Fiat money and outdated economics

[Shambler]

This topic is going to highly offend conventional thinking about economics, so I'd request patience and openmindedness from people responding (since this place highly promotes skepticism and critical thinking, I'm hoping for a high-level of argument)


Almost all economic theory today is based on gold-standard-era thinking, when it comes to money itself; theory has not been properly rewritten to reflect the properties of fiat money, and this (in my view) is perhaps the single most significant problem with economics and politics today, due to how it cripples informed political discussion over economic issues (and in turn, leads to enormous suffering and even deaths).

The effects of fiat money on economics/politics are very wide ranging, so instead of providing a whole litany of examples of what it changes, I'll pick this one thing to start off with, and provide arguments to back it up:
Government can create and spend as much money as it likes, with the only limit being inflation.

This seems a simple enough statement, but let me build upon it with some other statements, and show what kind of policies that opens up (the below all builds up to a description of the Job Guarantee policy):
1: Money creation, on its own, does not cause inflation (i.e. inflation of the money supply is not the same as price inflation), it is how that money is spent, that determines whether or not there is inflation. *

2: Inflation in the price of a good, is typically caused when the supply of that good, cannot meet the demand for that good (or when the increase in supply, can't keep pace with the increase in demand). This means money spent buying something with a lot of excess supply, is non-inflationary.

3: If government spends printed money combining surplus labour (unemployed people) with surplus industry/resources (e.g. the construction industry, which has a lot of idle resources in many countries), that does not have to be inflationary (but which may still cause some amount of inflation, due to worker wages).

4: Fiscal policy (e.g. taxes) is a set of tools which is used to manage inflation; tightening fiscal policy (i.e. increased taxes), can be used to fight against inflation, including that from worker wages.

5: The Job Guarantee policy is government using created money to temporarily employ surplus labour, put to work on surplus resources, combined with fiscal policy; the surplus labour put to work with surplus resources is non-inflationary, and the potential inflation from worker wages can be counteracted with fiscal policy (increased taxes). As the private sector recovers, workers are moved out of the job guarantee program into the private sector.


So, building on that simple initial statement, the above shows how easy it is to expand that, into policies that allow the elimination of unemployment; this is a powerful redefining of basic macroeconomics, which can reshape political and economic discourse.

Currently, conservative gold-standard-based economic discourse dominates, and this is hindering progressive goals in politics/economics, because the entire debate is always framed in conservative views.

This redefining of economic theory though, to fit fiat money (based on Chartalism and Modern Monetary Theory), has the potential to re-empower progressive goals/views in politics/economics, so I view it as extremely important that it gets wider publicity and acceptance; however, thus far these views seem to be getting only limited traction, as they are not well known at the moment.


* Neither does it cause devaluation, which would also have to be explained in inflationary terms. In general, claims that money creation = inflation, depend upon the Quantity Theory of Money, which is empirically false/debunked.

[Brian-M]

Originally Posted by Shambler

1: Money creation, on its own, does not cause inflation (i.e. inflation of the money supply is not the same as price inflation), it is how that money is spent, that determines whether or not there is inflation. *

I agree with the first part, but I'm not sure about the the end part. If you have a growing population, you need an increasing money supply to prevent deflation, so money creation on it's own doesn't cause inflation.

But by "how the money is spent", I'm not sure about that. Unless you take an equivalent amount back out of the economy (through taxes, tariffs, and government-run businesses) there'll be more money in circulation, which would most likely cause inflation.

Can you give an explanation (or a few examples) of how spending this extra money in certain ways could prevent it from causing inflation?

[Beerina]

Government says they don't like inflation, but they do, to inflate away the value of borrowed money.

Since Reagan keeping inflation low has been a priority. This is forming an interesting bubble. It's all supply and demand in the end, and money is just another item humans trade back and forth.

[daenku32]

Heck of a first post Shambler. Or is it actually your "first" here.. Hmm...

As to your post. Nicely written. Almost like from a textbook.

[Shambler]

Originally Posted by Brian-M

I agree with the first part, but I'm not sure about the the end part. If you have a growing population, you need an increasing money supply to prevent deflation, so money creation on it's own doesn't cause inflation.

But by "how the money is spent", I'm not sure about that. Unless you take an equivalent amount back out of the economy (through taxes, tariffs, and government-run businesses) there'll be more money in circulation, which would most likely cause inflation.

Can you give an explanation (or a few examples) of how spending this extra money in certain ways could prevent it from causing inflation?

Agreed generally, yes; and it's the use of fiscal policy (i.e. taxes) in combination with the spending, that will be important for counteracting inflation.

It all depends on what the money is initially spent on, and then were it goes after that; if you combine surplus resources with surplus labour (e.g. building a nuclear power plant, with idle labour and idle construction resources), a significant amount of that money will go into worker wages (whose inflationary effect can be controlled well via taxes).

Even with worker wages, dispensable income would be the primary area where inflation may be an issue; savings and debt payments would be non-inflationary places where the money could end up.

So, if (basically) the spent money does not end up chasing goods/resources of limited supply, then it should largely be non-inflationary.


The primary time when the potential for inflation increases more significantly, is when you reach full private-sector employment, because the private sector should be near full-productivity then; so when that happens, that's when you want to stop net-spending, by reducing expenditure and increasing taxes.


Some of the primary examples of non-inflationary spending:
- Buying up surplus resources
- Hiring surplus labour, put to work on either on surplus resources or work which doesn't use resources, e.g. academic/research (wages are the primary potentially inflationary aspect of this)
- Writing off debt (increased dispensable income is the main potential for inflation)

There are probably more examples, these are just the main ones that come to me.


As you can see, when you reframe economic thinking in this way, it immediately shows that it doesn't make sense, to be having such a high level of unemployment, to be engaging in austerity (removing money from the wider economy, when there is no inflation threat, dampening demand), and saddling people with needlessly excessive debt.

It is all literally needless, and is leading to people dying, moving towards poverty and homelessness, ill health etc., among much else; it is all totally and easily avoidable.

[Shambler]

Originally Posted by daenku32

Heck of a first post Shambler. Or is it actually your "first" here.. Hmm...

As to your post. Nicely written. Almost like from a textbook.

Ta I've had a lot of experience debating this point on another forum, and forming my views on this topic whilst debating there; haven't been able to find a challenging enough standard of discussion on that forum lately though, so have been searching out a better place to discuss this, and found here (a forum devoted to skepticism and rational debate, is a welcome step up to the debates with Austrians/Libertarians that I'm used to).

I can't link them (not enough posts yet), but a lot of my views on this are based on relatively dense reading from sites like (need google) New Economic Perspectives, Bill Mitchell's 'billy blog' MMT based site, and Naked Capitalism; all sites I recommend highly (the last of them being the most readable; the former two are very 'textbook' like, though my posts here are all my own words).

[lomiller]

Originally Posted by Shambler

Almost all economic theory today is based on gold-standard-era thinking, when it comes to money itself;

No, almost all modern economics takes money supply into account.

Quote:

1: Money creation, on its own, does not cause inflation (i.e. inflation of the money supply is not the same as price inflation), it is how that money is spent, that determines whether or not there is inflation. *

Most economists agree to some extent with Milton Friedman when he said “Inflation is always and everywhere a monetary phenomenon”. Asserting otherwise doesn’t really change anything.

Quote:

2: Inflation in the price of a good, is typically caused when the supply of that good, cannot meet the demand for that good (or when the increase in supply, can't keep pace with the increase in demand). This means money spent buying something with a lot of excess supply, is non-inflationary.

Try flipping the logic. Money, in many cases can be thought of as just another good being exchanged. What happens when it’s money itself that is in high supply and low demand?
In this case people are going to give less in exchange for money, which is another way of saying prices go up.

Quote:

4: Fiscal policy (e.g. taxes) is a set of tools which is used to manage inflation; tightening fiscal policy (i.e. increased taxes), can be used to fight against inflation, including that from worker wages.

Not really true. Monetary policy is the preferred tool for managing inflation. Fiscal policy can influence inflation as well because government spending factors into demand but monetary policy is the preferred tool. An exception here is that if inflation approaches zero or becomes negative monetary policy may be difficult to implement.

Quote:

: The Job Guarantee policy is government using created money to temporarily employ surplus labour, put to work on surplus resources, combined with fiscal policy; the surplus labour put to work with surplus resources is non-inflationary, and the potential inflation from worker wages can be counteracted with fiscal policy (increased taxes). As the private sector recovers, workers are moved out of the job guarantee program into the private sector.

I’m not sure what you want to say here. It sounds like you are referring to the dual mandate of the Fed, which is to manage inflation and keep unemployment low.
The reasoning behind this, is quite different that what you are talking about, however. What happens when the Fed increases the money supply its value drops (supply and demand) but this is really the same thing as demand for all other goods going up.

When demand for goods goes up, business hire people to fill that demand and unemployment goes down. At some point however this increased demand for labor will drive up wages, which must be passed along in product prices causing inflation. At this point the Fed wills start to restrict the money supply to control inflation so it’s always balancing the two.

[lomiller]

Originally Posted by Beerina

Government says they don't like inflation,

No government does not say this. What government and most economists recommend is low but very stable consistent inflation. Zero inflation is preferable on some fronts but caries a high risk of destabilizing deflation and is an almost automatic liquidity trap.

[Sceptic-PK]

Originally Posted by Shambler

Almost all economic theory today is based on gold-standard-era thinking, when it comes to money itself; theory has not been properly rewritten to reflect the properties of fiat money

Surely monetarism covers some of the fundamental “properties” of fiat money?

[Shambler]

Originally Posted by lomiller

Originally Posted by Shambler

Almost all economic theory today is based on gold-standard-era thinking, when it comes to money itself;

No, almost all modern economics takes money supply into account.

I didn't mention the money supply though, I was talking about money itself; I said almost all modern economics is still based on a gold-standard-based understanding of money itself, and that theory has not been updated to reflect the changes fiat money introduce.

Originally Posted by lomiller

Most economists agree to some extent with Milton Friedman when he said “Inflation is always and everywhere a monetary phenomenon”. Asserting otherwise doesn’t really change anything.

Milton Friedman's statement there, is based on Monetarism, which is debunked; a brief quote from Wikipedia:

Quote:

Since 1990, the classical form of monetarism has been questioned because of events which many economists have interpreted as being inexplicable in monetarist terms, namely the unhinging of the money supply growth from inflation in the 1990s and the failure of pure monetary policy to stimulate the economy in the 2001-2003 period.

Monetarism is false, and it is more accurately said that most economists do not agree with it, because it receives barely any support from economists today.

Empirical evidence, very heavily weighs against that quote.

Originally Posted by lomiller

Try flipping the logic. Money, in many cases can be thought of as just another good being exchanged. What happens when it’s money itself that is in high supply and low demand?
In this case people are going to give less in exchange for money, which is another way of saying prices go up.

If money gets to the point, that it is in such high supply that demand for it is faltering, then it will already be causing multiple instances of demand-pull inflation throughout the economy (in other words, at that point, too much money will already be chasing goods of inadequate supply, causing inflation long before demand for money falters).

The policies I propose, are to increase the supply of money to meet demand (roughly defined as providing full private sector employment), not to increase the supply of money above and beyond demand, such that it causes inflation (I'd explicitly not want that).

Originally Posted by lomiller

Not really true. Monetary policy is the preferred tool for managing inflation. Fiscal policy can influence inflation as well because government spending factors into demand but monetary policy is the preferred tool. An exception here is that if inflation approaches zero or becomes negative monetary policy may be difficult to implement.

A common measure of price inflation, the consumer price index, measures the price of a basket of common goods, like food/fuel etc..

If government uses fiscal policy to tax wages, to reduce income available to spend on food/fuel and such, that will directly reduce inflation, by reducing demand for those goods.

Monetary policy is historically proven to be ineffective at managing inflation, and you only have to look at stagflation in the UK under Thatcher, to see an instance disproving that (also a good example of debunking Monetarism).

Originally Posted by lomiller

I’m not sure what you want to say here. It sounds like you are referring to the dual mandate of the Fed, which is to manage inflation and keep unemployment low.
The reasoning behind this, is quite different that what you are talking about, however. What happens when the Fed increases the money supply its value drops (supply and demand) but this is really the same thing as demand for all other goods going up.

That sounds a lot like the 'Quantity Theory of Money', which is widely regarded as empirically debunked.

The quantity of money in the economy, does not have a direct relationship to inflation; you just need to look at the price of oil to see that: When the price of oil jumps (due to problems with supply), that causes the price of almost everything else in the economy to jump as well (since most things, in one way or another, ties back to oil); this causes widescale price inflation, without a change in the money supply (such as what happened with past instances of stagflation).

Originally Posted by lomiller

When demand for goods goes up, business hire people to fill that demand and unemployment goes down. At some point however this increased demand for labor will drive up wages, which must be passed along in product prices causing inflation. At this point the Fed wills start to restrict the money supply to control inflation so it’s always balancing the two.

Yes pretty much; something we agree on anyway The difference with the job guarantee, is that instead of leaving workers in unemployment, it creates temporary public sector jobs and pays those workers the minimum wage, and those workers are re-absorbed into private industry as the economy recovers. Fiscal policy would still be used during the job guarantee, to prevent inflation.

[Shambler]

Originally Posted by Sceptic-PK

Surely monetarism covers some of the fundamental “properties” of fiat money?

It tried, but has many problems, and didn't go deep enough in its redefinition of the role of money.

For instance, in most economics today it is considered that Savings lead to Investments (you must have savings first before you can invest), but fiat money actually completely reverses this role:
Money must first be created and invested (e.g. government creating money and employing people in public services), before it can go into savings (workers bank accounts); the rest, is just money re-circulating throughout the economy. So, Investments actually lead to Savings, not the other way around.

This insight alone, turns quite a lot of economics on its head; for instance: This implies that government spending is not funded by taxes, since government can create money instead of relying on taxes.

The purpose of taxes then, is not to fund government (which can just create money for funding), but to manage inflation instead, removing money from the economy to prevent inflation.


It can be seen then, that this utterly changes all economic/political discourse: Conservatives can no longer, for example, say that welfare/social-security should be pre-funded by taxing employee's wages, because those taxes do not really fund those programs; they also, can no longer complain about their "taxes funding welfare scroungers" etc., because they don't, the taxes are for managing inflation (and for other previously less-emphasized roles, such as discouraging undesired economic/social behaviour).

This is an extremely powerful progressive tool, for reframing political discourse, and destroying a lot of conservative economic arguments (part of why I view all of this as so important).

[Sceptic-PK]

Originally Posted by Shambler

For instance, in most economics today it is considered that Savings lead to Investments (you must have savings first before you can invest), but fiat money actually completely reverses this role:
Money must first be created and invested (e.g. government creating money and employing people in public services), before it can go into savings (workers bank accounts); the rest, is just money re-circulating throughout the economy. So, Investments actually lead to Savings, not the other way around.

How is that any different under a gold standard? Government still create money, it’s not like everyone’s passing ounces around or anything.

Originally Posted by Shambler

This implies that government spending is not funded by taxes, since government can create money instead of relying on taxes.

But governments don’t (as a general rule) just create money in order to fund spending. They borrow it from investors. This doesn’t create new money but shifts money from the investor to the government. The public record is quite clear that governments are funded by taxes and borrowing. Of course, governments could print all the money they like. You know, like Zimbabwe did.

Originally Posted by Shambler

The purpose of taxes then, is not to fund government (which can just create money for funding), but to manage inflation instead, removing money from the economy to prevent inflation.

Taxation is a lousy method to “manage” inflation.

Originally Posted by Shambler

This is an extremely powerful progressive tool, for reframing political discourse, and destroying a lot of conservative economic arguments (part of why I view all of this as so important).

Yeah, I think it’s nonsense. You can’t just keep printing money. Your OP completely ignores the role that velocity plays in inflationary pressures.

[psionl0]

Originally Posted by Shambler

Government can create and spend as much money as it likes, with the only limit being inflation.
. . . <snip> . . .
1: Money creation, on its own, does not cause inflation (i.e. inflation of the money supply is not the same as price inflation), it is how that money is spent, that determines whether or not there is inflation.

This analysis is forgetting one thing - BANKS. Most of the money in circulation is created by banks - not the government.

When the government creates new base money, it results in a series of deposit expansions as banks lend out the newly deposited money and re-lend it when the loaned money is re-deposited. The end result is many more times the amount of money created than just the base money the government created (the theoretical limit is the inverse of the fractional reserve ratio).

So money creation is highly inflationary. It is the reason that there was "stagflation" in the 1970s.

Originally Posted by Shambler

3: If government spends printed money combining surplus labour (unemployed people) with surplus industry/resources (e.g. the construction industry, which has a lot of idle resources in many countries), that does not have to be inflationary (but which may still cause some amount of inflation, due to worker wages).

This is just pure socialism. It assumes that governments can successfully invest money where private businesses can't. When governments have tried this in the past they have only succeeded in failing.

[Shambler]

Originally Posted by Sceptic-PK

How is that any different under a gold standard? Government still create money, it’s not like everyone’s passing ounces around or anything.

In a gold standard, the money supply is limited by the supply of gold, so government did need to save before investing/spending; that's not how it is now, with a fiat currency.

Originally Posted by Sceptic-PK

But governments don’t (as a general rule) just create money in order to fund spending. They borrow it from investors. This doesn’t create new money but shifts money from the investor to the government. The public record is quite clear that governments are funded by taxes and borrowing. Of course, governments could print all the money they like. You know, like Zimbabwe did.

Where did I say governments should print all the money they like, without managing for inflation? The Zimbabwe comparison is nothing like what I am posting about, because I have clearly stated government spending is limited by inflation.

That government decides to issue debt in order to allow spending, or to match spending with taxes, is a political decision, not an economic decision or reality; the very capability of government, to spend through money creation, shows this.

Originally Posted by Sceptic-PK

Taxation is a lousy method to “manage” inflation.

If you got rid of taxation tomorrow, you would have hyperinflation, so it's pretty good at managing inflation.

Originally Posted by Sceptic-PK

Yeah, I think it’s nonsense. You can’t just keep printing money. Your OP completely ignores the role that velocity plays in inflationary pressures.

Government taxes effectively destroy money, so as long as taxes/fiscal-policy are used to take money out of the economy (to manage inflation), then yes, government can keep printing money, so long as they destroy enough to manage for inflation.

If you claim what I posted affects the velocity of money and thus inflation, you need to provide some argument to show that.

[lomiller]

Originally Posted by Shambler

I didn't mention the money supply though, I was talking about money itself; I said almost all modern economics is still based on a gold-standard-based understanding of money itself, and that theory has not been updated to reflect the changes fiat money introduce.

The money supply and managing the money supply IS are fiat money specific branch of economics and indeed THE prevailing theory of money. If you want to leave it out You are ignoring all the advances to the way economics views money so it's no wonder you think economics hasn't updated to reflect the change from a gold standard.

Originally Posted by Shambler

Milton Friedman's statement there, is based on Monetarism, which is debunked; a brief quote from Wikipedia:

You are mus-interpreting that Wikipedia comment. All it's saying is that monetary theory has continued to evolve since Friedman, it's not saying his ideas have been replaced. Far from it, in fact. You are actually making the same mistake as people who believe Keynes is no longer relevant when in fact most current economics is based in some way on his work.

Originally Posted by Shambler

If money gets to the point, that it is in such high supply that demand for it is faltering, then it will already be causing multiple instances of demand-pull inflation throughout the economy (in other words, at that point, too much money will already be chasing goods of inadequate supply, causing inflation long before demand for money falters).

Ummm yes, that is what I said, and it's the opposite of what you said in your OP, which was "Money creation, on its own, does not cause inflation".

Originally Posted by Shambler

The policies I propose, are to increase the supply of money to meet demand (roughly defined as providing full private sector employment), not to increase the supply of money above and beyond demand, such that it causes inflation (I'd explicitly not want that).

Sensible but that's been the Fed's stated mission for 25 years and mainstream economics since Friedman first suggested it. (The difference there being that he believed this could be accomplished by setting money supply size by formula, but to me it's readily apparent his Libertarian political tendencies led him astray and that a more active/reactive approach is required.

Originally Posted by Shambler

If government uses fiscal policy to tax wages, to reduce income available to spend on food/fuel and such, that will directly reduce inflation, by reducing demand for those goods.

Not a wise approach since goods have difference elasticity of supply and demand. It also ignores the fact that when government spends those tax dollars, this also is demand and causes inflation.

Originally Posted by Shambler

Monetary policy is historically proven to be ineffective at managing inflation,

patently false. The period since central banks adopted monetary policy as the primary means of managing inflation have had the most stable inflation rates in history.

Originally Posted by Shambler

and you only have to look at stagflation in the UK under Thatcher, to see an instance disproving that (also a good example of debunking Monetarism).

Again, false. Friedman 's ideas came to prominence specifically because they COULD explain stagflation. In fact he predicted it as an outcome of Government Borrowing because the realized that this would drive up interest rates that would in turn reduce economics growth even as government spending was causing demand that would drive up prices.

[Shambler]

Originally Posted by psionl0

This analysis is forgetting one thing - BANKS. Most of the money in circulation is created by banks - not the government.

When the government creates new base money, it results in a series of deposit expansions as banks lend out the newly deposited money and re-lend it when the loaned money is re-deposited. The end result is many more times the amount of money created than just the base money the government created (the theoretical limit is the inverse of the fractional reserve ratio).

So money creation is highly inflationary. It is the reason that there was "stagflation" in the 1970s.

Banks don't 'create' money, they have a remit to extend credit (give out loans with corresponding debts), which the state then backs. None of that can be done without the state, because if a bank extends credit and the state refuses to shore up the banks reserves, the whole banking system come collapsing down.

A much simpler way to think of it, is if all private banks were replaced with a single public bank: Loans could be given out through money creation, and debts repaid could directly lead to the destruction of that money.

I never said money creation could not be inflationary either; I explicitly said spending through money creation, is restricted by inflation.

Originally Posted by psionl0

Originally Posted by Shambler

3: If government spends printed money combining surplus labour (unemployed people) with surplus industry/resources (e.g. the construction industry, which has a lot of idle resources in many countries), that does not have to be inflationary (but which may still cause some amount of inflation, due to worker wages).

This is just pure socialism. It assumes that governments can successfully invest money where private businesses can't. When governments have tried this in the past they have only succeeded in failing.

The public sector in the US does this all the time (just without taking up all the unemployed workers), I guess the US is socialist?

[Sceptic-PK]

Originally Posted by Shambler

In a gold standard, the money supply is limited by the supply of gold, so government did need to save before investing/spending; that's not how it is now, with a fiat currency.

That’s just an irrelevant bit of pedantry. Gold isn’t money; you could basically say the government wasn’t saving gold, it was collecting it. Maybe it was digging it out of the ground, whatever. The fact remains that the government must still create the currency that is dependent upon gold, and the cycle is the same as you describe for fiat.

Originally Posted by Shambler

Where did I say governments should print all the money they like, without managing for inflation?

Your whole ethos implies it; you claim that taxes don’t fund governments, that governments can just create the money to fund the necessary spending. How does that NOT say governments should print all the money they like?

Originally Posted by Shambler

The Zimbabwe comparison is nothing like what I am posting about, because I have clearly stated government spending is limited by inflation.

You don’t explain the mechanic by which government spending is limited by inflation. You erroneously claim that taxation will do that, it won’t. Fiscal policy is but one contributor to underlying inflation.

Originally Posted by Shambler

That government decides to issue debt in order to allow spending, or to match spending with taxes, is a political decision, not an economic decision or reality;

This is simply incorrect. Governments are pretty useless at balancing their budgets, but the process by which governments raise funds, via taxation and borrowing, are economic decisions.

Originally Posted by Shambler

the very capability of government, to spend through money creation, shows this.

This is a word salad I don’t understand.

Originally Posted by Shambler

If you got rid of taxation tomorrow, you would have hyperinflation, so it's pretty good at managing inflation.

Source? The amount of taxation in advanced economies isn’t close to enough to create hyperinflation if said taxes were abolished. You also ignore the fact that taxes do not take money out of the economy; the government don’t just bury that money in their backyard. It gets spent all over the place. Arguably in a less efficient manner than the private sector, but spending all the same. This does not, as a rule, create hyperinflation.

Originally Posted by Shambler

Government taxes effectively destroy money, so as long as taxes/fiscal-policy are used to take money out of the economy (to manage inflation), then yes, government can keep printing money, so long as they destroy enough to manage for inflation.

Yeah, but this is ridiculous. Why keep creating and destroying money when you can just tax and spend the money that is already in circulation? You also completely ignore the fact that it is central banks that are ultimately tasked with managing inflation, not elected officials.

Originally Posted by Shambler

If you claim what I posted affects the velocity of money and thus inflation, you need to provide some argument to show that.

No, I am claiming that you are focusing only on the supply of money, when that is only one factor in inflation.

[Shambler]

Originally Posted by lomiller

The money supply and managing the money supply IS are fiat money specific branch of economics and indeed THE prevailing theory of money. If you want to leave it out You are ignoring all the advances to the way economics views money so it's no wonder you think economics hasn't updated to reflect the change from a gold standard.

Here is the chain of conversation you are replying to:

Originally Posted by Shambler

Originally Posted by lomiller

Originally Posted by Shambler

Almost all economic theory today is based on gold-standard-era thinking, when it comes to money itself;

No, almost all modern economics takes money supply into account.

I didn't mention the money supply though, I was talking about money itself; I said almost all modern economics is still based on a gold-standard-based understanding of money itself, and that theory has not been updated to reflect the changes fiat money introduce.

Repeating myself: I did not imply other theory ignores the money supply (the money supply exists under a gold standard as much as it does under fiat money), I said other theory fails to factor in how fiat money changes the role of money itself, which covers a range of topics far wider than the money supply.

You imply that I think other theory fails to address the money supply; I did not say that, that is a red herring and a straw man.

Originally Posted by lomiller

You are mus-interpreting that Wikipedia comment. All it's saying is that monetary theory has continued to evolve since Friedman, it's not saying his ideas have been replaced. Far from it, in fact. You are actually making the same mistake as people who believe Keynes is no longer relevant when in fact most current economics is based in some way on his work.

I'm not misinterpreting it, that quote says that a core part of monetarism is debunked.

Friedmans quote, that you posted:

Quote:

"Inflation is always and everywhere a monetary phenomenon"

The contradicting Wikipedia quote:

Quote:

Since 1990, the classical form of monetarism has been questioned because of events which many economists have interpreted as being inexplicable in monetarist terms, namely the unhinging of the money supply growth from inflation in the 1990s and the failure of pure monetary policy to stimulate the economy in the 2001-2003 period.

There is no misinterpretation there, that states evidence of a serious flaw in Friedman's quote.

Originally Posted by lomiller

Originally Posted by Shambler

If money gets to the point, that it is in such high supply that demand for it is faltering, then it will already be causing multiple instances of demand-pull inflation throughout the economy (in other words, at that point, too much money will already be chasing goods of inadequate supply, causing inflation long before demand for money falters).

Ummm yes, that is what I said, and it's the opposite of what you said in your OP, which was "Money creation, on its own, does not cause inflation".

That is only part of what I said; the full quote is:
"Money creation, on its own, does not cause inflation (i.e. inflation of the money supply is not the same as price inflation), it is how that money is spent, that determines whether or not there is inflation."

So that is perfectly consistent with what I said; all of what I am saying, has a heavy emphasis on how money is spent, because that heavily determines how much (if any) inflation happens.

Originally Posted by lomiller

Sensible but that's been the Fed's stated mission for 25 years and mainstream economics since Friedman first suggested it. (The difference there being that he believed this could be accomplished by setting money supply size by formula, but to me it's readily apparent his Libertarian political tendencies led him astray and that a more active/reactive approach is required.

Indeed, though we are falling far short of the demand for money right now There is much room for introducing money into the economy, in non-inflationary ways (such as with a the job guarantee policy I describe), that can get to the goal of full private sector employment much faster, and with a lot less death and suffering in society.

Originally Posted by lomiller

Originally Posted by Shambler

If government uses fiscal policy to tax wages, to reduce income available to spend on food/fuel and such, that will directly reduce inflation, by reducing demand for those goods.

Not a wise approach since goods have difference elasticity of supply and demand. It also ignores the fact that when government spends those tax dollars, this also is demand and causes inflation.

Government is already doing this though; government does this and lets the slowdown in the private economy cause mass unemployment (that's how government manages inflation right now, it uses unemployment).

The difference with the job guarantee policy, is that people are pushed into a temporary public jobs instead of unemployment, requiring less of an economic slowdown, and thus providing a much more efficient inflation management mechanism (without the significant human cost, in death, ill health etc.).

Originally Posted by lomiller

patently false. The period since central banks adopted monetary policy as the primary means of managing inflation have had the most stable inflation rates in history.

Again, false. Friedman 's ideas came to prominence specifically because they COULD explain stagflation. In fact he predicted it as an outcome of Government Borrowing because the realized that this would drive up interest rates that would in turn reduce economics growth even as government spending was causing demand that would drive up prices.

Ah I did mix things up there, apologies; Monetarism does have uses in inflation management, though it does have problems which limits its usefulness; I will need to read up on that though, as it is a while since I checked out the issues with Monetarism.

[psionl0]

Originally Posted by Shambler

Banks don't 'create' money, they have a remit to extend credit (give out loans with corresponding debts), which the state then backs.

Call it "credit" if you like but it still means bigger bank accounts (ie people having more money).

And banks don't need the state to make it happen. All they need is enough reserves to handle the demands for cash withdrawals. The state (taxpayer) is essentially there to bail the banks out if the banks go silly.

Originally Posted by Shambler

The public sector in the US does this all the time (just without taking up all the unemployed workers), I guess the US is socialist?

How is employing bureaucrats in any way productive?

[Shambler]

Originally Posted by Sceptic-PK

Originally Posted by Shambler

In a gold standard, the money supply is limited by the supply of gold, so government did need to save before investing/spending; that's not how it is now, with a fiat currency.

That’s just an irrelevant bit of pedantry. Gold isn’t money; you could basically say the government wasn’t saving gold, it was collecting it. Maybe it was digging it out of the ground, whatever. The fact remains that the government must still create the currency that is dependent upon gold, and the cycle is the same as you describe for fiat.

Well, it isn't pedantry, but since we already agree that investments come before savings (which brings the discussion forward pretty far, since that's kind of controversial), I won't debate that point.

Originally Posted by Sceptic-PK

Originally Posted by Shambler

Where did I say governments should print all the money they like, without managing for inflation?

Your whole ethos implies it; you claim that taxes don’t fund governments, that governments can just create the money to fund the necessary spending. How does that NOT say governments should print all the money they like?

No it doesn't; every time I have mentioned government using money creation, I have explicitly said "limited by inflation", that is extremely clear.

I have said the role of taxes, is to manage inflation, so obviously I still promote a role for taxes, as one potential way of managing inflation.

Originally Posted by Sceptic-PK

You don’t explain the mechanic by which government spending is limited by inflation. You erroneously claim that taxation will do that, it won’t. Fiscal policy is but one contributor to underlying inflation.

I'll repeat: If government got rid of all taxes tomorrow, and kept current spending levels, there would be hyperinflation. Therefore, taxes are a method of managing inflation.

Originally Posted by Sceptic-PK

Originally Posted by Shambler

That government decides to issue debt in order to allow spending, or to match spending with taxes, is a political decision, not an economic decision or reality;

This is simply incorrect. Governments are pretty useless at balancing their budgets, but the process by which governments raise funds, via taxation and borrowing, are economic decisions.

The existence of the very ability for government to create money without simultaneously issuing debt (such as with platinum coin seigniorage), means you are wrong.

Deciding not to do that, is a political decision, because there is nothing economically stopping government from doing that.

Originally Posted by Sceptic-PK

Originally Posted by Shambler

the very capability of government, to spend through money creation, shows this.

This is a word salad I don’t understand.

Government have a printing press (in reality it's done on a computer, but we'll just say a printing press); government is capable of using that to print money, and government does not have to issue an equal amount of debt, for every bit of money they print (platinum coin seigniorage even steps around existing legal requirements for this).

Originally Posted by Sceptic-PK

Originally Posted by Shambler

If you got rid of taxation tomorrow, you would have hyperinflation, so it's pretty good at managing inflation.

Source? The amount of taxation in advanced economies isn’t close to enough to create hyperinflation if said taxes were abolished. You also ignore the fact that taxes do not take money out of the economy; the government don’t just bury that money in their backyard. It gets spent all over the place. Arguably in a less efficient manner than the private sector, but spending all the same. This does not, as a rule, create hyperinflation.

I never said taxes create hyperinflation (???), which your last sentence seems to imply.
If government got rid of taxes, and kept spending and spending into the economy, the amount of money in the economy would continuously grow forever and there would be neverending inflation.

I don't think I need to source that, because you seem to agree with that statement, because your arguments earlier, imply that you think government spending not matched by taxes, is inflationary.

Also, when government collects taxes in cash, that money is actually physically shredded or burned and new money recirculated when spending; taxes do destroy money.

Originally Posted by Sceptic-PK

Yeah, but this is ridiculous. Why keep creating and destroying money when you can just tax and spend the money that is already in circulation? You also completely ignore the fact that it is central banks that are ultimately tasked with managing inflation, not elected officials.

Central banks are part of the state, so I interchangeably mention them as part of government.

Most government creation/destruction of money is just adding and subtracting numbers on a balance sheet, on a computer; that government creates/destroys money is just a fact of fiat currency, made particularly evident by governments ability to fund itself through money creation (limited by inflation).

Originally Posted by Sceptic-PK

No, I am claiming that you are focusing only on the supply of money, when that is only one factor in inflation.

You're not making your point clear. Price inflation is caused largely by demand-pull inflation, and sometimes by supply-shock inflation (as well as built-in inflation).

You need to provide a description or links to the source of price inflation you're talking about, and explain how it is linked to money velocity.

[Shambler]

Originally Posted by psionl0

Call it "credit" if you like but it still means bigger bank accounts (ie people having more money).

With equal debts to go with it; in any case, it is the state which backs that increase in the money supply, it is not something the banks can support alone.

If the debts go bad at the bank, they definitely do need the state to intervene, and the existence of "too big to fail" banks today, that the state needs to bailout to avoid economic destruction, shows that banks are not independent here.

Whatever way you look at it, that increase in the money supply can't happen without the state.

[Puppycow]

OK, I see that this is a fast moving discussion, but I think I have the gist of it. I think I understand the points Shambler is making but I question how this policy can be effectively translated into the real world.

Originally Posted by Shambler

1: Money creation, on its own, does not cause inflation (i.e. inflation of the money supply is not the same as price inflation), it is how that money is spent, that determines whether or not there is inflation. *

Needs a little more explanation I think. If money enters the real economy, whatever the government spends it on initially, and ends up in the hands of people, then those people will either spend the money on whatever it is that they want/need or save or invest it. Thus, how the money is initially spent by the government may not matter as much as you think it does.

Quote:

2: Inflation in the price of a good, is typically caused when the supply of that good, cannot meet the demand for that good (or when the increase in supply, can't keep pace with the increase in demand). This means money spent buying something with a lot of excess supply, is non-inflationary.

OK, but why would we need more of something that is in excess supply?

Quote:

3: If government spends printed money combining surplus labour (unemployed people) with surplus industry/resources (e.g. the construction industry, which has a lot of idle resources in many countries), that does not have to be inflationary (but which may still cause some amount of inflation, due to worker wages).

Again, if these things are in excess supply, then that means that the market is saying "hey, we already have more of these than we can use; we don't need any more." Your goal is essentially to create busywork. I would rather pay unemployment benefits to workers and/or retrain them than to waste labor and precious resources on something that is already oversupplied.

Quote:

4: Fiscal policy (e.g. taxes) is a set of tools which is used to manage inflation; tightening fiscal policy (i.e. increased taxes), can be used to fight against inflation, including that from worker wages.

Easy to say, less easy to do in a democracy. Look at how difficult it is for the US to agree on fiscal policy right now. Monetary policy is easier because it is set by a relatively small number of people who are mostly professionals and economists and don't have to run for election.

Quote:

5: The Job Guarantee policy is government using created money to temporarily employ surplus labour, put to work on surplus resources, combined with fiscal policy; the surplus labour put to work with surplus resources is non-inflationary, and the potential inflation from worker wages can be counteracted with fiscal policy (increased taxes). As the private sector recovers, workers are moved out of the job guarantee program into the private sector.

Needs a little more explanation, but again, this is easier said than done in a democracy. How exactly would you set up this Job Guarantee policy? Have you considered that a "job" is not an end in itself, but only a means to and end? A "job" that is purely busywork and creates nothing that is needed or wanted by society, does not increase the standard of living. It does, perhaps, keep people busy and out of mischief, but it also keeps people from finding something more useful to do with their time, something that actually is wanted or needed by society. BTW, if you propose to pay people in this Job Guarantee program only minimum wage, that is not what most economists consider a "living wage".

Quote:

Milton Friedman's statement there, is based on Monetarism, which is debunked; a brief quote from Wikipedia:


Monetarism is false, and it is more accurately said that most economists do not agree with it, because it receives barely any support from economists today.

Empirical evidence, very heavily weighs against that quote.

I am not convinced. Certainly the terms "debunked" and "false" seem too sweeping.

Quote:

Monetary policy is historically proven to be ineffective at managing inflation, and you only have to look at stagflation in the UK under Thatcher, to see an instance disproving that (also a good example of debunking Monetarism).

But there are other examples of monetary policy working to control inflation: Paul Volker's Fed managed to get inflation under control in the early 1980s by raising interest rates until it hurt. This caused a recession and a spike in unemployment, but it didn't last too long, because it didn't take very long for inflation to come back under control, once they really bit the bullet and tried, and the Fed was able to lower interest rates again.

Quote:

That sounds a lot like the 'Quantity Theory of Money', which is widely regarded as empirically debunked.

I wish you would refrain from arguments from authority like this, which make it sound like you are blowing hot air. Perhaps if you said something more like "We have reasons to doubt X. Those reasons include Y and Z." That is more persuasive to me than "X is widely regarded as debunked."

[lomiller]

Originally Posted by Shambler

Here is the chain of conversation you are replying to:

Repeating myself: I did not imply other theory ignores the money supply (the money supply exists under a gold standard as much as it does under fiat money), I said other theory fails to factor in how fiat money changes the role of money itself, which covers a range of topics far wider than the money supply.

Read the discussion chain you posted. You DID not say this or anything like it.

It also isn't true that the role of money has changed. It was and still is a medium of exchange. The relevant change that fiat currency creates is that you can manage the size of the money supply.

Originally Posted by Shambler

I'm not misinterpreting it, that quote says that a core part of monetarism is debunked.

No it says the classic form has been questioned. If only the classic form is questioned it means that more modern forms are not questioned. Friedmans original form called for setting the size of money supply based of formula, which has been rejected in place of more active management and balancing inflation vs unemployment (as implemented in the US Fed by Paul Volker)


BTW it's also a Wikipedia quote, so not exactly strong supporting evidence to begin with.

Originally Posted by Shambler

That is only part of what I said; the full quote is:
"Money creation, on its own, does not cause inflation (i.e. inflation of the money supply is not the same as price inflation), it is how that money is spent, that determines whether or not there is inflation."

You later conceded that money creation would cause inflation without reference to "how it's spent". The fact that it is spent is sufficient to cause inflation, how doesn't matter.

Originally Posted by Shambler

Indeed, though we are falling far short of the demand for money right now

Questionable. M2 size has been increasing at rates very close to recent historic norms and inflation is near the 2% that is typically targeted.

Originally Posted by Shambler

Government is already doing this though; government does this and lets the slowdown in the private economy cause mass unemployment (that's how government manages inflation right now, it uses unemployment).

Again, the demand created by government spending balances the demand destroyed by taxation. Only in the case of deficit spending is new demand created, and then it's at the cost of elevated interest rates that must be addressed with monetary policy.

Originally Posted by Shambler

Ah I did mix things up there, apologies; Monetarism does have uses in inflation management, though it does have problems which limits its usefulness; I will need to read up on that though, as it is a while since I checked out the issues with Monetarism.

The chief problem is that real interest rates can't drop below zero which causes banks not to circulate currency if interest rates drop to low. When banks stop circulating money M2 money supply (which is what inflation responds to) shrinks. Google "liquidity trap" for further information.

Current Fed Chairman Ben Bernanke is one of the more notable scholars on this particular topic suggesting ways a liquidity trap could be addressed though monetary policy. While he seems to have some success it's starting to look as if a liquidity trap may still require assistance with fiscal policy.

This is uncertain, though, since the US has been engaging in the opposite of fiscal stimulus over the last few years (there has been a reduction of something like 2 million public sector jobs over the last 4 years)

[Sceptic-PK]

Yeah, I'm tired of your nonsense now.

[Puppycow]

I think it would be a useful exercise for Shambler to explain how the Job Guarantee program would be set up and implemented, including who would be hired, how much they would be paid and what jobs they would be given.

Also, when would they be fired? Could they be fired for cause? If they can be fired, then is it really a "guarantee"? If they cannot be fired, how does it flexibly respond when the economy recovers? Wouldn't this be a kind of central planning? Wouldn't it result in misallocation of resources into less productive areas by distorting the price signals of the market?

[Tippit]

Originally Posted by Shambler

This topic is going to highly offend conventional thinking about economics, so I'd request patience and openmindedness from people responding (since this place highly promotes skepticism and critical thinking, I'm hoping for a high-level of argument)

Welcome to the forum.

Quote:

Almost all economic theory today is based on gold-standard-era thinking, when it comes to money itself; theory has not been properly rewritten to reflect the properties of fiat money, and this (in my view) is perhaps the single most significant problem with economics and politics today, due to how it cripples informed political discussion over economic issues (and in turn, leads to enormous suffering and even deaths).

Since the vast majority of wars have been funded by, and could not have been funded without debasing the public currency, I suppose it is rather amusing that you posted this. You see, people typically don't like having their conventional taxes raised to fund the mass killing of other people. Fiat money circumvents this inconvenience for the warmongers quite nicely.

Quote:

The effects of fiat money on economics/politics are very wide ranging, so instead of providing a whole litany of examples of what it changes, I'll pick this one thing to start off with, and provide arguments to back it up:
Government can create and spend as much money as it likes, with the only limit being inflation.

Since this is true, then why does the central bank, presumably operating on behalf of the government, use the delegated right to counterfeit the public money to make virtually costless loans to private entities, with the express goal of earning them fantastic, risk-free profits? Why does the government venture into debt markets, seeking creditors to borrow from at interest?

Quote:

This seems a simple enough statement, but let me build upon it with some other statements, and show what kind of policies that opens up (the below all builds up to a description of the Job Guarantee policy):
1: Money creation, on its own, does not cause inflation (i.e. inflation of the money supply is not the same as price inflation), it is how that money is spent, that determines whether or not there is inflation. *

This depends on what your definition of inflation is. Austrians would define inflation as an increase in the supply of money, a definition I'm sure you reject. You're probably more amenable to a definition of inflation that features some arbitrary basket of commodities or consumer goods that is chosen by the government and hedonically manipulated. Under such a definition, copious amounts of money could be created and used to bid up financial assets, and "inflation" might not budge.

Quote:

2: Inflation in the price of a good, is typically caused when the supply of that good, cannot meet the demand for that good (or when the increase in supply, can't keep pace with the increase in demand). This means money spent buying something with a lot of excess supply, is non-inflationary.

First of all, this ignores the fact that inflation-induced demand is illegitimate - the purchasing power used to create the demand in the first place had to be stolen or taken, as counterfeiters and central bankers do.

Second, it implies an irrational desire for price stability. When given the condition of excess supply, prices should naturally fall and be enjoyed by consumers who actually exchanged their labor for money, and developed savings, not technocratic bankers and politicians.

Quote:

3: If government spends printed money combining surplus labour (unemployed people) with surplus industry/resources (e.g. the construction industry, which has a lot of idle resources in many countries), that does not have to be inflationary (but which may still cause some amount of inflation, due to worker wages).

Fortunately, that is unconstitutional in the United States. That is beyond the legitimate scope of government, even if the intention is noble. Unfortunately, no one cares about the US constitution anymore.

Quote:

4: Fiscal policy (e.g. taxes) is a set of tools which is used to manage inflation; tightening fiscal policy (i.e. increased taxes), can be used to fight against inflation, including that from worker wages.

Fiscal policy doesn't manage inflation, because US Government tax revenue ultimately winds up as a bid on any of financial assets, goods, or services. What manages inflation is the boundless productivity of the American empire, and central bank policy that actually destroys money.

In reality, increasing the money supply is a regressive form of taxation that few understand, let alone accept, and not much different than conventional forms of taxation that confiscate actual money, as opposed to purchasing power.

If this is a premise for your revolutionary new economics system, you have a serious problem.

Quote:

5: The Job Guarantee policy is government using created money to temporarily employ surplus labour, put to work on surplus resources, combined with fiscal policy; the surplus labour put to work with surplus resources is non-inflationary, and the potential inflation from worker wages can be counteracted with fiscal policy (increased taxes). As the private sector recovers, workers are moved out of the job guarantee program into the private sector.

So, building on that simple initial statement, the above shows how easy it is to expand that, into policies that allow the elimination of unemployment; this is a powerful redefining of basic macroeconomics, which can reshape political and economic discourse.

The elimination of unemployment is not a difficult problem to solve. The government could simply declare war on anything (it doesn't really matter what) and then enlist a mandatory draft of 100% of the population.

The real problem is creating jobs which produce goods and services that free, un-coerced people actually want, and are willing to pay for. This requires entrepreneurs and businesspeople, not government lackeys who are all too willing to take credit for job creation, by creating useless jobs the salaries for which are paid by anyone other than themselves.

Quote:

Currently, conservative gold-standard-based economic discourse dominates, and this is hindering progressive goals in politics/economics, because the entire debate is always framed in conservative views.

This redefining of economic theory though, to fit fiat money (based on Chartalism and Modern Monetary Theory), has the potential to re-empower progressive goals/views in politics/economics, so I view it as extremely important that it gets wider publicity and acceptance; however, thus far these views seem to be getting only limited traction, as they are not well known at the moment.

I hope that these views get no traction, as they are morally and intellectually bankrupt. Unfortunately, monetary reform and the abolition of central banking, fiat money, and fractional reserve banking are similarly getting no traction, as they are not well understood at the moment.

If you want to make progress, you might consider advocating that the most regressive tax be abolished first.

Quote:

* Neither does it cause devaluation, which would also have to be explained in inflationary terms. In general, claims that money creation = inflation, depend upon the Quantity Theory of Money, which is empirically false/debunked.

The quantity theory of money is only debunked in the minds of those who fail to reconcile financial asset prices with an increased supply of money, in addition to the prices of goods and services, and only in that context.

[Roger Ramjets]

Originally Posted by Shambler

Currently, conservative gold-standard-based economic discourse dominates, and this is hindering progressive goals

True, but this is a political problem, not an economic one.

You are assuming that full employment is a desirable goal, and that everybody would support a workable solution. But conservatives don't want full employment. They like having a pool of desperate poor people willing to work for a pittance in order to avoid starving to death. Anybody who won't (or can't) work under these conditions is just another moocher who doesn't deserve to live.

Quote:

This redefining of economic theory though, to fit fiat money (based on Chartalism and Modern Monetary Theory), has the potential to re-empower progressive goals/views in politics/economics,

Potential perhaps. But whilst the government could just create jobs for all the unemployed, and pay them by simply creating more fiat money, they don't because it is politically unacceptable.

Even if your 'Job Guarantee policy' would result in a strong economy that benefited the whole country, and even if everybody understood your 'Modern Monetary Theory' and knew that it would work, many would not want it. Why not? Because they don't like the idea of government having a hand in it. Many are willing to see the whole economy come crashing down around them, so long as it gets government out of their lives (and so long as their own personal wealth is not threatened - thus the enduring demand for gold and guns).

The problem isn't that people don't know what the government can do to fix unemployment, but that they don't want it to take the necessary actions. You can't convince people of the desirability of government intervention when their reasons for rejecting it are not that it won't work, but that it would be the government doing it. This is a political problem, not an economic one.

[psionl0]

Originally Posted by Shambler

With equal debts to go with it; in any case, it is the state which backs that increase in the money supply, it is not something the banks can support alone.

If the debts go bad at the bank, they definitely do need the state to intervene, and the existence of "too big to fail" banks today, that the state needs to bailout to avoid economic destruction, shows that banks are not independent here.

Whatever way you look at it, that increase in the money supply can't happen without the state.

Maybe you should read Modern Money Mechanics (a publication by the Federal Reserve Bank of Chicago) before educating us on money creation.

[Brian-M]

Originally Posted by Shambler

Some of the primary examples of non-inflationary spending:
- Buying up surplus resources
- Hiring surplus labour, put to work on either on surplus resources or work which doesn't use resources, e.g. academic/research (wages are the primary potentially inflationary aspect of this)
- Writing off debt (increased dispensable income is the main potential for inflation)

I don't understand how injecting money into the economy through buying surplus resources or hiring workers would avoid causing inflation. The money will be spent, and once it finds it's way into new hands, it will be spent again, and then again and again until attrition through taxation causes it to evaporate away. It going to have an effect on the economy.

Unless you have something to mop up the surplus currency, such as a rapidly expanding population, higher taxes or new categories of products/services for people to spend their money on in addition to their regular spending, I don't see how you can avoid an inflationary effect. (I'll leave discussion of debt to people more knowledgeable than I.)

If you were going to spend a huge amount of newly created money on construction of large housing developments and new towns in order to allow a large increase of immigration into the country, I can see how this might be a means of non-inflationary spending of new currency, because there would be an increased demand for local currency due to the increase in population through immigration.

Similarly, if you were to spend the newly created money on creating export products this might be a non-inflationary form of spending due to increased demand for the currency from overseas businesses.

So while I agree that it is theoretically possible to increase spending by means of newly created money without causing inflation, I doubt that it would work in practice if spent in the ways that you suggest.

[Shambler]

Originally Posted by Puppycow

Needs a little more explanation I think. If money enters the real economy, whatever the government spends it on initially, and ends up in the hands of people, then those people will either spend the money on whatever it is that they want/need or save or invest it. Thus, how the money is initially spent by the government may not matter as much as you think it does.

Well, even where the money ends up in the economy, there are several relatively non-inflationary ways to spend it:
1: Debt relief/writedowns; the main potential for inflation being increased disposable spending by the debtor, which would only be a fraction of the money spent on the debt itself.

2: Buying surplus goods; because only surplus goods are being bought, there is no inflationary pressure on the goods price; no direct increase in inflation

3: Hiring surplus labour; minimal inflationary pressure on wages, since the labour is surplus, increase in disposable income is the main inflationary pressure (which can be counteracted with tightened fiscal policy, i.e. taxes).


A good way to think about the potential for inflation, through wages: No matter what economic theory/system/etc. you support, the goal of all economics is to provide full employment, and maximum productivity; maximum productivity also inherently depends on having full employment.

This means the end goal of austerity is (supposedly) to provide economic recovery i.e. full employment again in the future, so it has to be pointed out:
The end result of full employment, whether you get there through austerity (after many years of economic/social destruction), or through a Job Guarantee program (getting there very soon with minimal social/economic destruction), is going to result in a similar level of inflation, through wages/spending in the end, because full employment is achieved in both circumstances.


So, rephrasing a bit: You always want full employment, and all economic theory/policies strive towards full employment, so all economic theory caused inflationary pressure through worker wages; so inflationary pressure through worker wages is not something we want to avoid, because that inherently means unemployment. We do want to counteract that inflationary pressure with taxes though.

Originally Posted by Puppycow

OK, but why would we need more of something that is in excess supply?

Well, we have an energy crisis coming up, and oil is going to be getting very expensive into the future; all countries want to be investing in alternative forms of energy, like nuclear power, and thus that is a reason we really aught to be making use of surplus construction industry resources (and surplus labour) right now.

Originally Posted by Puppycow

Again, if these things are in excess supply, then that means that the market is saying "hey, we already have more of these than we can use; we don't need any more." Your goal is essentially to create busywork. I would rather pay unemployment benefits to workers and/or retrain them than to waste labor and precious resources on something that is already oversupplied.

That's not what excess supply signifies though; all of the idle construction capacity is there to be used, and all of the idle labour too, but it is only the absence of money that is preventing that from being done; it is an enormous waste of productive potential.

Originally Posted by Puppycow

Easy to say, less easy to do in a democracy. Look at how difficult it is for the US to agree on fiscal policy right now. Monetary policy is easier because it is set by a relatively small number of people who are mostly professionals and economists and don't have to run for election.

Definitely, agreed; that's why I think this reframing of economics that I post about here is so important:
It completely changes the political debate regarding spending and taxation; government spending no longer has to be matched with taxation, it is limited only by inflation (thus opening up many non-inflationary uses of money, that are not currently under consideration), and the purpose of taxes is now wholly different, for managing inflation, and for disincentivizing undesired activity (pollution, short-term corporate thinking etc.) in the economy.

Right now political discourse in the US and everywhere, is stuck in the conservative economic framework of thinking: Balanced budgets good, deficits/debt bad, printed money evil.
All of that is just wrong, and if progressives (in politics and in public discourse), start using this more accurate reframing of money and economics, it will completely change the terms of political/economic debate, in every country, and will inherently lead to more progressive policies.

Extremely important that this happens, and as soon as possible, especially as countries everywhere are in serious economic trouble, and getting worse (with lots of people dying, suffering ill health and homelessness etc., due to outdated economics).

Originally Posted by Puppycow

Needs a little more explanation, but again, this is easier said than done in a democracy. How exactly would you set up this Job Guarantee policy? Have you considered that a "job" is not an end in itself, but only a means to and end? A "job" that is purely busywork and creates nothing that is needed or wanted by society, does not increase the standard of living. It does, perhaps, keep people busy and out of mischief, but it also keeps people from finding something more useful to do with their time, something that actually is wanted or needed by society. BTW, if you propose to pay people in this Job Guarantee program only minimum wage, that is not what most economists consider a "living wage".

Agreed, and particularly about the "living wage" part; I would definitely advocate a minimum wage more in line with an agreed upon living wage.

There are many goals that the Job Guarantee could fulfill, and none of the jobs would have to be meaningless; the private sector isn't always capable of providing full employment (as can be seen now), and it also prioritizes profit (money) over greater societal wellbeing, so the Job Guarantee can step in by soaking up labour which private industry is not using, and put that labour to use for purposes which prioritize social wellbing, rather than prioritizing money.

For instance, my previous example of non-fossil-fuel energy construction: Private industry is failing to provide enough research, construction and effort in general, into avoiding the upcoming energy crisis; this is the perfect place to put in effort with a Job Guarantee.

Funding could be put into construction for new power sources (nuclear, renewable, among others), into research for new power sources (physics research, for experimental future power like fusion, materials research for more efficient power generation/storage etc.), into research/production for more efficient use of power in general, and into infrastructural changes that will be required for moving away from oil and fossil fuels in general.

It is the general consensus, that countries everywhere, are already too late in starting to make the move away from oil/fossil-fuels, and that because of this delay, there will be a big energy 'crunch' in the future, as the price of fossil fuel gets higher and higher, and countries scramble to reconstruct their infrastructure for use with different power sources.

There is no better time than now to start making this change (it should have been started years or decades ago).

Originally Posted by Puppycow

I am not convinced. Certainly the terms "debunked" and "false" seem too sweeping.

There's still merit to some of Friedman's ideas, but the quote I put forward, clearly showed an empirical contradiction in what Friedman claimed, therefore he must be wrong.

Originally Posted by Puppycow

But there are other examples of monetary policy working to control inflation: Paul Volker's Fed managed to get inflation under control in the early 1980s by raising interest rates until it hurt. This caused a recession and a spike in unemployment, but it didn't last too long, because it didn't take very long for inflation to come back under control, once they really bit the bullet and tried, and the Fed was able to lower interest rates again.

It's the exceptions which falsify a claim; when something is falsified, previous successes can't undo that falsification.

In that case above, that the inflation rate adjustment caused economic trouble and unemployment, shows that it is not an optimal method for managing inflation; the job guarantee policy I put forward, is a method of managing inflation without any unemployment.

Originally Posted by Puppycow

I wish you would refrain from arguments from authority like this, which make it sound like you are blowing hot air. Perhaps if you said something more like "We have reasons to doubt X. Those reasons include Y and Z." That is more persuasive to me than "X is widely regarded as debunked."

Ah, apologies, I should have provided a more direct argument; the Quantity Theory of Money basically states (from Wikipedia):
"In monetary economics, the quantity theory of money is the theory that money supply has a direct, proportional relationship with the price level"

This is easily debunked though, by pointing to historical precedence, such as the quote I gave debunking Monetarism (from that economic theories Wikipedia page):

Quote:

Since 1990, the classical form of monetarism has been questioned because of events which many economists have interpreted as being inexplicable in monetarist terms, namely the unhinging of the money supply growth from inflation in the 1990s and the failure of pure monetary policy to stimulate the economy in the 2001-2003 period

With inflation representing the price level, this shows past evidence pretty much debunking the quantity theory of money.

[Shambler]

Originally Posted by lomiller

Originally Posted by Shambler

...I said other theory fails to factor in how fiat money changes the role of money itself...

Read the discussion chain you posted. You DID not say this or anything like it.

?:
"Almost all economic theory today is based on gold-standard-era thinking, when it comes to money itself;"
"I said almost all modern economics is still based on a gold-standard-based understanding of money itself, and that theory has not been updated to reflect the changes fiat money introduce"

Originally Posted by lomiller

It also isn't true that the role of money has changed. It was and still is a medium of exchange. The relevant change that fiat currency creates is that you can manage the size of the money supply.

It also inherently changes the purpose of taxes, government spending and ability for government to spend, among much else; it's far more than just allowing an adjustable money supply.

Originally Posted by lomiller

No it says the classic form has been questioned. If only the classic form is questioned it means that more modern forms are not questioned. Friedmans original form called for setting the size of money supply based of formula, which has been rejected in place of more active management and balancing inflation vs unemployment (as implemented in the US Fed by Paul Volker)

You're changing the goalposts, that was not your argument; you were defending the quote "Inflation is always and everywhere a monetary phenomenon", which is not the argument you made above.

I then provided the bit from Wikipedia, directly contradicting that quote:

Quote:

Since 1990, the classical form of monetarism has been questioned because of events which many economists have interpreted as being inexplicable in monetarist terms, namely the unhinging of the money supply growth from inflation in the 1990s and the failure of pure monetary policy to stimulate the economy in the 2001-2003 period.

Originally Posted by lomiller

You later conceded that money creation would cause inflation without reference to "how it's spent". The fact that it is spent is sufficient to cause inflation, how doesn't matter.

Where did I say that? I have always prefixed, that it is how government spends the money, that determines whether it will be inflationary and how inflationary it will be.

Originally Posted by lomiller

Again, the demand created by government spending balances the demand destroyed by taxation. Only in the case of deficit spending is new demand created, and then it's at the cost of elevated interest rates that must be addressed with monetary policy.

The interest rate doesn't matter, since government does not need to issue debt to fund net-spending, it can use money creation (whose effect on the inflation rate is not the same as with debt issuance).

Originally Posted by lomiller

The chief problem is that real interest rates can't drop below zero which causes banks not to circulate currency if interest rates drop to low. When banks stop circulating money M2 money supply (which is what inflation responds to) shrinks. Google "liquidity trap" for further information.

Current Fed Chairman Ben Bernanke is one of the more notable scholars on this particular topic suggesting ways a liquidity trap could be addressed though monetary policy. While he seems to have some success it's starting to look as if a liquidity trap may still require assistance with fiscal policy.

This is uncertain, though, since the US has been engaging in the opposite of fiscal stimulus over the last few years (there has been a reduction of something like 2 million public sector jobs over the last 4 years)

Interesting, ta; an alternative theory here (maybe complimentary to this), is that debt deflation is the primary cause of this here: People having too much debt, thus putting money into paying down debt rather than spending, causing a loss in aggregate demand, and a further loss in income, necessitating less spending, in a negative feedback loop etc..

[Shambler]

Originally Posted by Puppycow

I think it would be a useful exercise for Shambler to explain how the Job Guarantee program would be set up and implemented, including who would be hired, how much they would be paid and what jobs they would be given.

Also, when would they be fired? Could they be fired for cause? If they can be fired, then is it really a "guarantee"? If they cannot be fired, how does it flexibly respond when the economy recovers? Wouldn't this be a kind of central planning? Wouldn't it result in misallocation of resources into less productive areas by distorting the price signals of the market?

It's more a guarantee that a job is available for people to take, if they want it, not that they are free to behave poorly and abuse the system; it would put government in the position of "employer of last resort".

You would still have unemployment payments, but government would setup job programs with opening availabilities for unemployed workers, to e.g. work on infrastructural changes like construction, such as nuclear power plants; it can also support jobs like research, among many other things.

The jobs offered, depend upon peoples skillset, and on what kind of work would be societally useful.

Payment would likely be in or around minimum wage, but that may entail raising minimum wage to a more acceptable 'living wage'; that's a different discussion though.

Workers could be fired for misbehaviour and such, just like any other job; there'd always be unemployment for them to go back to, or alternatively they could do community service type work (cleaning up the local community) within the job guarantee, if no other jobs are on offer to them.


As the economy recovers, people are simply moved from the job guarantee program, back into the private economy (where wages will be higher); the job guarantee inherently assists in helping the private sector recover, and as the private sector does recover, it eventually absorbs just about all of the workers within the job guarantee.

The end goal, is still to achieve full private sector employment, with the job guarantee just filling the gap while the private sector is unable to provide enough jobs.

Since the point of the job guarantee, is to put surplus labour into work on surplus resources/industry, it would specifically not compete with the private sector.

[Blank]

Originally Posted by Shambler

Well, we have an energy crisis coming up, and oil is going to be getting very expensive into the future; all countries want to be investing in alternative forms of energy, like nuclear power, and thus that is a reason we really aught to be making use of surplus construction industry resources (and surplus labour) right now.

Let's see if I get this correctly:

The idea is to get unemployed (and most likely unqualified) labor to build up nuclear reactors all over the States out of surplus raw materials (that rules out necessary stuff like concrete and steel.. They're hardly surplus materials)

Mind you that there are SEVERAL competent companies that actually build these IF there's a demand... You'd also drive them out of the market.

To finance this all you intend to mint loads of funny money and hope that the economy won't collapse, because Wikipedia says that Monetarism is wrong?

[Shambler]

Originally Posted by Tippit

Welcome to the forum.

Cheers

Originally Posted by Tippit

Since the vast majority of wars have been funded by, and could not have been funded without debasing the public currency, I suppose it is rather amusing that you posted this. You see, people typically don't like having their conventional taxes raised to fund the mass killing of other people. Fiat money circumvents this inconvenience for the warmongers quite nicely.

Wars are actually the perfect example of government net-spending in action, aimed at economic recovery; WWII got the US out of the last great depression, so just imagine what such a huge expenditure of money could do, if put to productive use in a Job Guarantee, instead of a war (you could put enormous amounts of effort into avoiding the upcoming energy crisis, for one)

Originally Posted by Tippit

Since this is true, then why does the central bank, presumably operating on behalf of the government, use the delegated right to counterfeit the public money to make virtually costless loans to private entities, with the express goal of earning them fantastic, risk-free profits? Why does the government venture into debt markets, seeking creditors to borrow from at interest?

A central bank can't counterfeit money, because counterfeiting is the illegal copying of money, and the central bank is the one place (alongside government, with platinum coin seigniorage) that can print money and have it be non-counterfeit.

What central banks do, is print money, and then issue an equal amount of government bonds on the market, as debt; this issuance of bonds/debt, is only done due to legal/political requirement, not through any economic requirement.

With platinum coin seigniorage, the US government is capable of issuing new currency, without any corresponding debt; the only hindrance to this, is political.

Originally Posted by Tippit

This depends on what your definition of inflation is. Austrians would define inflation as an increase in the supply of money, a definition I'm sure you reject. You're probably more amenable to a definition of inflation that features some arbitrary basket of commodities or consumer goods that is chosen by the government and hedonically manipulated. Under such a definition, copious amounts of money could be created and used to bid up financial assets, and "inflation" might not budge.

Indeed, I do disagree with the 'quantity theory of money' definition of inflation, and have provided arguments in my posts above, as to why it is false.

Price inflation is what matters in the economy (that is the definition of inflation), and money supply inflation does not directly determine price inflation (as my arguments above support), so it is always important to talk about inflation in terms of price inflation only (and this does not have to be limited to the CPI, it can apply to any goods).


Any semantic redefinition of 'inflation', to mean inflation of the money supply rather than price inflation, which ignores the disconnect between monetary and price inflation, but which also tries to imply the negative effects of price inflation, is inaccurate and asserting it would be inaccurate and tautological, given previous examples showing how this is not true.

So yes, whenever I mention inflation, I always mean 'price inflation' (that is its definition), and attempts to redefine it as money supply inflation, are inherently inaccurate and (unless explicitly disclaimerized as 'money supply inflation', rather than just 'inflation') cause a semantic and intellectual barrier to discussion, because we would not be talking about the same thing.

Originally Posted by Tippit

First of all, this ignores the fact that inflation-induced demand is illegitimate - the purchasing power used to create the demand in the first place had to be stolen or taken, as counterfeiters and central bankers do.

Second, it implies an irrational desire for price stability. When given the condition of excess supply, prices should naturally fall and be enjoyed by consumers who actually exchanged their labor for money, and developed savings, not technocratic bankers and politicians.

This is a good example of why 'money supply inflation' needs to be distinguished from 'price inflation'; you say money creation is 'inflation-induced demand', but that is implicitly defining inflation as an increase in the money supply.

That is not the definition of inflation; price inflation, is the primary definition of inflation.

Also, central bankers do not 'steal' production, and as I explained earlier, can not 'counterfeit' because they are inherently the only legal issuers of money.

Money, being a means of exchange, means that when there is not enough money in the economy, people can not exchange their labour for goods (through earning and then spending money); so money enables production, and when there is unemployment in the economy, that is a waste/loss of production that can not be regained.

This means that when government creates money, to provide a Job Guarantee for full employment, it is enabling production that would otherwise not happen, not taking production out of the economy.

Originally Posted by Tippit

Fortunately, that is unconstitutional in the United States. That is beyond the legitimate scope of government, even if the intention is noble. Unfortunately, no one cares about the US constitution anymore.

With 'Platinum Coin Seigniorage', it's actually perfectly legal; the only impediment to doing this at the moment, is political, not legal or economic.

Originally Posted by Tippit

Fiscal policy doesn't manage inflation, because US Government tax revenue ultimately winds up as a bid on any of financial assets, goods, or services. What manages inflation is the boundless productivity of the American empire, and central bank policy that actually destroys money.

In reality, increasing the money supply is a regressive form of taxation that few understand, let alone accept, and not much different than conventional forms of taxation that confiscate actual money, as opposed to purchasing power.

If this is a premise for your revolutionary new economics system, you have a serious problem.

If government cut all taxes tomorrow, and kept on spending at its current rate forever, that would eventually become inflationary; if you agree with that, then you would inherently agree that taxes manage/prevent inflation, and thus that fiscal policy manages inflation.

You are again assuming that "money creation = inflation" here, which I've addressed previously.

Originally Posted by Tippit

The elimination of unemployment is not a difficult problem to solve. The government could simply declare war on anything (it doesn't really matter what) and then enlist a mandatory draft of 100% of the population.

The real problem is creating jobs which produce goods and services that free, un-coerced people actually want, and are willing to pay for. This requires entrepreneurs and businesspeople, not government lackeys who are all too willing to take credit for job creation, by creating useless jobs the salaries for which are paid by anyone other than themselves.

Indeed like a 'war' effort to remove dependency on oil, to improve infrastructure, provide better education/healthcare etc., or even just to end unemployment itself; 'war' in all contexts, would economically mean extensive spending.

The private sector primarily focuses on short-term gains at the moment, and is currently incapable of solving wider long-term issues like the upcoming energy crisis, pollution/climate-change, and generally any issues where monetary gain is not the sole aim.

It's long past the time that these wider long-term issues should have had more effort put towards solving them, and since the private sector has failed here, it is up to government to direct efforts in that direction.

Originally Posted by Tippit

I hope that these views get no traction, as they are morally and intellectually bankrupt. Unfortunately, monetary reform and the abolition of central banking, fiat money, and fractional reserve banking are similarly getting no traction, as they are not well understood at the moment.

If you want to make progress, you might consider advocating that the most regressive tax be abolished first.

On the contrary, these views are the only ones which fit the empirical record well, and thus are the only ones which are not intellectually bankrupt; current policies/theory support leaving our economy with mass unemployment, and in allowing economic/social destruction to happen through austerity, which leads to countless deaths, ill health of many people within the population, poverty, homelessness, lost opportunities/prospects/futures for lots of people, etc. etc.. That is morally bankrupt, and inexcusable due to how needless it all is.

Originally Posted by Tippit

The quantity theory of money is only debunked in the minds of those who fail to reconcile financial asset prices with an increased supply of money, in addition to the prices of goods and services, and only in that context.

Well, if you can provide sources to back this up (particularly specific defenses of the quantity theory of money), I'd certainly be interested in checking them out; I haven't come across any defenses of it lately (and given the evidence, not sure how it can be defended), so it would be genuinely interesting to see what arguments there are, which deal with past events/evidence showing it to be wrong.

[aggle-rithm]

Originally Posted by Shambler

Wars are actually the perfect example of government net-spending in action, aimed at economic recovery; WWII got the US out of the last great depression, so just imagine what such a huge expenditure of money could do, if put to productive use in a Job Guarantee, instead of a war (you could put enormous amounts of effort into avoiding the upcoming energy crisis, for one)

Careful of over-generalizing based on the experience of a single country in a single war. It got the US out of the depression, but it didn't do much for the economy of Great Britian. The US made out like a bandit as a result of WWII because of several extenuating circumstances; among them, the fact that the bulk of its industrial might was insulated from damage in the war and it was essentially the only country able to provide manufactured goods to many of the countries that didn't fare so well.

Switzerland did pretty well, too, and it wasn't even in the war!

[aggle-rithm]

Oh, and before that war thing, they tried your idea with providing jobs to everyone. You should read up on it.

[Shambler]

Originally Posted by Roger Ramjets

True, but this is a political problem, not an economic one.

You are assuming that full employment is a desirable goal, and that everybody would support a workable solution. But conservatives don't want full employment. They like having a pool of desperate poor people willing to work for a pittance in order to avoid starving to death. Anybody who won't (or can't) work under these conditions is just another moocher who doesn't deserve to live.

Indeed, that's true, I agree with all of that It's not just a political problem either though, but a problem in political discourse as well; progressives are stuck in the inaccurate conservative framing of the debate, and all of what I post here, provides an alternative more accurate, and more progressive-friendly framing of the debate.

Changing the terms of the debate like that, is essential to pushing political discourse forward on progressive issues, and moving away from the current gold-standard-era economic theories.

The framing of the debate, in public discourse, media, and with politicians themselves (particularly those actually interested in progressive goals), is in serious need of change, along the lines I post in this thread, otherwise arguments towards progressive goals can never win, because they are framed based upon conservative economics.

Originally Posted by Roger Ramjets

Potential perhaps. But whilst the government could just create jobs for all the unemployed, and pay them by simply creating more fiat money, they don't because it is politically unacceptable.

Even if your 'Job Guarantee policy' would result in a strong economy that benefited the whole country, and even if everybody understood your 'Modern Monetary Theory' and knew that it would work, many would not want it. Why not? Because they don't like the idea of government having a hand in it. Many are willing to see the whole economy come crashing down around them, so long as it gets government out of their lives (and so long as their own personal wealth is not threatened - thus the enduring demand for gold and guns).

The problem isn't that people don't know what the government can do to fix unemployment, but that they don't want it to take the necessary actions. You can't convince people of the desirability of government intervention when their reasons for rejecting it are not that it won't work, but that it would be the government doing it. This is a political problem, not an economic one.

It's only politically unacceptable, because of how they frame the debate though that's what makes this more accurate redefining of the debate so very important, and why it urgently needs wider proliferation publicly and within politics; once these views come to dominate, politicians will need to reframe their debate in these progressive terms, otherwise they will lose credibility.

It's similar to how nobody can credibly propose going back to the gold standard now, without taking a hit on their reputation; the problems with that are well established, and public discourse has moved on beyond that; the same needs to happen with current outdated economic theories.

I agree that there are a lot of people, who definitely do not desire proliferation of the views I put forward, due to financial interests and greed, but I think that the wider population definitely would desire to see these more progressive views be proliferated.

The great power of these views, is that they have empirical backing to support them, so once they start gaining momentum and traction with the population, they are going to have that built-in credibility based on evidence, and that's going to highlight the empirical flaws in current economic theory, and make it harder and harder for conservatives and the greedy to hold on to their outdated economic views, while maintaining credibility.

Once you change the terms of the debate itself, change the framing of it, and force conservatives to utilize this new framing of the debate (as they would lose credibility if they did not), their greed-based policies can no longer be shielded/hidden by the gold-standard-era conservative framing, and so the greed becomes even more transparent, and they totally lose the ability to credibly defend their policies.


So, you're totally right that they will fight it and even when it becomes the dominant economic view, they will try to pursue their desired policies anyway, but once you change the terms/framing of the debate, they will only ever lose the argument from thereon after, because they can't justify their policies, in terms of this redefined theory.

[aggle-rithm]

Originally Posted by Shambler

The great power of these views, is that they have empirical backing to support them, so once they start gaining momentum and traction with the population, they are going to have that built-in credibility based on evidence, and that's going to highlight the empirical flaws in current economic theory, and make it harder and harder for conservatives and the greedy to hold on to their outdated economic views, while maintaining credibility.

I know you've already been over this, but could you give us a quick summary of what the empirical backing is?

[Shambler]

Originally Posted by Brian-M

I don't understand how injecting money into the economy through buying surplus resources or hiring workers would avoid causing inflation. The money will be spent, and once it finds it's way into new hands, it will be spent again, and then again and again until attrition through taxation causes it to evaporate away. It going to have an effect on the economy.

All of that depends upon what it is spent on, and if it is spent at all; if it stays within the bank account of the company you bought money from, it does not get spent, if instead of buying from a private company, you use a public company to fund extraction/creation of the goods instead, the main source of potential inflation is wages.

If inflation is claimed, it needs to be shown where money is going to end up chasing goods of limited supply, and every time money is spent without chasing goods of limited supply, that reduces the potential inflationary effect of overall spending.

It's all about minimizing the inflationary impact of the spending; if you spent the money on a good of limited supply, it is 100% inflationary, if you spend it on a good of heavy excess supply, and 90% of that money ends up spent in non-inflationary ways, that is way more efficient, and the excess inflation can be dealt with, using fiscal policy i.e. taxes.

Basically, look at every instance of surplus resources (be that labour, raw resources, industry) as a potential non-inflationary use of money; the goal is full employment, and you want to combine labour with resources in the most non-inflationary (i.e. most efficient) way possible.

Even then, economies generally still allow for a certain amount of inflation, often between 2-4%, so it's all a matter of balance.

Originally Posted by Brian-M

Unless you have something to mop up the surplus currency, such as a rapidly expanding population, higher taxes or new categories of products/services for people to spend their money on in addition to their regular spending, I don't see how you can avoid an inflationary effect. (I'll leave discussion of debt to people more knowledgeable than I.)

Well that's where taxes come in; taxes can depress spending power for consumers, and thus ameliorate inflation, if that is deemed necessary.

Originally Posted by Brian-M

If you were going to spend a huge amount of newly created money on construction of large housing developments and new towns in order to allow a large increase of immigration into the country, I can see how this might be a means of non-inflationary spending of new currency, because there would be an increased demand for local currency due to the increase in population through immigration.

Similarly, if you were to spend the newly created money on creating export products this might be a non-inflationary form of spending due to increased demand for the currency from overseas businesses.

So while I agree that it is theoretically possible to increase spending by means of newly created money without causing inflation, I doubt that it would work in practice if spent in the ways that you suggest.

Well, those wouldn't be my preferred methods of spending Consider my example of spending to help cushion the blow from the coming energy crisis:
Fossil fuels are going to get very expensive in the future, and are going to start causing increasing supply-shock inflation due to the increase in prices, so by spending lots of created money now on alternative energy sources, you can actually fight inflation that will be caused by that supply shock.

The construction industry in many countries (thus their resource chains as well) has lots of excess supply, and there is a lot of surplus labour, so that immediately is one of the most obvious places where you can pump money, with relatively little inflation (where most of the inflation is just through worker wages, not through limited resources, and thus is manageable with taxes).

Remember, full employment is the goal no matter what economic theory you're supporting, so it's mainly about finding the most non-inflationary mix of industry, resources and labour, irrespective of whatever economic theory you prefer (while also trying to guide the productive efforts towards desirable economic/social goals as well, in the most efficient way manageable).

[Shambler]

Originally Posted by Blank

Let's see if I get this correctly:

The idea is to get unemployed (and most likely unqualified) labor to build up nuclear reactors all over the States out of surplus raw materials (that rules out necessary stuff like concrete and steel.. They're hardly surplus materials)

Mind you that there are SEVERAL competent companies that actually build these IF there's a demand... You'd also drive them out of the market.

To finance this all you intend to mint loads of funny money and hope that the economy won't collapse, because Wikipedia says that Monetarism is wrong?

Concrete industry is in decline:

Quote:

According to the U.S. Geological Survey, the U.S. cement industry recorded a decline to a "28-year low," forcing additional plants to be idled and others to shut down in 2010.

http://business.highbeam.com/industr...mixed-concrete

So straight away, you are wrong there, there is a lot of potential for scaling up production of concrete.

Demand for steel is also widely reported to be below pre-recession levels, and there is no indication that the steel industry is incapable of scaling up supply to meet any increased demand, so you are wrong on that point too:

Quote:

All the steel players have been plagued by weak steel demand, oversupply in the U.S. steel industry and increased steel imports in the domestic market, which have affected steel prices hurting margins in the process. The weak global conditions are a deterrent factor for volumes.
...
Overcapacity: Even though demand has increased overall in the past two years, growth in steelmaking capacity is still ahead of demand and remains a significant challenge for the industry. This has been further exacerbated by the European sovereign debt crisis, which has stagnated investments in large scale projects in Europe and reduced capital for growth.

http://finance.yahoo.com/news/steel-...212516693.html

Those private companies wouldn't be crowded out, as obviously nobody is hiring them to build nuclear power plants at the moment; the private sector has thus far totally failed to provide enough efforts into transitioning away from power dependent on fossil fuels, so there is no choice but for government to step in.