Krugman gets it correct when he said that "Not everything is a free lunch, even now."
Right now, of course, there are enough free lunches sitting there on the ground to build many positive dreams we can imagine, filled with new technology and renewable energy. But largely for class power reasons, we continue with the nightmare we are actually living--which is unsustainable.
I will retain some doubt regarding the claim that having an independent central bank from which the US government has to borrow, is overall better than the mechanism of having the government simply "print" money, which, contrary to popular belief, our government cannot do by law, with the solitary exception of minting coins, and notably a Platinum coin can be minted in any denomination.
As some commenter says, the fact that our government must always borrow money from the central bank, rather than simply print money, is that interest has to be paid to an uberclass of bankers. It's a form of class-based monopoly rent, authorized by law. How did we get here?
Well, it was because bankers wanted the power, of course. And also because of common misconceptions about money, government spending, debt, and savings. The people can be fooled easily. The people can be fooled into believing that inflation, and inflation of any size, even 3%, is too high. If governments are free to print money, they will gladly inflate their way out of their own debts. Therefore we must have responsible men, bankers, with a heavy hand on the switch.
The problem with this reasoning is, of course, that Bankers will represent the interests of everyone else.
As it turns out, bankers are mainly interested in maintaining the advantages of two kinds of people, bankers themselves, and savers. Savers represent bankers themselves, they personally identify with the general interests of savers. On the other hand, borrowers are marks, and bankers would be inclined to remove all the legal protections their borrowers have in order to fleece them better. Not that they don't try to fleece their savers also, but they personally identify with the general interests of savers because they are savers.
Inflation of some level is expected and cooked into interest rates (and yes, there can be negative real interest rates when there is a glut of savings and a dearth of conventionally profitable opportunities). So if bankers and other savers can get even less inflation than what was cooked, they win. So they are always leaning on that side of the switch, for less inflation than seemed to be coming.
Governments, on the other hand, should be (if they were democratically accountable) more interested in winning by pushing the total production to its maximum, and that means full and continuing employment. Under the circumstances like we have now, that requires higher inflation levels than we have been seeing recently. It would be in our interest if inflation was spurred on a bit. We could get back on trend growth, my guessing is, with considerably less than 10%, sustained for a few years (say, 7% for 5 years). The best way to achieve that would be by direct government money printing (not borrowing) starting right now, combined with raised taxes on high wealth, speculation, and corporations. 3 trillion dollars of total federal deficit spending each year for 5 years, directed at needed public investments--including education. If we don't phase down useless military spending and posture, it will take 4 trillion, and 10% inflation. Not including the tax increases has a similar effect, it means more inflation will be required to do the same job. Toward the end of this five year period, because of full employment and inflation, government deficits fall off without spending decreases, interest rates rise--with pressure if needed from the Fed, and inflation cools off. Oh and two more things that made this work before: very active unions and wage/price controls.
I may have this wrong, but go back and following the comparitive government taxing and spending from 1937 until 1963. Adjust upwards accounting for demographics and increased social spending levels now (as compared with 1937!). I'm trying to duplicate the post-war boom. But given a declining resource situation, we address that by not throwing money at now useless wars, but invest wisely in reducing future need for fossil fuels. If and only if we do that, we can create another "postwar" boom.
Simply letting the Fed QE the way into inflation does less general good. Instead of the public gaining the fruits of publically funded work, a handful of speculators makes some big profits. And though in the past this has worked to get the gross product moving up again, such as from 1933-1936, it doesn't really get at the root cause of a depression with large unemployment like we have now, the debt overhang, until it is significantly inflated away.
Less inflation is required, and greater public good is achieved, by just printing money. In the USA, the debt overhang of the Great Depression was obliterated with relatively little inflation by the enormous federal spending of WWII. Then, without depressing the economy a bit, the debt the USA itself had occurred was paid off quickly by the prosperous economy created by the government spending, the high tax rates of the era being no impediment. Now that's the side of the curve to be on!
Let the plantinum coins roll!
Right now, of course, there are enough free lunches sitting there on the ground to build many positive dreams we can imagine, filled with new technology and renewable energy. But largely for class power reasons, we continue with the nightmare we are actually living--which is unsustainable.
I will retain some doubt regarding the claim that having an independent central bank from which the US government has to borrow, is overall better than the mechanism of having the government simply "print" money, which, contrary to popular belief, our government cannot do by law, with the solitary exception of minting coins, and notably a Platinum coin can be minted in any denomination.
As some commenter says, the fact that our government must always borrow money from the central bank, rather than simply print money, is that interest has to be paid to an uberclass of bankers. It's a form of class-based monopoly rent, authorized by law. How did we get here?
Well, it was because bankers wanted the power, of course. And also because of common misconceptions about money, government spending, debt, and savings. The people can be fooled easily. The people can be fooled into believing that inflation, and inflation of any size, even 3%, is too high. If governments are free to print money, they will gladly inflate their way out of their own debts. Therefore we must have responsible men, bankers, with a heavy hand on the switch.
The problem with this reasoning is, of course, that Bankers will represent the interests of everyone else.
As it turns out, bankers are mainly interested in maintaining the advantages of two kinds of people, bankers themselves, and savers. Savers represent bankers themselves, they personally identify with the general interests of savers. On the other hand, borrowers are marks, and bankers would be inclined to remove all the legal protections their borrowers have in order to fleece them better. Not that they don't try to fleece their savers also, but they personally identify with the general interests of savers because they are savers.
Inflation of some level is expected and cooked into interest rates (and yes, there can be negative real interest rates when there is a glut of savings and a dearth of conventionally profitable opportunities). So if bankers and other savers can get even less inflation than what was cooked, they win. So they are always leaning on that side of the switch, for less inflation than seemed to be coming.
Governments, on the other hand, should be (if they were democratically accountable) more interested in winning by pushing the total production to its maximum, and that means full and continuing employment. Under the circumstances like we have now, that requires higher inflation levels than we have been seeing recently. It would be in our interest if inflation was spurred on a bit. We could get back on trend growth, my guessing is, with considerably less than 10%, sustained for a few years (say, 7% for 5 years). The best way to achieve that would be by direct government money printing (not borrowing) starting right now, combined with raised taxes on high wealth, speculation, and corporations. 3 trillion dollars of total federal deficit spending each year for 5 years, directed at needed public investments--including education. If we don't phase down useless military spending and posture, it will take 4 trillion, and 10% inflation. Not including the tax increases has a similar effect, it means more inflation will be required to do the same job. Toward the end of this five year period, because of full employment and inflation, government deficits fall off without spending decreases, interest rates rise--with pressure if needed from the Fed, and inflation cools off. Oh and two more things that made this work before: very active unions and wage/price controls.
I may have this wrong, but go back and following the comparitive government taxing and spending from 1937 until 1963. Adjust upwards accounting for demographics and increased social spending levels now (as compared with 1937!). I'm trying to duplicate the post-war boom. But given a declining resource situation, we address that by not throwing money at now useless wars, but invest wisely in reducing future need for fossil fuels. If and only if we do that, we can create another "postwar" boom.
Simply letting the Fed QE the way into inflation does less general good. Instead of the public gaining the fruits of publically funded work, a handful of speculators makes some big profits. And though in the past this has worked to get the gross product moving up again, such as from 1933-1936, it doesn't really get at the root cause of a depression with large unemployment like we have now, the debt overhang, until it is significantly inflated away.
Less inflation is required, and greater public good is achieved, by just printing money. In the USA, the debt overhang of the Great Depression was obliterated with relatively little inflation by the enormous federal spending of WWII. Then, without depressing the economy a bit, the debt the USA itself had occurred was paid off quickly by the prosperous economy created by the government spending, the high tax rates of the era being no impediment. Now that's the side of the curve to be on!
Let the plantinum coins roll!
"Less inflation is required, and greater public good is achieved, by just printing money."
ReplyDeleteAgreed. I always look at total (public + private) debt relative to the quantity of money in circulation M1. Printing money (and not sitting on it) increases M1. QE does not.
I like the idea of printing money & using it to pay down private-sector debt. This sort of combines QE with the thing that really must be done, which is to satisfy the desire for deleverage.
I'm not comfortable with calling for inflation. I think we can offset an increased money supply by decreasing the reliance on credit, perhaps by creating tax incentives that accelerate the repayment of debt.
Anyhow, I came here from Crooked Timber because I liked your comment. I think you're right in what you said about Keynes (though I'm no economist). Keynes used a few simple symbols to simplify a few otherwise wordy ideas. He didn't (as I recall) do any of the incomprehensible symbolic argumentation so common these days.