3 ms·

Inflation is size of economy / money supply. Printing more money doesn't inexorably produce inflation, for a lot of reasons. If the money printed is used unwis

by ethbro 7y ago

Inflation is size of economy / money supply. Printing more money doesn't inexorably produce inflation, for a lot of reasons. If the money printed is used unwisely, in ways that do not grow the economy, then it certainly does.

imtringued 7y ago
That's a very roundabout way of saying if you don't spend money it won't enter the economy.
- AnimalMuppet 7y ago
  That's not what ethbro is saying. If the money supply (times velocity) is X, and I print more money so that it's now 1.1X, if I spend the new 0.1X in a way that grows the economy by 10%, then printing the money wasn't inflationary. If I spend the 0.1X in ways that don't grow the economy, then it was inflationary.
pdonis 7y ago
> Inflation is size of economy / money supply. No, inflation is either an increase in the money supply (according to classical, i.e., pre-Keynesian, economics) or an increase in the average price level, often qualified to be the average price level of "wage goods" (according to Keynesian economics). The underlying argument behind "size of economy/money supply" is that if the economy is growing (more precisely, if the rate of economic activity is growing), then increasing the money supply will not increase the average price level. In fact, if for whatever reason (and Keynesians have no trouble coming up with plausible-sounding reasons) you want the average price level to remain basically the same, you should print more money as the rate of economic activity increases. While these are true statements, they ignore the fact that printing more money is economically equivalent to a wealth transfer from whoever does not get the newly printed money to whoever does get it (which under our current system is banks and other financial institutions). In other words, it's the same economically as a tax on ordinary people whose proceeds go to rich bankers and financiers. But it's much more palatable politically, which is why it's our current system. (The old system, before the Federal Reserve and other central banks gained power, was that when governments got in financial trouble they had to explicitly go to rich bankers and financiers and ask for bailouts, which was politically unpalatable, not to mention a huge pain for the rich bankers and financiers since people would see that they were effectively profiting from the economic woes of others. So the rich bankers and financiers got together and sold the politicians a system of central banks where all of this could be done under the radar so the ordinary taxpayers wouldn't see it and wouldn't complain about it.)
- ethbro 7y ago
  So, ignoring the digression into wealth transfer and central banking, we agree that... > [inflation] is a consequence of printing money as soon as the newly printed money gets out into the economy ... is not a fully accurate statement?
  - pdonis 7y ago
    > we agree that... > > [inflation] is a consequence of printing money as soon as the newly printed money gets out into the economy > ... is not a fully accurate statement? If you are saying I should have added a qualifier "assuming the rate of economic activity stays constant", yes, that qualifier should be there (if we define "inflation" as "increase in the average price level"). But I don't agree that any qualifiers like whether or not the money gets spent "foolishly" or "unwisely" need to be there. Also, our current measure of "rate of economic activity", GDP, is not independent of the money supply, because it measures "activity" in dollars. So the fact that US GDP is growing does not necessarily mean the real rate of economic activity is growing.
    - ethbro 7y ago
      Absolutely, on the denomination unit. Foolishly and unwisely were concise proxies for economic impact. My point was that simply increasing the money supply may or may not result in objective inflation over modest timescales. It certainly usually does, because foolish things are more politically popular than effective things. But it doesn't have to be so.

by ethbro 7y ago

imtringued 7y ago

That's a very roundabout way of saying if you don't spend money it won't enter the economy.

AnimalMuppet 7y ago
That's not what ethbro is saying. If the money supply (times velocity) is X, and I print more money so that it's now 1.1X, if I spend the new 0.1X in a way that grows the economy by 10%, then printing the money wasn't inflationary. If I spend the 0.1X in ways that don't grow the economy, then it was inflationary.

pdonis 7y ago

> Inflation is size of economy / money supply. No, inflation is either an increase in the money supply (according to classical, i.e., pre-Keynesian, economics) or an increase in the average price level, often qualified to be the average price level of "wage goods" (according to Keynesian economics). The underlying argument behind "size of economy/money supply" is that if the economy is growing (more precisely, if the rate of economic activity is growing), then increasing the money supply will not increase the average price level. In fact, if for whatever reason (and Keynesians have no trouble coming up with plausible-sounding reasons) you want the average price level to remain basically the same, you should print more money as the rate of economic activity increases. While these are true statements, they ignore the fact that printing more money is economically equivalent to a wealth transfer from whoever does not get the newly printed money to whoever does get it (which under our current system is banks and other financial institutions). In other words, it's the same economically as a tax on ordinary people whose proceeds go to rich bankers and financiers. But it's much more palatable politically, which is why it's our current system. (The old system, before the Federal Reserve and other central banks gained power, was that when governments got in financial trouble they had to explicitly go to rich bankers and financiers and ask for bailouts, which was politically unpalatable, not to mention a huge pain for the rich bankers and financiers since people would see that they were effectively profiting from the economic woes of others. So the rich bankers and financiers got together and sold the politicians a system of central banks where all of this could be done under the radar so the ordinary taxpayers wouldn't see it and wouldn't complain about it.)

ethbro 7y ago
So, ignoring the digression into wealth transfer and central banking, we agree that... > [inflation] is a consequence of printing money as soon as the newly printed money gets out into the economy ... is not a fully accurate statement?
- pdonis 7y ago
  > we agree that... > > [inflation] is a consequence of printing money as soon as the newly printed money gets out into the economy > ... is not a fully accurate statement? If you are saying I should have added a qualifier "assuming the rate of economic activity stays constant", yes, that qualifier should be there (if we define "inflation" as "increase in the average price level"). But I don't agree that any qualifiers like whether or not the money gets spent "foolishly" or "unwisely" need to be there. Also, our current measure of "rate of economic activity", GDP, is not independent of the money supply, because it measures "activity" in dollars. So the fact that US GDP is growing does not necessarily mean the real rate of economic activity is growing.
  - ethbro 7y ago
    Absolutely, on the denomination unit. Foolishly and unwisely were concise proxies for economic impact. My point was that simply increasing the money supply may or may not result in objective inflation over modest timescales. It certainly usually does, because foolish things are more politically popular than effective things. But it doesn't have to be so.