That is why we are demand constrained. There is no shortage of money, and neither is there a shortage of credit. There is a shortage of high paying jobs for the bulk of the nation, and excess of pay for a small group.

As a result, we can deficit spend until the moon is blue, and still not get inflation. We can spend a trillion dollars of stimulus, and end up with high corporate profits but no gains to employment — because the money will not find its way into increasing living standards for the bulk of the nation.

That is the problem with aggregating the entire private sector into one unit, and declaring that it has a desire to net save. There is no aggregate desire to do anything, only the competing desires of different people within the private sector, and when the economic payoffs are fundamentally misaligned, then that is what the government should fix, rather than just supply the private sector overall with more income, and keeping the current misalignments going a bit longer.

No — that is *not* the purpose of progressive taxation. Counter-cyclical fiscal policy addresses wild consumption swings, not progressive tax rates.

An overall progressive tax-rate is to counter income accumulation.

The private sector, left to its own devices, constantly promotes income concentration due to the asymmetrical distribution of power. It is generally the case that you can afford to pay someone less than they need to earn in order for demand as a whole to be maintained. So left to itself, this trend is only counteracted with deflations and depressions, in which top incomes rapidly shrink and median incomes rise (due to deflation).

We would like to control income concentration (and the corresponding decline in quality of life that results from shrinking median incomes) in a less severe way than allowing depressions and deflations.

And for this reason, we have progressive taxation — to change the incentive structure in such a way as to impose additional costs to the private sector for supplying very high incomes to top earners, and tilt the playing field in favor of median earners, to counteract the natural tilt the playing field has in favor of top earners.

Robert H. Frank has pointed to precisely this point in advocating his own tax reform idea:

As taxable consumption rises, the tax rate on additional consumption would also rise. With a progressive income tax, marginal tax rates cannot rise beyond a certain threshold without threatening incentives to save and invest. Under a progressive consumption tax, however, higher marginal tax rates actually strengthen those incentives.
http://www.nytimes.com/2007/10/07/business/07view.html?pagewanted=print

Looking through Frank’s column archive, he’s a sharp guy and seems like a good fellow (for a deficit dove). :o)
http://www.robert-h-frank.com/timescolumn.html

your causes of inflation imply a govt that only buys at mkt prices continuously etc.

Besides the constitutional impediments of a federal RE tax that I’ve already mentioned, you can’t imagine the political pushback that state governments will offer if Uncle Sam steps on their two big tax revenue sources– property and sales.

I don’t believe I’ve ever seen the rate be adjusted downward in the face of strong property appreciation.