Kevin Drum made an interesting observation this morning – a lot of major central banks would like to see more inflation right now, but so far no one has pulled it off. A bunch of people replied that maybe one of the central banks should try printing a lot of money, so Drum pointed out that Japan already did that.
So the conclusion is…free money is really free? Can we print out the entire federal deficit? Alexander Hamilton would roll over in his grave, but think of the positive side. America would finally qualify for a decent mortgage rate. The Fed could mail fat envelopes of cash to everyone with a social security number. I bet that would poll pretty well.
I would guess* the answer has more to do with the psychological side of finance. Maybe printing money has no effect as long as everyone thinks that the bank is still being responsible. If international investors get nervous that the bank is really shooting the moon, maybe they will all get worried at the same time and all the bad stuff we associate with an inflation spike will kick in irreversibly all at once. Or maybe it’s not enough for the Fed to print money. Rich folks mostly just squirrel excess cash away in in some foreign account where it gathers fees and puffs up investment bubbles and generally doesn’t do anyone much good.
Perhaps you also need to get that scratchola into the hands of people who will reliably stimulate the economy with it. That is to say, poor people. If you give a poor person ten dollars they will spend most of it right away, in America, on stuff that supports jobs in America. Poor people all having enough money to buy eggs (and a refrigerator) will pretty much a priori make eggs (and refrigerators) more expensive. In my happy fantasy world where Republicans return the value of the air they consume, I can imagine coupling a major QE push with a comparable surge in infrastructure/jobs and safety net spending. Betcha ten bucks we would hit two percent inflation pretty quickly, and without the likely very bad consequences of the Fed just leaving the presses running until China and Europe hit the panic button.
(*) Professor Krugman is trying to knock a stuck bag of Welch’s fruit snacks free from a vending machine, so I’m just going to sit in his chair here for a minute and write this. Don’t tell him, ok?
Chyron HR
Well, then maybe he shouldn’t have thrown away his shot.
Omnes Omnibus
Sounds Keynesian.
NCSteve
This can’t be more complicated than paying my household bills and balancing my checkbook, after all.
MattF
FYI, we’ve got new-style vending machines where I work, and they seem to be able to sense when a vended snack is stuck, and then try to unstuck it. I’ve seen it happen!
Tim F.
@NCSteve: I love when people tell me that. All you have to do is point out that spending less will make next month’s paycheck smaller. The people who are capable of processing that (the guy who asked where was President Obama on 9/11, probably not) tend to get stuck on it for a while.
Eric U.
the one mistake we made in the great recession was not spending more. Unfortunately, not even the democrats had a majority of people holding that view. I’m pretty sure the republicans knew it, and didn’t vote for it because they wanted to screw Obama. I am sure there is some way to distribute free money other than funding projects, but we have been starving the government so long that projects are a really good way to distribute free money. For a while, people were paying the U.S. to borrow their money, it was stupid not to do it. And bond rates are still really low, we should be taking advantage.
Refundable tax credits would have been a great idea at the depth of the recession. Timing wouldn’t have been bad since the crash happened a few months before the end of the year
What Have the Romans Ever Done for Us?
Dude, think of the MORAL HAZARD of giving people who aren’t filthy rich bankers free money. I mean, they might do something enjoyable with it! Making the proletariat, and the bourgeoisie, miserable at the expense of the overclass is the only way to stimulate economic growth.
Walker
This has been Krugman’s schtick for the past decade. Hence the following rule from Brad Delong:
1. Remember that Paul Krugman is right.
2. If your analysis leads you to conclude that Paul Krugman is wrong, refer to rule #1.
catclub
@Eric U.:
50 year bonds. 100 year bonds. indefinite term bonds – for which there is some british name – gilts!
Chris T.
One problem is that the central bank is not, in fact, “printing money”. That phrase gets used, but it’s misleading.
While the Fed’s balance sheet (and that of the BoJ) has expanded, they’re simply exchanging one set of assets for another.
See Investopedia for a nice simple overview.
Pogonip
Just in case Adam’s reading this: what’s the latest and greatest on what to do if you turn the corner and meet a riot? I wouldn’t think What’s-his-name’s suggestion of playing Riot Bowling would work too well. You only have one vehicle and there are lots of rioters.
PowerMAD
“In my happy fantasy world where Republicans return the value of the air they consume …”
OMFG, it hurts to snort cranberry juice out my nose!
Villago Delenda Est
Um, this sounds like it’s somewhat rewarding the poor from being poor, which Mammon frowns on. The poor are poor because they are morally deficient. How can you tell? They’re poor, of course!
Roger Moore
I think the big problem is that we can’t get inflation going by printing money because it has to flow through banks, and they’re just holding onto it instead of making loans, partly because they’re being careful with the loans and partly because there aren’t that many people asking for big loans. To use the conventional metaphor, it’s as if the party isn’t getting out of hand because the people close to the punch bowl are filling up their flasks rather than handing out glasses.
les
Well yeah. What creates more jobs: one asshole with $20MM/yr, or 400 families with $50K/yr?
RSR
Atrios: Why not drop money out of a helicopter?
Applejinx
Nobody has anywhere else to go. Capital doesn’t have anywhere else to go. For the US to print money and get it into the hands of human beings by just about any pretext is a no-brainer. Everybody’s looking for some country to get their economy humming and start to consume, the better to support the rest of the world.
Worked for Bill Clinton, and he ended up without a deficit.
catclub
@Applejinx:
No Federal Budget deficit. Pretty large foreign trade deficit. But that is what is supposed to happen.
Anoniminous
And that is a problem with a priori thinking. It is not that simple. For example, eggs and refrigerators will only get more expensive if the global infrastructure for the production of eggs and refrigerators is producing at maximum output, i.e., 24 hours a day, 7 days a week.
redshirt
Build a new, nationwide electrical infrastructure; upgrade all federal highways; build cross country high speed rail; build massive solar installation wherever possible; build large offshore wave power plants; build massive numbers of wind turbines; go to Mars; goto an asteroid.
Spend on building things, making things, and everyone wins.
Pogonip
@redshirt: Seconded.
Roger Moore
@redshirt:
Build more medical schools so we have an adequate supply of doctors and nurses. Build more pre-K classrooms so every child can have a pre-K education. Catch up on deferred maintenance on our existing infrastructure. Lots of good things to spend money on.
AlladinsLamp
Raise wages.
Inflation will follow.
Not rocket science.
redshirt
@Roger Moore: Preach!
Anoniminous
@redshirt:
Those things require government intervention in the Holy Marketplace of the Invisible Sky Daddy’s Hand as told unto us by The Prophet St. Ronnie RayGuns.
les
Shit, hire half the unemployed to dig holes. Hire the other half to fill ’em. Just get some fuckin’ money moving. The increase in gov’t revenue will fund all the other good stuff.
redshirt
@Anoniminous: Deplorable Be His Name…
Chris T.
BTW I left out a crucial bit. For banks (including the Fed and other central banks), when individuals have money, that’s a liability. When individuals don’t have money, and instead owe the bank, that’s an asset.
If you want people to have mo’ money, the banks gotta have bigger liabilities.
Anoniminous
@AlladinsLamp:
The effect of wage hikes on inflation is minuscule compared to the inflationary effects of banks issuing mortgages based on those wage hikes due to financial leverage.
patrick II
Having the government give essentially free money to banks does you little good if they don’t have enough incentive to invest, and in a stagnant economy with little inflation the risk of holding money is less than investing it in the economy. So, they just turn around and buy T-bills and collect even more risk free money form the government. So, we pay them twice at no risk to them and with little or no improvement in the economy.
Lizzy L
@Roger Moore: The money doesn’t have to flow through banks. Nothing stops the USG from sending me money directly; in fact, they do it every month, it’s called Social Security. That’s not the problem. The problem is those Republican shitgibbons in Congress.
@AlladinsLamp: I am not an economist, but in an economy such as ours, where corporate profits have been obscenely maximized and real wages have been depressed for decades, raising wages to what they would have been had the above not been true will not, automatically, produce inflation. It should mean that the CEO of Obscenely Rich Financials LLC will not get quite as large a bonus this year as last year.
LeonS
@Anoniminous: I don’t really know about refrigerator production, but eggs come at a pretty consistent rate. One could always get more chickens, but that it a ramp up that will take time and money.
Redshift
The simple answer is that the tools central banks have aren’t good at creating inflation. And not very good at stimulating the economy; at best they take their foot off the brake and let fiscal stimulus work.
Our problem is that so-called “deficit hawks” have created an environment here where lots of people have been convinced that deficits are always bad, for reasons they can’t explain (or that don’t make any sense, or are simply false.) This has been pushed for decades by conservatives because it allows them oppose Democratic efforts to have government do good things for people without openly opposing things people like. (If anyone is under any illusions that this wasn’t a deliberate and dishonest effort on the part of conservative activists, look up “The Two Santas,” and you’ll see it in their own words.)
Anyone who claims “government should be run like a business” should be asked whether a business should borrow money when interest rates are incredibly low and they have loads of deferred maintenance and opportunities to expand into new areas. Strangely, the same people who say government should be run like a business in the sense of stripping civil service protections and outsourcing everything insist that it should be run like a household budget (of a household that never buys a house or a new car or…) when the subject is budget deficits.
NotMax
The Fed has been predicting that unwelcome inflation is just around the corner (and setting policy based on that) for around 20 years now.
That’s not prudent fiscal management, that’s a rut.
Anoniminous
Why our economy isn’t working too good in one chart.
Miss Bianca
@Roger Moore: I would add, fund adult basic education ESL, and GED programs as well. Adult, non-college-level education is criminally underfunded and underutlized in this country.
Doug R
@redshirt: Good build list. I would also double welfare rates and put minimum wage at a living wage around $21 an hour
NotMax
@Reshift
Also too that the business those folk seem to have in mind for government to emulate is Enron.
Anoniminous
@LeonS:
Egg production could shift from supplying the commercial trade to consumers quite easily and small scale local egg production can be increased very quickly. And there is tremendous waste of food in the US, anywhere from 25% to 40% – depending on who you believe – of all food grown/produced.
Face
The amount of hungry kids fed, roads fixed, violence shelters created, and generally good shit happening with the billions of dollars now spent on campaign ads is just beyond depressing. That each candidate drops ~100 mill a month on advertising that wont change more than 2-3% of the voters’ minds is the stuff that dying nations partake in.
Hard to fathom how many mental illness facilities — the cause of all gun violence, says the GOP — we could operate with the funds contained in a typical presidential campaign warchest. But I guess Trump needs his ads in TX and HRC needs hers in Delaware.
Mike S.
Hi, I have a friend a work who has just told me a sad story. Her car was burned by an arsonist a few days ago and the flames/smoke also damaged her apt. She and her daughter were lucky to get out safely. The fire escape was where the fire was!
She has gotten a new car and can get to work, but her biggest problem is finding a temporary home for here two cats. The are older cats (10 and 14 years old who has typical old cat problems) and she probably won’t be able to keep both of them in her temporary apartment until she moves back to her old apt. or finds a new one. She lives in Reading,PA. If anyone knows someone in Eastern PA or nearby who might be able to help with a two month fostering, please let me know.
Thanks,
Mike S.
p.s. I can’t help out because my 14.5 year old dog would freak out if I brought home a cat.
Doug R
@Face: How dare you suggest the money flooding in to keep corporate media afloat every two years could be better spent on beneficial stuff!
Daulnay
Folks, this is basic Keynesian economics. We are in a situation where ‘printing’ money does not cause inflation, although in normal times it does. The Keynesian term for this is ‘liquidity trap’. Normally, when there is an increase in the money supply, there is an increase in spending; this is because money tends to change hands at a constant rate, which the economists call the ‘velocity’. So economic activity in a period = money supply x velocity of money.
In a liquidity trap, the velocity of money will change rather than staying constant, and an increase in money supply causes a drop in velocity instead of a boost in economic output. Keynes’ insight was to show that massive deficit spending was necessary to pull economies out of the liquidity trap — monetary policy (printing money) had become ineffective.
So how can you tell if an economy is in a liquidity trap? 1) Inflation is very low or you are in deflation, so that it is impossible for a central bank to lower interest rates significantly. 2) It stops being stupid to stuff money in your mattress, because inflation no longer reduces its value. 3) A lot of investors can’t find ‘decent’ investments — there are complaints that returns are too low. 4) Banks won’t lend — it’s a losing proposition, because the risk of some defaults would cause more losses than just keeping the cash in the vault.
There are only two ways out — vigorous deficit spending, or waiting for deflation to reduce wages and prices until the markets magically right themselves.. The latter can go on for a decade, though.
rikyrah
@Eric U.:
The GOP chose ECONOMIC TREASON against this country beginning January 20, 2009. In the middle of the greatest economic crisis since the Great Depression.
Think of where this country would be if we would have had infrastructure spending on top of the Private Sector recovery.
Anonymous At Work
My analogy is that the Fed is like the driving instructor to student drivers (no matter what, we get a fresh “new” government every 2 years and an even “newer” government every 4 years). Instructors get a brake pedal, but not a gas pedal. They can negate a driver riding the gas too hard but they can’t move a car whose driver either will not or cannot put their foot on the gas.
New methods are needed or just a lot of printing action until the driver decides that the gas pedal is not a sacred religious artifact. (Yes, I do drive in Florida)
Daulnay
@Face:
We should tax political advertizements and campaign expenses, like we do cigarettes and alcohol and other sinful things. I’ll bet 90% or more of Americans would back such a tax, even some Republicans.
Villago Delenda Est
Exqueeze me, but doesn’t putting money in the hands of “those people” (which means, in this context, the 99%) kind of obviate entirely the status of the 1%? I mean, really, the common good isn’t good for the 1%. This has been true FOREVER.
Villago Delenda Est
@Daulnay: We should tax portraits of “billionaires” paid for out of charitable foundation funds at 1000% of the value of the portrait claimed.
Said taxes should be extracted via pounds of flesh directly from the ample behinds of said “billionaires”.
LeonS
@Anoniminous: Going out on a limb here, but wouldn’t shifting from commercial trade increase costs for business (if I even understand what the commercial trade for eggs is…) thereby creating inflationary pressure, albeit less directly?
Of course the discussion becomes silly the more we get in the weeds on egg production as we are not really talking about just eggs and refrigerators but meat, milk, Cheetos, TV sets, etc. as well. I guess the assumption/hope is that at least some of them will be low production/inventory enough to succumb to inflationary pressure. Whether that’s true or not, I have no idea.
Villago Delenda Est
@rikyrah: This is why the GOP needs to go the way of the NSDAP and CPSU. Oblivion.
Daulnay
BTW, Kevin Drum’s ‘insight’ was basic Economics 101 back when I was in college. It was the takeaway from what happened during the Great Depression. Krugman’s been beating this drum for a while, listen to him!
Applejinx
@rikyrah: We would be rocking it. No question about that.
Thing is, back in 2009 nobody would have believed that. Re-learning (or realizing) this stuff is recent, and it owes a lot to guys like Krugman and my favorite, Mark ‘The Hamptons are not a defensible position’ Blyth, but also to the heads of central banks finally observing that austerity doesn’t work, in any sense.
For a while the idea was to bail out capital and let the people just sort of die, but the thing is it’s like the austerity trap: capital ends up with no possible investments, because everybody KNOWS the people don’t have any money therefore doing anything with capital is stupid.
Now’s a good time to start doing things differently.
Applejinx
@Daulnay: Oh my God, I love you.
Tax the campaign advertisements! Using marginal rates, too :D
I think a top bracket of 99% is oddly fitting.
Van Buren
How about if “they” just cancel all student loans by moving a few electrons around, thereby freeing up lotsa peeps to spend money on stuff and services. Would that be stimulating enough?
Pogonip
@Daulnay: How about a 1,000% tax on any ad in which, instead of talking about what he proposes to do, the candidate talks about how awful his opponent is?
cat
QE would work if there is demand for loans that are going unmet.
Dropping money from helicopters would cause people to spend if they didn’t have an incentive to save. When most people can’t pay for a $400 emergency and have too much debt any found money is not spent in ways that increase demand for goods or services.
The Government is the lender of last resort and it is also the spender of last resort.
jl
@Daulnay: I agree, except would not specifically say that it requires deficit spending. Any way to increase aggregate demand would be enough. Besides deficit spending, that could also mean reducing the US trade deficit, public policies that would stimulate private investment spending.
Probably a mix of these policies would be better than just massive deficit spending. Our trade deficit could be reduced by ending the now decades long and bipartisan ‘high dollar’ policy, which seems to be something that is there only because it is good for many (though not all) sectors of the US financial industry (edit: and some large retail chains) and no other reason at this point. Real neoclassical free trade theory (as opposed to random stories people make up on the fly to support some preferred policy proposal) says that high countries should be exporting productive capital to lower income countries in exchange for their more labor intensive production. That is the way things worked, roughly, until Asian financial panic of late 1990s. And, also conforming with international macro and trade theory, lower income country per capita GDP and labor real per capita incomes grew more rapidly then as well.
Policies to increase investment in green technology, solar power, etc., and energy efficiency would also work.
When Keynes wrote that in some situations, running government deficits to pay some people bury empty bottles in the ground so others could be paid to dig them up, he was making an analytical point. A better policy to stimulate demand would have a little of that, but should be a mix of things, including taking advantage of opportunity to finance socially productive investment very cheaply.
Calouste
@Redshift: Also, economy of scale is great for businesses, but not for the government for some reason.
jenn
@Mike S.: Man, that’s just terrible. I’m not in the area (and have a not-great-with-cats rescue dog), so I’m out on the help front, but please pass along my best wishes to your friend and her daughter.
jenn
On a good news front:
https://www.washingtonpost.com/opinions/you-cant-tell-us-history-without-black-history-finally-a-museum-gets-that/2016/09/22/95f5f784-8053-11e6-b002-307601806392_story.html?postshare=6891474564562717&tid=ss_tw&utm_term=.8e751c5e9e2a
patrick II
@Applejinx:
Except for there are things that people must spend money on — like utilities and education, which are currently government services and which there is no opportunity for profit. Which is another reason why we are seeing things like water and education privatized — they need to have somewhere to put all of that capital they have, and privatizing what should be government services is one of those places.
jl
And was going to mention, but forgot to, that the Serious Daddy Party, who always nominates presidential candidates who really understand how the world works and who bring acute businessman common sense to government, has nominated an ignorant fool who understands nothing.
Heard news blurb this morning that Trump is going to juice shale oil and natural gas investment as part of his policy to save coal jobs.
What an ignorant loon.
Edit: I guess Trump has some nutso vague idea that all fossil fuel industry profit boats will rise with the tide, if we just declare war on the insidious Chinese created hoax of man-made global warming.
gene108
@NCSteve:
Also, too not spending money to update, refurbish and repair your home will not help you in the long run. Taking a small loan for a home improvement project can actually increase increase the value of your home.
Even in the household analogy, the whole can’t borrow money to fix infrastructure argument breaks down.
the Conster, la Citoyenne
OT, but WOW:
wait, there’s more
Keith
@gene108: You could say the the argument for having Government budget like a household has become dilapidated – their philosophy is condemned.
gene108
@Face:
Delaware is in the Philadelphia/PA media market. Buy ads to make sure people in PA vote and people in NJ and DE get to see it too.
Keith
@Van Buren: Why, yes it would. Young millennials would be able to afford that new car, or move beyond merely dreaming of owning a house, starting a family, moving to a new city, buying a better couch – or whatever becoming debt-free and unburdened permits them to acquire or do financially.
catclub
@patrick II:
Not so, actually. I pay my electric bill to a private company. Also, have you noticed the for-profit university news? There is opportunity indeed.
jl
@the Conster, la Citoyenne: This is the person who said that there was no racial discrimination in the US until Obama came along and inflamed things?
Assuming that she is not stupid, maybe it was an attempt to keep the birther movement alive by having Trump ostentatiously and obviously insincerely presiding over a public fake execution. I mean, if Obama were not born in the US, then he would be a classic ‘outside agitator’, right?
catclub
@the Conster, la Citoyenne: Shiny idiot of the day.
Calouste
@the Conster, la Citoyenne: Well, we could start with pointing out that she said there was no racism 50 years ago, where the cold hard fact is that racism was still law (anti-miscegenation laws) in at least 15 states in the country.
JMG
There isn’t an American household, except maybe for supersenior citizen couples, that isn’t carrying a significant debt load of some kind. Nobody’s books are balanced. But most people think that if their car actually doesn’t repossessed, they’re doing a bangup job of budgeting.
PS: The debt is often beneficial and necessary. Mortgage loans, for instance.
SenyorDave
@Doug R: I would also double welfare rates and put minimum wage at a living wage around $21 an hour
At $21 an hour minimum wage, that means a full time employee with medical would cost a company at least $60k. My company has entry level people who make about $15 for canvassing (essentially a type of survey) , after a few years they can get to about $22 plus up to $10k bonus. We would certainly cut back on entry level employees if we had to spend $60k+ on them.
I support $15 minimum wage, but in my view anything more will start to hurt those in the bottom rungs.
Daulnay
@jl:
I’m going to unpack this bit by bit.
There are two main ways governments have of affecting economic conditions; interest rates/monetary policy and deficit spending. The main way governments change the trade deficit these days is through the exchange rate, which is controlled through the interest rate. So setting the interest rate/money supply trades off what we need for domestic demand with what we need for the exchange rate. Fortunately, lowering the interest rate also lowers the exchange rate, so they’re usually not in conflict.
The ‘high’ dollar’ policy isn’t an American trade policy. If anything, it is a Chinese one, and very hard for the American government to change — it does try to. The exchange rate is set by markets acting on worldwide central bank rates and actions, not by the government, except through tariffs, interest rates, and trade agreements. There is no magic ‘high dollar’ policy that our government has and could change.
What’s actually happened is that we added well over 1/4 of the world’s population to the international markets. In countries that had been outside the market system, capital earned extremely high returns and labor extremely low ones. When China, India, and other countries joined the international trade system, capital moved. Wages in the capital-poor countries increased and capital became scarcer in capital-rich countries, driving up returns. But that has absolutely nothing to do with our current problem.
Our current problem is a world-wide depression; we have narrowly avoided a general world-wide depression, but we’ve been teetering on the brink of one for the last 8+ years. Our friends the austerity-mongers have held us all there, may the spaghetti monster take them.
They will only work if there is an overall increase in deficit spending. If you take money away from one place and move it to another, the overall effect is a wash, as far as aggregate demand goes. (Aggregate demand being the term economists use to describe the total demand of goods and services in a country at current prices).
Keynes was using an absurd example to make his point — even paying people to bury bottles and dig them up again, which has no real value whatsoever, would fix aggregate demand.
Here’s a more interesting question: why would giving some people ‘printed’ money by increasing the money supply behave differently than giving some people ‘printed’ money through deficit spending/public works?
jl
@SenyorDave: Wow, $21? I guess I am still a reactionary BernieBro and would prefer an increase to real wage equal to $15 phased in over time.
I think minimum wage should be a very minimum floor to ensure decent quality of life. Would be better to stimulate macroeconomy enough so that minimum wage laws are not binding in most sectors. Very high statuary minimum wages in a slack labor market (which we will have with current macro policies into foreseeable future) will start to produce some adverse consequences. A lot of substitution out of low wage labor. And I hate automated retail checkout stands, which is an example of what might happen.
JPL
@Mike S.: If it hasn’t been mentioned, send Anne the info.
JPL
This is funny.. Share with Trump folks in West Virginia
#Trump tells shale gas and other energy execs “the shale energy revolution will unleash massive wealth. We will end the war on coal.”
Daulnay
@SenyorDave:
A higher minimum wage will help the remaining workers more than the few it would keep out of the market. More significantly, it would shift the aggregate economic benefits from the wealthy owners towards the workers, so it should boost aggregate demand a little. It’s not by any means a substitute for adequate deficit spending, though.
NJ Maine Coon Slave
@les:
This.
piratedan
@JPL: ahh, the old… “We will end the war on coal!!!!!! … by declaring Oil as the victor!!!!!” gag
NJ Maine Coon Slave
@NotMax:
That’s a lie. FIFY
Daulnay
@jl:
Automated retail checkout stands and automated tellers are great examples of technological progress, although I miss the personal interactions and tend to avoid them. Technological innovations put people out of work, otherwise they’re not worthwhile. What a functioning market economy does is to get the displaced people back to work. Unfortunately, that’s hard to do in a kleptocracy where the market systems have been rigged.
catclub
@JMG:
Is 55 years old supersenior? Asking for a spouse.
Zero debt. Not in top 5%. Salary employee.
jl
@Daulnay: I disagree with some of your points. I think you are attributing all of high dollar policy to underlying real factors. But much of it is demand for dollars by lower income countries for precautionary reserve purposes. This is result of current fragile international financial system that depends on US dollar reserves of different kinds around the world. And the US actions to combat high dollar much more symbolic than real. But you are right, we cannot flip a switch and easily make ALL of the high dollar phenomenon go away. I do think much of it is due to current structure of world financial system, which is to the benefit of many sectors of US financial industry, and changing that could make SOME of the high dollar phenomenon go away, and that would be helpful.
The brute fact is that world trade and finance has not been working the way textbooks say it should for the last almost 20 years. So hard for me to accept that real factors, acting as they would be according to theory, are an adequate explanation for ALL of high dollar phenomenon.
As for productive investment versus digging up buried empty bottles, yes you are correct that both will produce more debt in the short run. But allocation of the short run debt between public and private sectors, and implications for long run debt are very different.
NJ Maine Coon Slave
@NJ Maine Coon Slave:
Just thought about how it comes across, I don’t mean that you are lying, but the Fed. Sorry.
catclub
@Daulnay:
for the past 150 or so years technological innovations have been putting people out of work, but other jobs have opened up at a a faster rate.
The question is whether this pattern will continue.
JaneE
The people who need and/or want things don’t have the money to buy them. They are poor, and the poor don’t get credit, they get payday loans that bleed them dry. The rich already have 2 or 10 of most everything they need and/or want, and couldn’t spend all their money if they tried. And of course, some of them are like Donald Trump and all they appear to want is more money, other peoples money. If you build an economy on consumption, you need to have consumers. Even good old Republican Richard Nixon knew that, remember his income guarantee proposal? What would the country look like if every household had today’s median income as a floor? We will never know.
les
@SenyorDave:
Or, some prices go up, there’s some inflation, but people have money to pay the prices and top end bonuses/400xaverage salaries erode, and it’s all better. Not attacking you–no doubt some number of businesses might not hire as much–but business in general/chamber of commerce types have used that line for every working class benefit ever, from child labor laws to unions to 40 hour weeks to the mere existence of a minimum wage. There’s plenty of money; it’s all piled in a few pockets, is the problem.
JPL
@piratedan: To the victor goes the spoils.
catclub
@Daulnay:
I ain’t paying those statues nothin. Even the high statues.
catclub
@SenyorDave:
Framing?
If the community had been asking for a $16 or $14 minimum wage I think you would have made the same statement. How about a $15.02
minimum wage?
Mary G
Didn’t GWB send out $250 checks to everyone? I think we should do that again for everyone below a certain income level. We just have to vote out all the Republicans.
Litlebritdifrnt
@Roger Moore: I just recently deposited a personal injury settlement check from Allstate in our trust account. Our bank held on to it for a full seven days before they would release the funds. Why? Does anyone think Allstate is going to go out of business? So basically our bank had use of $30K for a full seven days (interest etc.) When I deposited our client’s portion of the funds into her bank today they also put a seven day hold on it. So now we have two banks basically getting free money for a week each. The whole thing is a scam.
jl
@Daulnay:
don’t want to pester but I recalled this statement you made.
“The exchange rate is set by markets acting on worldwide central bank rates and actions, not by the government, except through tariffs, interest rates, and trade agreements.”
The economic policies that the US pushing through trade agreements might be a good example of how the US is not really fighting a high dollar policy much at all, and in some ways encouraging it. What are the economically most important provisions of recent US trade initiatives like the TPP? They are provisions of current US-style (and historically very extreme) US patent and copyright law and economics. And what have those done? Increase the price of productive real capital. But in standard international trade theory, high income country capital is is relatively cheap compared to labor, so high income countries export real capital. But US trade policies have encouraged higher prices for real capital exported from the US. If a lower income country wants to import real productive capital from the US, they have to demand more dollars to pay for it per unit of real capital on international financial markets. Higher demand for dollar on international financial capital markets produces higher price of dollars. High dollar policy is encouraged in many, often hidden ways by US, IMHO.
Trollhattan
@catclub:
Guessing housing is the most important variable. Where the affordability index is 100 or below, it’s eminently possible for a frugal family to pay off their home and have limited debt, plus 100% equity in the house.
And then there’s everywhere else.
schrodinger's cat
@jl: Word. Deficit spending on infrastructure. Roads, rail, renovating creaking ancient airports like JFK and Logan. I would love it if there was a train from western MA to Boston. More trains to go NYC instead just one per day. Broadband network across the US. This would also increase productivity.
schrodinger's cat
@jl: What would be a good intermediate level book on trade policy? Any suggestions?
Schlemazel
@Chyron HR:
It is a real shame when the very best possible comment is the first one. They really should have shut down the thread right there!
singfoom
Yes, this this this. Deficit spending on infrastructure all over the country. Too bad there’s an entire party of crazy people who think that if you’re poor it’s because of a moral failing and you shouldn’t be helped.
Until the austerity idiots are out of office / out of the majority, hell even some (more than some? Ds believe in the austerity fairy), this isn’t going anywhere.
piratedan
@schrodinger’s cat: well, I mean, its like totally science fictiony…
since the GOP is totally about public service or getting something back from subsidizing education, maybe a re-introduction of the CCC (Civilian Conservation Corp)
we have parks that need maintenance and trails created
we have bridges that need repair (not to mention roads and dams)
infrastructure upgrades to prevent the bleeping of electricity from even getting to the grid
wastewater management/recharge
flood/wildfire planning – clean water is an essential resource and we need to do a better job of treating it as such.
There are jobs that need doing… teachers and docs out on the Rez for instance
upgraded access of the internet to the rural communities
reintroduction of the arts into primary education
Schlemazel
Causing inflation is simple and easy. Just start paying workers the amount of money they were paying for the same work 30 years ago adjusted for inflation. the huge influx of cash would release a ton of pent up demand & inflation would result.
So, thats not gonna happen
Omnes Omnibus
OT:Gary Johnson is not a smart man.
mike in dc
Tulsa cop now charged with manslaughter. Good. Maybe the Charlotte PD can get a clue and at least show the body and dash camera footage to the family’s attorney and selected members of the press, if not release the video publicly.
Schlemazel
@Omnes Omnibus:
Very old joke:
Professor: So, in 5 billion years the sun will expand and engulf all the area out to Earth and our planet will be destroyed”
Student: “HOW LONG?”
Prof: “5 billion years”
Student: “Oh, Thank goodness, I thought you said 5 MILLION”
Miss Bianca
@Omnes Omnibus: This guy gives stoners a bad name.
jl
@schrodinger’s cat: Kthug (Paul Krugman) has some good intro and intermediate texts. they even get fairly good reviews. Can get the new and recent editions at a good price online. Schaum’s outline of international economics good for drills.
For modern macro, a good text will also have some international trade theory for open economy macro. There is a very good one from European perspective, but the names of the authors escape me now. Need to get a text that updates IS-LM analysis to accommodate modern central bank practice. I’ll post the book I am thinking of if I can remember author names.
Brachiator
@Daulnay:
Wouldn’t increasing the money supply without a real increase in demand be ruinously inflationary?
BTW, I remember years ago when the newspapers would report on the fluctuations of the money supply, M1, M2, etc. At some point economists appeared to decide that this was pointless.
Isn’t one claim against massive public works projects the objection that the programs are not necessarily worthwhile and direct money away from more productive uses?
I wonder whether these proposals would increase employment significantly. Even during the Great Depression and the era of the WPA, there was the cultural and sexist assumption that putting men back to work was essential. The workforce today is more diverse with respect to age and gender, but the “shovel ready” projects that are proposed would seem to favor younger men over other workers.
hovercraft
@mike in dc:
Good first step, now lets see if a jury will convict her. She is after all just a pretty little white woman who was scared of the giant scary black man.
schrodinger's cat
@jl: Thanks, those are good suggestions!
singfoom
@hovercraft: He was coming right for her! (No, no he wasn’t.) I really hope they will convict her. There’s absolutely no reason why she had to shoot him. He wasn’t a threat and he was outnumbered 4 to 1 and he hadn’t even been stopped.
But who knows with a jury.
Roger Moore
@Daulnay:
Because of who you’re giving the money to. When you spend money on public works, you’re hiring a lot of people who haven’t been spending much because they didn’t have any money, so most of the money you’re paying out gets spent, keeping the velocity of money high. If you just increase the money supply, you’re mostly working through banks, who get the money into circulation by lending it. Unfortunately, the people they like lending to aren’t in the market for loans because there’s no demand for them to invest the money in supplying. So you increase the supply of money but it just sits there instead of working to build the economy.
jl
@schrodinger’s cat:
The macro text I was thinking of is
Macroeconomics: Institutions, Instability, and the Financial System
Wendy Carlin, David Soskice.
There are several editions, any one of which is good.
Roger Moore
@jl:
The strong dollar (what it’s more frequently called than “high” dollar) is also beneficial to American consumers, who can get a lot of cheap imports for their money.
Schlemazel
@singfoom:
It’ll end in a hung jury because a certain number of people will believe the cop no matter what.
schrodinger's cat
@jl: I have an intermediate text by Blanchard and graduate level text by Romer for macro.
Daulnay
@jl:
All correct, reality is more complex than the theories. The ‘flight to quality’ in investments is definitely part of the problem, U.S. gov’t bonds being one of the highest, least-likely-to-default investments. That’s definitely driven the dollar higher, but it certainly hasn’t been a government policy.
And you’re right about the TPP and other recent trade agreements. I hadn’t thought about it, but yet another reason to oppose them! There really isn’t anything good to them, is there.
jl
@Roger Moore:I don’t like ‘Strong dollar’ term. Too close to wingnut worries about virility and purity of essence and ‘strong like Bull’ nonsense about international financial markets. But that is my personal taste.
@Daulnay: It is also true that the US cannot unilaterally change all the structural factors that encourage all the unstable Euro- Asian- and Latin-American currency markets based on offshore dollar deposits as reserve currency. But we could try harder.
singfoom
@JMG:
I think it’s more nuanced than that. Those near the lower end of the spectrum but able to get credit have a large debt load, regardless of age. Those in the middle, I think you’ll see the debt load vs. income scale down as you walk up the age ladder. Those in the very top, the same as the middle but not as bad. YMMV
Mortgages are good debt. We’ve got one. I’d say it’s better than renting. And then when you walk down the age line from 50 as you go farther down the higher the school loan debt gets. Cause how can you get a good job without a degree?
Feathers
@Daulnay: Was just having a discussion about how driverless cars and trucks could and probably will put 5 million people out of work. Do we plan that into the regulatory scheme for how driverless cars and the companies which use them work?
And I hate the no person checkout lanes. Cambridge Mass has passed a plastic bag ban and the machines at CVS cannot handle them at all. I went in to just buy a soda. The machine wanted me to show it the bag I brought from home. I don’t need a bag at all didn’t seem to be an option. I just left without buying the soda, telling the guy who minds the machines that i had a bus to catch and couldn’t wait. (True.)
jl
@schrodinger’s cat: I think Carlin and Soskice best for an intro intermediate level explanation of how modern central banks work, and the open economy chapters best for how financial and real factors on international markets interact to influence various types of policy multipliers.
Daulnay
@Brachiator:
That entirely depends on the economic situation. When you increase the money supply in a depressionary situation like we have now, a massive increase in the money supply does very little. If you do it when the economy is chugging along but there’s plenty of slack (like a normal recession), it boosts economic activity without causing inflation. An excessive increase in the money supply when the economy is roaring along will cause inflation, because there’s no slack in demand vs. productive assets.
New financial instruments, and the rapid proliferation of them, made it hard to really pin down the less concrete money supply categories accurately. No point in using inaccurate measurements, after all.
Keynes’ point about burying bottles stands. In a depressionary economy, it really doesn’t matter what you spend the money on (short-term). Public investments are better long-term, but what you’re trying to fix is a short-term problem. When an economy is depressionary, there is very little crowding out of ‘better’ uses. When the economy is roaring along at its growth limits, then sure there might be some crowding out. But we’ve been far from the growth limits of our economy for almost a decade — 8 years now.
Daulnay
@Roger Moore:
Almost exactly what I was thinking. If you look at the behaviour of the 1%ers, it resembles banks a lot more than it does ordinary people. Which is a strong argument for redistributive economic policies, and high taxes on the wealthy. Could even be that our economic problems have happened because we changed our economic system to reward more to the bank-like 1%.
Daulnay
@Roger Moore:
A ‘high dollar’ doesn’t benefit ordinary people if it causes a redistribution of incomes away from the ordinary people and to the very wealthy. Even with the huge increases in benefits from increased free trade, ordinary people have made no real gains over the last 30 years. The benefits of trade and a ‘high’ dollar have gone entirely to the wealthy and better-off.
Chris T.
@Daulnay:
Ding! We have a winner!
lurker dean
wow, daulnay, jl, and others, thanks for the economics talk, very interesting.
PIGL
@redshirt: not everyone. Everyone except the people who count. They lose the places in the emerging feudal order. There’s not enough money in the galaxy to make up for that.
frosty
@Brachiator:
I hate this phrase. The only public works project that’s shovel ready is repaving. Everything else needs to be designed. DPWs don’t survey, design, and get permits for projects then put them on the shelf as “shovel ready” when the money comes along — they do the whole thing right then and there.
Roger Moore
@Brachiator:
Apparently not, at least not when you’re at the zero lower bound. Since 2008, the Fed has been doing everything they can think of to increase the money supply, and inflation has steadfastly failed to arrive. Basically, the Fed can pump out money, but it all winds up in bank reserves rather than in circulation, so it has negligible impact on prices.
Brachiator
@Roger Moore:
Has the Fed been trying to increase the money supply? Is this documented as a stated goal?
goblue72
This is what happens when the global economy has too much liquidity. Which is where we are right now. Corporations, investment funds, “high net worth” individuals – awash in cash. That’s why government debt is so cheap right now. Global capital is in a desperate search for yield and can’t find anywhere else productive to put it. Most of the world’s economies not named the United States or Germany aren’t doing so hot. Germany seems to have corned the market on “making high-added value export goods” and the U.S. seems to have cornered the market on tweets.
But seriously – look at the U.S. – we’ve had two main growth sectors since the end of the Great Recession – energy and tech. The former was booming but now finds the world awash in oil and natural gas and is slowly imploding. As for tech – look at some the big successes this current cycle – Facebook – a social media company whose added value to our economy is apparently providing a puke funnel for that person from high school you haven’t spoken to in a decade. Uber and AirBnB – a taxicab company and a hotel company masquerading as “tech” via a regulatory arbitrage play. LinkedIn – the Facebook for those co-workers you know that you don’t want to see your Facebook feed. Twitter – nobody has any idea how they make any money but it apparently involved 140 character limits. Tesla – a boutique sports car company that is totally, we 100% promise going to build a car regular people can afford someday. And so forth. Some decently useful stuff buried in all those companies, but nothing close to the valuations they’ve been enjoying – and employing nowhere close to the number of people that a similarly valued manufacturing company would employ.
Dirty little secret – since the end of Great Recession, worker productivity rates in the U.S. have slowed considerably compared to prior business cycles.
At some point, somebody needs to start raising taxes & redistributing all this cash around.
PIGL
@Roger Moore: what’s worse, the money is allready there. It’s just sitting idle in the wrong hands, concentrating itself ever further and more uselessly into a veritable black hole of false consciousness and privilege.
LongHairedWeirdo
Dude, you can’t really say that and joke about Krugman. He has explained why money is free right now. Like, over and over. Like, with a web search, you should be able to piece it together in less than an afternoon.
Normally, the way to get people spending is to lower the interest rates. If money is cheaper to borrow, people will spend more right now.
Okay, but… what if interest rates are *0*, and people *still* don’t want to spend lots of money? That’s called the Zero Lower Bound, and that’s one of the important papers he wrote about the situation Japan found themselves stuck in. You can’t make interest rates *less* than 0. Or, rather, you can try, but no one is going to lend you money if *they* have to pay *you* interest on it. So how do you encourage more spending, when you’ve hit the lower bound? You can’t, not from interest rates. You could do things with the money, but, hypothetically, it doesn’t matter if you do that, or if you just bury bags of money for people to find and dig up, or drop it from a helicopter, or whatever. You need people to have more money to spend, so they don’t keep hoarding it.
So, yeah, right now, money is pretty close to free; increasing the money supply won’t increase inflation. Saying “let’s repair every frickin’ bridge so no more collapse!” would be good because it would get people earning and spending money. You have to borrow it, or print it? No biggie, not right now. Again, you could just drop it from a helicopter, but that won’t fix the bridges and roads, and that helicopter might get creamed by a low flying plane because we haven’t updated air traffic control. So, yeah, maybe we *should* do something useful.
Side note: Republicans talk about running government like a business. If a business could borrow money for FREE, and do stuff it needed to do, sooner or later, and labor was cheap because there was s recession, it would be a no-brainer to anyone with sound business sense. The Republicans were united in opposition. Just sayin’.
You also want people to fear inflation is just around the corner. Why? Because then, holding on to money means losing value. That $100 in your hand will buy less next year, so find something you need/want this year. Here, you have interest rates of less than 0 – see, if you borrow money today, you get to pay back that same *dollar* figure, but those dollars now buy less. If the latest iPhone will be $100 more next year, you might figure you might as well buy the latest iPhone this year – especially since inflation means it’ll cost $100 more, but won’t be $100 better.
(Remember, an economist pretends we can *decide* when a phone is $100 better. But it’s better than assuming everyone is just completely insane, throwing away an extra hundred bucks on a phone that *isn’t* $100 better. It’s not that people *aren’t* insane – it’s that assuming they can decide when a phone is $100 better gives *structure* to the insanity, and lets you make predictions that help in the real world.)
Now, you might say “but if I fear inflation is going to show up, *I* don’t feel an urge to spend my money!” True, but remember, we don’t care about *you*, we care about *everyone*, acting collectively, and the assumption is enough of them see prices going up and start thinking “buy now, before the price increases” – so the overall effect is an increase in spending. Not because “my money will be worth less due to inflation” but “because that thingie I want to buy will go up in price sooner or later.” They might not even *think* that. But because people do make rational decisions (even if only once they’ve eliminated every other option…) you can predict that they will spend more now, while the money’s worth more.
Once you get to the point that people no longer want to hold on to their cash, and would actually like to borrow a bit, even if it costs them something, then you’re out of the Zero Lower Bound, and a lot of things return to normal.
OUTSIDE of the ZLB, printing money would tend to cause inflation – but during it, no. Which means that printing money *forever* would hurt you – but not for the moment.
SenyorDave
@catclub: You’re right, my max is $15.02. seriously, there obviously is tipping for any estimated salary. With medical, $15 an hour is in the $45k – $55k real cost, depending on whether its a single person or with a family. IMO that’s a reasonable floor. I think the $65k range is too high.
Roger Moore
@Brachiator:
Yes. M0 is approximately 4x higher than it was in 2008, obviously without massive inflation. Doing everything possible to increase the money supply is essentially what bankers are talking about with “quantitative easing”.
Matt
This situation is fascinating to watch the always-freeeeeeak-about-the-deficit and “run gubmint like a bizness” threads of conservatism try to justify inaction in – after all, if BigHugeLargeCo had factories that were falling apart from decades of deferred maintenance and could simultaneously borrow at LITERALLY NEGATIVE interest rates, the board would either be borrowing or cleaning out their desks.
I'mNotSureWhoIWantToBeYet
Dead thread, but this is the earliest I’ve had a chance to comment on it:
1) You’re right that there’s printing money, and there’s printing money. The Fed expanded the money supply dramatically, but it all went to the banks to fill most of the hole after the housing bubble burst. The banks won’t lend out the money because if they do it will make them look weak, hurt their “earnings”, and cut their management bonuses, etc. Plus, there’s too little demand in the economy so businesses don’t want to take out big loans to expand, etc. There’s too little demand because, as Atrios said, for too long “people got no jobs and people got no money”.
Helicopter drops of money to real people would have done more to get the economy moving.
2) Japan and the Fed could have done more. There’s still too much demand for “safe assets” and that’s why interest rates and inflation are still so low. As long as the Congress and the state governments refuse to spend as much as is necessary (and instead keep wanting to cut spending and taxes on the rich), then the central banks need to keep printing money. They can always turn off inflation later by raising interest rates – it’s not hard. There’s none now and they aren’t doing their jobs by continuing to worry about it.
Dean Baker covers this stuff well:
My $0.02.
Cheers,
Scott.