of housing and rent in aggregate. At best there could be some heterogenous effects in some cases, but generally speaking higher interest rates reduce rents for most people (see [Nneji et al 2013](https://www.sciencedirect.com/science/article/pii/S0264999313000576?casa_token=DemSTE2nFBcAAAAA:WuQIWYiyp5tgRI1Qzh4Ck8NSFcZLgfLbgb2CdvNMoZLLDFfiTKEfZH-WbCUxDbD5JAHOE_2cwVQ) & Manganelli et al 2014).

Hence most of your premises are false meaning the conclusion higher interest rates are somehow regressive is false as well.

### Proposed Solution 1:

> Reducing term lengths of intellectual property protections to spur competition (i.e., removing the impediment for new domestic competitors to break in to consolidated sectors, in order to drive down prices and prevent monopolistic price gouging while also promoting long-term efficiency),

Structural policies such as these cant solve inflation as they do not address the causes of inflation. Such policy that you describe could be considered desirable if the patents are due to lobbying set longer than efficient from societal perspective, but it is not policy that can solve inflation.

Inflation is the positive growth rate of price level so it cannot be solved by structural policy that will lead to one time-drop in some prices. Profit maximizing monopolies can't charge and increase their prices as they please as that would not be profit maximizing.

The difference between optimal monopoly and perfectly competitive pricing is markup that depends on elasticity of demand (see Peitz and Belleflamme Industrial Organization: Markets and Strategies). In a model of perfect competition price ($p\_c$) will be equal to marginal costs (MC):

$$p\_c = MC$$

In monopoly case or some sort of market with few firms and market power the optimal profit maximizing pricing will be given by:

$$p\_m = \frac{1}{1-\eta} MC$$

where $\eta$ is the reciprocal of the elasticity of demand.

First, as clearly seen from the optimal profit maximizing formulas even monopolies can't charge prices willy-nilly if they care about being profitable. The prices they can charge depend on elasticity of demand. More inelastic demand means higher prices, more elastic demand means lower prices. In case the demand is perfectly elastic monopoly price will be exactly equal the perfectly competitive price. Hence, in some cases reducing or even abolishing patents might lead to no price changes.

However, even in case where it leads to price changes because $p\_c < p\_m$, this would represent one-time drop in prices. That cannot stop continuous inflation. If inflation, increases by 5% per year, every year, because of underlaying causes such as continuous increase quantity of money in the economy, then one time drop in prices won't solve the problem. Consider an analogy: if you leave the tap in your bath tub open, taking one bucket of water will not prevent the water level rising even if temporarily there is one-time decrease in water level. What you have to do to stop water level from rising is to stop extra flow into the bath tub.

Hence this is not inflation fighting policy. It is also not clear if the policy would be progressive as to my best knowledge there is no statistics showing that poorer people spend more money on patented goods than richer people and a priori there is no reason to assume they do.

### Proposed solution 2:

> Collecting a special levy on behalf of the central bank, in the form of an additional wealth or income tax (i.e. so that the burden of the reduction in money supply is primarily directed at the population segment with the most surplus, so that the wealthy reduce their consumptive demand and their funding of business, and the secondary diffuse fall in revenue will be biased toward providers of luxuries).

First, the wealth tax would not be feasibly because literature shows that optimal top marginal wealth taxes, even in case of Rawlsian social utility function (the most redistributive social function there is - welfare functions where government only cares about poor and completely disregards interest of any other classes than poor), are somewhere in range 0-5% or max I ever saw 10% (see [Kocherlakota 2005](https://onlinelibrary.wiley.com/doi/abs/10.1111/j.1468-0262.2005.00630.x?casa_token=K4LCPDGfCbQAAAAA:bdnkPEyRKeZXVTMiEtUk-3wO5rz32k6hUYXuoY-qqkoHKgB5WDzmwmuMZmYhc1DcHCU_nTUaoAkmUjE); [Fama 2019](https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3403782); [Zucman and Saez 2019](https://www.brookings.edu/wp-content/uploads/2019/09/Saez-Zucman_conference-draft.pdf)) or discussion in the famous Mirrlees Review: Dimensions of Tax Design). Also, note the consensus seems to still be zero or very close to zero.

The reason why the optimal wealth taxes are so low even with the most redistributive social preferences is that they create very large behavioral responses that distort economy (e.g. see [Jakobsen, Jakobsen, Kleven, & Zucman, 2020](https://academic.oup.com/qje/article/135/1/329/5584349?login=true)), they are very hard to enforce (e.g. large portion of wealth is difficult to price) and they are to a large extent implicit taxes on capital incomes (since company valuation counts as a wealth so they are further implicit taxes on wealth invested in business) and per famous Chamley-Judd result ([Chamley, 1986](https://www.jstor.org/stable/1911310?seq=1); [Judd, 1985](https://eml.berkeley.edu//%7Esaez/course/Judd_JPubE(1985).pdf)) the burden of capital income tax is in long run shifted to labor (although the results does not hold perfectly in practice).

In addition your wealth tax proposal would be even worse for the poor as the resources would not be redistributed but just syphoned out of the economy. Moreover, since the optimal wealth taxes are close to zero it would not make much difference.

Second, when it comes to income tax there is arguably space to make it more progressive in most countries under Rawlsian criterion. However, no serious economist could claim using these taxes just to syphon money out of the economy instead for redistribution would help the poor.

Income taxes are excellent redistribution tool as they provide the most information about individual's innate ability, they are not inflation fighting tool. This is especially so for taxes aimed at high income individuals who have very small marginal propensity to consume, and investing in the long run actually helps fighting inflation as it allows us to produce more goods and services. Also rich people do not have the same spending patterns as poor people, when people care about inflation it is not because yachts are getting more expensive. Hence trying to use income tax for fighting inflation would be like trying to dig hole with hammer instead of shovel. Moreover, one cannot pursue 2 objectives with single policy tool, using income tax to fight inflation would not allow policy makers to set it up in a way that income is optimally redistributed according to let's say Rawlsian (or other desired) criterion.

Given that there is absolutely no evidence that high interest rates "impoverish masses" it would make no sense to use income taxes to fight inflation instead of using them for redistribution and fight inflation with proper monetary tools.


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