7 ms·

> Should that day come to pass, the money-issuer – the central bank – can procure all that idle labor, without creating inflation. If the private sector doesn’t

> Should that day come to pass, the money-issuer – the central bank – can procure all that idle labor, without creating inflation. If the private sector doesn’t want labor, then there’s no bidding war between companies and a federal jobs program or a universal basic income, so creating money to buy people’s labor won’t drive up the price of that labor. I had to stop reading after this. This is not how inflation works and it borders on the preposterous to surmise that CBs can monetize deficits without creating inflation because there is excess supply in one market. All of these people who would otherwise have less/no money are now spending that printed money to purchase goods like food, thus driving inflation higher. You can debate the merits of people being entitled to basic services like food, but the economic pressures are fairly well understood, even by MMTers

jusssi 6y ago
> All of these people who would otherwise have less/no money are now spending that printed money to purchase goods like food, thus driving inflation higher. This assumes those goods are a scarce resource, so that increased consumption eventually leads to shortage. I can't quote sources, but my understanding is that we have enough food to feed everyone ATM, and any remaining hunger is just a failure of the economy to solve the distribution of currency.
- climwe 6y ago
  Millions of potatoes were recently discarded by Idaho farms due to surplus and lack of demand. I would point to Yemen's hunger crisis, but there are people literally inside of Idaho who don't have food. If you can't even distribute excess food within your own borders it's no longer a logistics problem, people just don't care.
- zumachase 6y ago
  These goods are scarce in the economic sense, even if you think they are “cheap”. They are not free to produce. We do have enough food to feed the world, but that would mean your food gets more expensive as other people consume what would otherwise contribute to downward supply pressure.
  - climwe 6y ago
    If there is excess food and it is given to people who would not otherwise buy food, there would be no negative effect on prices or the economy in general. Maybe examples of these types of people don't exist in America all that much but they certainly do in the rest of the world. Your argument only makes sense if the excess food is given to people who can afford it and just want to eat for free.
    - zumachase 6y ago
      I’m sorry, that’s just not how economics works. A market with excess supply necessarily has lower prices than one that is balanced, ceteris paribus. Idaho potatoes were mentioned above. They are only being thrown away because the market does not want them. The mechanism by which this happens is price: prices drop low enough that it’s cheaper to throw away (we saw negative oil prices recently). One explanation is that other farmers saw this supply glut and raced to slash their prices. If we took all those excess potatoes and gave them away, then absent this excess supply, those other farmers would not have done this and prices would have remained steady or not gone down as much. Thus the artificial increase in quantity demanded is necessarily inflationary.
      - Unsimplified 6y ago
        Incorrect. The use of discarded product by non-market flows has no effect on market price.
        zumachase 6y ago
        You’re putting the cart before the horse: price came first, then the product was discarded. The risk that these potatoes might be dumped into the market pushed prices down. If you magically take this risk away, it doesn’t matter by which mechanism, that threat goes away and price responds. If I’m another potato farmer and all of a sudden all those extra potatoes are teleported somewhere else, I will in all likelihood raise my prices. Even the most progressive theorists would not debate this. It’s basic aggregate supply and demand.
- kortilla 6y ago
  The problem is that all consumption levels stay the same but the production costs surge because a bunch of people aren’t working to help produce supplies. The only way inflation doesn’t occur is if all of the unemployed people were doing useless things that nobody wanted in normal times, which is not how most of the worlds markets function.
  - woah 6y ago
    How many people do you need to grow potatoes?
- leetcrew 6y ago
  it's not just the distribution of currency; it's the distribution of food itself. a lot of food waste happens because the cost of transporting and storing it would result in a net loss.
bob33212 6y ago
Say that 100k truckers making 50k a year lost their jobs to self driving trucks, which cost 10k year. If the government paid those people 40k a year the demand and purchasing power for food would not change for those 100k people.
- function_seven 6y ago
  Sure, but the robot truck owners are also getting 40K additional per year, no? Or if they're not completely capturing the marginal difference between a human driver and a robot driver, someone elsewhere is, right? Maybe the 40K labor savings is actually offset by a 37K a year replacement to the labor force, who also now enjoy lower prices on all shipped goods. (Assuming there is still real competition in shipping)
  - bob33212 6y ago
    The 40k goes to the profits of the shipping companies, which goes to the dividends of the stock owners, who are generally spending the dividends on investing in more stock. In theory shipping prices would go down immediately, but in the real world it could take years for competitors to force the industry to lower costs by the full 40k.
    - function_seven 6y ago
      I'm a bit out of my depth here (I always am when it comes to macroeconomics or monetary theory). Let's say that the equity holders of the various shipping companies keep the $40k savings all for themselves, and use those profits to buy more stock. Isn't that still going to drive inflation? The price of shares will continue to rise solely due to more money chasing them. And every buyer of stock is giving money to a seller of stock on the other side, who will then do what with that money? If it's capitalizing a new company, then the money will be spent into the economy. If it's buying existing shares, then the seller will now have cash to spend. Either way, the money is still an active participant in the money supply. Meanwhile the government is creating new money each year to offset the salary losses of the displaced truckers. What used to be a 40K transfer from employer to employee is now a $40k diversion to other uses at the employer's end, and $40k of brand new money on the employee's end.
wz1000 6y ago
You're missing the point. There is no inflation taking the no automation stage as a baseline. I.e. the scenario is workers spending $X of their employer granted salaries on goods they produce vs spending $X of basic job salaries that machines produce
- zumachase 6y ago
  No, I’m not. You’re making a very simple argument of an extremely complex issue. That only holds up in a world of unlimited resource. As long as energy and raw materials are finite, the above does not hold. More importantly, you’re conflating two things: we needn’t necessarily print money. Let’s presume your comment were correct. Nonetheless, in the absence of such monetary policy, consumption would plummet and deflation would reign. Thus, it is still inflationary.
  - wz1000 6y ago
    Again, you are missing the point. Yes, it is inflationary, but the inflation caused will not be the end of the world. As you admit, most of it will simply counteract the deflationary effects of unemployment and full automation.
skybrian 6y ago
While I don't agree with Doctorow's argument at all, I would say that inflation is misunderstood more than it's understood. For example, there is a naive belief that inflation is proportional to the money supply. This seems to be a garbled version of monetarism, which is no longer how central banks think about it, but even monetarism is more complicated than that. Monetarist theory is based on MV = PQ, where M is the money supply and V is the "velocity of money". The money supply can go up but velocity can go down (the people getting the money tend not to spend it), in which case there's no inflation. For inflation to happen, people have to want to spend more. People can spend more or less due to fear, but it depends on the nature of the fear. Currently fear tends to make people spend less (if they can).
- Andys 6y ago
  But isn't the need to buy food to eat a certain guaranteed base level of velocity?
  - skybrian 6y ago
    You do need a certain amount of spending, but that's M*V, not V. More money means less of it needs to circulate to cover spending on food. (If amount spent on food is fixed.) But this is based on a very simple model that doesn't take inequality into account at all.
- zumachase 6y ago
  Yes this is all very true, but he makes the case explicitly for money velocity to increase. He’s not suggested printing money for savers or rent seekers, he’s suggested printing money for the express purpose of consumption: I have been automated and thus can not afford basic staples without basic income. This is inflationary not matter how you slice it.
  - smallnamespace 6y ago
    It’s inflationary, but the wealth inequality, unemployment/underemployment, and recession we have are all deflationary forces, e.g. CPI inflation is well below historical trends since 2008. The argument is we have room to nudge inflation back to normal while also helping people.
js8 6y ago
> I had to stop reading after this. This is not how inflation works and it borders on the preposterous to surmise that CBs can monetize deficits without creating inflation because there is excess supply in one market. I think the government doesn't have to run deficits, it can always tax the money back out of the economy. (The only problem is nobody likes that, for some reason. People seem to prefer inflation to taxation.) It's actually more honest, because it better shows what actually happens. Government prints money, (hopefully) invests into places that benefit the society as a whole, and then taxes the excess money back from wherever they ended up, destroying them (by not spending them again).
- zumachase 6y ago
  We’re not talking about the Treasury. We’re talking about Central Banks who lack the power to tax (directly at least). > People seem to prefer inflation to taxation. That’s because they’re not the same thing, not at all.
  - michaelt 6y ago
    How is a 1% inflation rate meaningfully different to a 1% tax on savings and investments, and a 1% subsidy on debt?
    - Negitivefrags 6y ago
      It’s a tax on savings, but not on most investments which would typically be assets that rise with inflation.
      - empath75 6y ago
        It’s a tax on debt issuers. Anybody loaning money will have to charge a much higher interest rate or they’ll get back less than they lent out.
  - js8 6y ago
    I think when Doctorow talks about the CB, he pretty much puts it under government at large. Which I think is fair, various attempts at making CB independent on the actual government are rather puny in my opinion. Regarding inflation, you're right, there are other sources of inflation than just government printing money. Money are also created privately, and certain inflation is IMHO inevitable, because most goods and assets depreciate. But I do think that the inflation, induced by government printing additional money, can be negated by taxation.
ivalm 6y ago
Inflationary policy in a deflationary market doesn’t lead to inflation (see US or Japan). There are lots of issues but I don’t think inflation is one we need to worry about.
- zumachase 6y ago
  Again, this is not what I said. Inflationary policy in a deflationary market is still inflationary.
  - ivalm 6y ago
    But irrelevant to the point he is making? He clearly intends to claim that the outcome is not inflationary. I agree that in many points the article is not written carefully (and sometimes straight up wrong... Ca has no vent shortage, current thermal load doesn’t melt ice caps, zootonic pandemics even with current covid are not world shattering)
zozbot234 6y ago
If the CBs are missing their inflation/nominal income target, they can monetize deficits while not creating more inflation/nominal income flow than is warranted. This of course gets into the matter of why we would want CBs to create inflation in some circumstances: the simple answer is that it makes the economy a lot more predictable if they do. When the flow of nominal incomes grinds to a halt, prices throughout the economy have trouble adjusting downwards in response, so we get a recession and widespread unemployment. Stability is what matters here, not just minimizing inflation at all costs.
leovailati 6y ago
Exactly that! As I read the article, I kept thinking "this guy is not following the money". The author's ultimate assumption is that money supply is somehow decoupled from accumulation. People receiving money from the government and using it to buy their basic needs may not drive inflation because their labor is not being procured by anyone else AND those basic goods they are buying would not be produced otherwise. However, the constant money stream will drive accumulation on the other side of the economy. The owners of capital (or the 1%, however you may want to call them) would become unimaginably wealthy in a scenario like this. And it would be hard to prevent that. A super wealthy class is already a big problem today. Imagine the influence that group would have in politics if they had 10x the purchase power they have today. Another problem that I believe exists with instituting a UBI through money creation (e.g., MMT) is lack of innovation and market disruption. It essentially puts a tax on innovation. In order to hire people you now have to be able to afford to pay more than the government and still have sufficient funds to fight well-established mega corporations.
- noelherrick 6y ago
  But think about this: if you're a startup founder, you can get co-founders for so much cheaper and more easily. If your buddy and you both know you have UBI, you can start a business without risking that much. The next hires can be lured with equity - this is a great thing because people have emotional and professional ownership in startups, but the one to three founders generally have all the equity. What if UBI forced those founders to both distribute equity and alongside that, the responsibility for the company? I think it would benefit all parties. Talking to founders, those first months and years are stressful as heck - I would wish that on nobody for any price. We can do better. Think about startups before financing. Loans with interest used to be considered immoral - it's prohibited in the Bible. If you wanted to start a business, you had to save or find a lender that would let you take money and then just wait for you to give it back. And if you didn't pay it back, the lender could put you in prison. No wonder people didn't do that very often. Even with these new ways to fund a startup, you could lose your job and with it your income and healthcare coverage. What if that risk just went away? Of course some people would waste it, but think of all those folks that would turn their lives into hackathons until they struck gold.
fulafel 6y ago
Those people are already being provided necessities in richer countries paid from state issued debt, surely that causes inflation too according to your train of thought?

jusssi 6y ago

> All of these people who would otherwise have less/no money are now spending that printed money to purchase goods like food, thus driving inflation higher. This assumes those goods are a scarce resource, so that increased consumption eventually leads to shortage. I can't quote sources, but my understanding is that we have enough food to feed everyone ATM, and any remaining hunger is just a failure of the economy to solve the distribution of currency.

climwe 6y ago
Millions of potatoes were recently discarded by Idaho farms due to surplus and lack of demand. I would point to Yemen's hunger crisis, but there are people literally inside of Idaho who don't have food. If you can't even distribute excess food within your own borders it's no longer a logistics problem, people just don't care.
zumachase 6y ago
These goods are scarce in the economic sense, even if you think they are “cheap”. They are not free to produce. We do have enough food to feed the world, but that would mean your food gets more expensive as other people consume what would otherwise contribute to downward supply pressure.
- climwe 6y ago
  If there is excess food and it is given to people who would not otherwise buy food, there would be no negative effect on prices or the economy in general. Maybe examples of these types of people don't exist in America all that much but they certainly do in the rest of the world. Your argument only makes sense if the excess food is given to people who can afford it and just want to eat for free.
  - zumachase 6y ago
    I’m sorry, that’s just not how economics works. A market with excess supply necessarily has lower prices than one that is balanced, ceteris paribus. Idaho potatoes were mentioned above. They are only being thrown away because the market does not want them. The mechanism by which this happens is price: prices drop low enough that it’s cheaper to throw away (we saw negative oil prices recently). One explanation is that other farmers saw this supply glut and raced to slash their prices. If we took all those excess potatoes and gave them away, then absent this excess supply, those other farmers would not have done this and prices would have remained steady or not gone down as much. Thus the artificial increase in quantity demanded is necessarily inflationary.
    - Unsimplified 6y ago
      Incorrect. The use of discarded product by non-market flows has no effect on market price.
      - zumachase 6y ago
        You’re putting the cart before the horse: price came first, then the product was discarded. The risk that these potatoes might be dumped into the market pushed prices down. If you magically take this risk away, it doesn’t matter by which mechanism, that threat goes away and price responds. If I’m another potato farmer and all of a sudden all those extra potatoes are teleported somewhere else, I will in all likelihood raise my prices. Even the most progressive theorists would not debate this. It’s basic aggregate supply and demand.
kortilla 6y ago
The problem is that all consumption levels stay the same but the production costs surge because a bunch of people aren’t working to help produce supplies. The only way inflation doesn’t occur is if all of the unemployed people were doing useless things that nobody wanted in normal times, which is not how most of the worlds markets function.
- woah 6y ago
  How many people do you need to grow potatoes?
leetcrew 6y ago
it's not just the distribution of currency; it's the distribution of food itself. a lot of food waste happens because the cost of transporting and storing it would result in a net loss.

bob33212 6y ago

Say that 100k truckers making 50k a year lost their jobs to self driving trucks, which cost 10k year. If the government paid those people 40k a year the demand and purchasing power for food would not change for those 100k people.

function_seven 6y ago
Sure, but the robot truck owners are also getting 40K additional per year, no? Or if they're not completely capturing the marginal difference between a human driver and a robot driver, someone elsewhere is, right? Maybe the 40K labor savings is actually offset by a 37K a year replacement to the labor force, who also now enjoy lower prices on all shipped goods. (Assuming there is still real competition in shipping)
- bob33212 6y ago
  The 40k goes to the profits of the shipping companies, which goes to the dividends of the stock owners, who are generally spending the dividends on investing in more stock. In theory shipping prices would go down immediately, but in the real world it could take years for competitors to force the industry to lower costs by the full 40k.
  - function_seven 6y ago
    I'm a bit out of my depth here (I always am when it comes to macroeconomics or monetary theory). Let's say that the equity holders of the various shipping companies keep the $40k savings all for themselves, and use those profits to buy more stock. Isn't that still going to drive inflation? The price of shares will continue to rise solely due to more money chasing them. And every buyer of stock is giving money to a seller of stock on the other side, who will then do what with that money? If it's capitalizing a new company, then the money will be spent into the economy. If it's buying existing shares, then the seller will now have cash to spend. Either way, the money is still an active participant in the money supply. Meanwhile the government is creating new money each year to offset the salary losses of the displaced truckers. What used to be a 40K transfer from employer to employee is now a $40k diversion to other uses at the employer's end, and $40k of brand new money on the employee's end.

wz1000 6y ago

You're missing the point. There is no inflation taking the no automation stage as a baseline. I.e. the scenario is workers spending $X of their employer granted salaries on goods they produce vs spending $X of basic job salaries that machines produce

zumachase 6y ago
No, I’m not. You’re making a very simple argument of an extremely complex issue. That only holds up in a world of unlimited resource. As long as energy and raw materials are finite, the above does not hold. More importantly, you’re conflating two things: we needn’t necessarily print money. Let’s presume your comment were correct. Nonetheless, in the absence of such monetary policy, consumption would plummet and deflation would reign. Thus, it is still inflationary.
- wz1000 6y ago
  Again, you are missing the point. Yes, it is inflationary, but the inflation caused will not be the end of the world. As you admit, most of it will simply counteract the deflationary effects of unemployment and full automation.

skybrian 6y ago

While I don't agree with Doctorow's argument at all, I would say that inflation is misunderstood more than it's understood. For example, there is a naive belief that inflation is proportional to the money supply. This seems to be a garbled version of monetarism, which is no longer how central banks think about it, but even monetarism is more complicated than that. Monetarist theory is based on MV = PQ, where M is the money supply and V is the "velocity of money". The money supply can go up but velocity can go down (the people getting the money tend not to spend it), in which case there's no inflation. For inflation to happen, people have to want to spend more. People can spend more or less due to fear, but it depends on the nature of the fear. Currently fear tends to make people spend less (if they can).

Andys 6y ago
But isn't the need to buy food to eat a certain guaranteed base level of velocity?
- skybrian 6y ago
  You do need a certain amount of spending, but that's M*V, not V. More money means less of it needs to circulate to cover spending on food. (If amount spent on food is fixed.) But this is based on a very simple model that doesn't take inequality into account at all.
zumachase 6y ago
Yes this is all very true, but he makes the case explicitly for money velocity to increase. He’s not suggested printing money for savers or rent seekers, he’s suggested printing money for the express purpose of consumption: I have been automated and thus can not afford basic staples without basic income. This is inflationary not matter how you slice it.
- smallnamespace 6y ago
  It’s inflationary, but the wealth inequality, unemployment/underemployment, and recession we have are all deflationary forces, e.g. CPI inflation is well below historical trends since 2008. The argument is we have room to nudge inflation back to normal while also helping people.

js8 6y ago

> I had to stop reading after this. This is not how inflation works and it borders on the preposterous to surmise that CBs can monetize deficits without creating inflation because there is excess supply in one market. I think the government doesn't have to run deficits, it can always tax the money back out of the economy. (The only problem is nobody likes that, for some reason. People seem to prefer inflation to taxation.) It's actually more honest, because it better shows what actually happens. Government prints money, (hopefully) invests into places that benefit the society as a whole, and then taxes the excess money back from wherever they ended up, destroying them (by not spending them again).

zumachase 6y ago
We’re not talking about the Treasury. We’re talking about Central Banks who lack the power to tax (directly at least). > People seem to prefer inflation to taxation. That’s because they’re not the same thing, not at all.
- michaelt 6y ago
  How is a 1% inflation rate meaningfully different to a 1% tax on savings and investments, and a 1% subsidy on debt?
  - Negitivefrags 6y ago
    It’s a tax on savings, but not on most investments which would typically be assets that rise with inflation.
    - empath75 6y ago
      It’s a tax on debt issuers. Anybody loaning money will have to charge a much higher interest rate or they’ll get back less than they lent out.
- js8 6y ago
  I think when Doctorow talks about the CB, he pretty much puts it under government at large. Which I think is fair, various attempts at making CB independent on the actual government are rather puny in my opinion. Regarding inflation, you're right, there are other sources of inflation than just government printing money. Money are also created privately, and certain inflation is IMHO inevitable, because most goods and assets depreciate. But I do think that the inflation, induced by government printing additional money, can be negated by taxation.

ivalm 6y ago

Inflationary policy in a deflationary market doesn’t lead to inflation (see US or Japan). There are lots of issues but I don’t think inflation is one we need to worry about.

zumachase 6y ago
Again, this is not what I said. Inflationary policy in a deflationary market is still inflationary.
- ivalm 6y ago
  But irrelevant to the point he is making? He clearly intends to claim that the outcome is not inflationary. I agree that in many points the article is not written carefully (and sometimes straight up wrong... Ca has no vent shortage, current thermal load doesn’t melt ice caps, zootonic pandemics even with current covid are not world shattering)

zozbot234 6y ago

If the CBs are missing their inflation/nominal income target, they can monetize deficits while not creating more inflation/nominal income flow than is warranted. This of course gets into the matter of why we would want CBs to create inflation in some circumstances: the simple answer is that it makes the economy a lot more predictable if they do. When the flow of nominal incomes grinds to a halt, prices throughout the economy have trouble adjusting downwards in response, so we get a recession and widespread unemployment. Stability is what matters here, not just minimizing inflation at all costs.

leovailati 6y ago

Exactly that! As I read the article, I kept thinking "this guy is not following the money". The author's ultimate assumption is that money supply is somehow decoupled from accumulation. People receiving money from the government and using it to buy their basic needs may not drive inflation because their labor is not being procured by anyone else AND those basic goods they are buying would not be produced otherwise. However, the constant money stream will drive accumulation on the other side of the economy. The owners of capital (or the 1%, however you may want to call them) would become unimaginably wealthy in a scenario like this. And it would be hard to prevent that. A super wealthy class is already a big problem today. Imagine the influence that group would have in politics if they had 10x the purchase power they have today. Another problem that I believe exists with instituting a UBI through money creation (e.g., MMT) is lack of innovation and market disruption. It essentially puts a tax on innovation. In order to hire people you now have to be able to afford to pay more than the government and still have sufficient funds to fight well-established mega corporations.

noelherrick 6y ago
But think about this: if you're a startup founder, you can get co-founders for so much cheaper and more easily. If your buddy and you both know you have UBI, you can start a business without risking that much. The next hires can be lured with equity - this is a great thing because people have emotional and professional ownership in startups, but the one to three founders generally have all the equity. What if UBI forced those founders to both distribute equity and alongside that, the responsibility for the company? I think it would benefit all parties. Talking to founders, those first months and years are stressful as heck - I would wish that on nobody for any price. We can do better. Think about startups before financing. Loans with interest used to be considered immoral - it's prohibited in the Bible. If you wanted to start a business, you had to save or find a lender that would let you take money and then just wait for you to give it back. And if you didn't pay it back, the lender could put you in prison. No wonder people didn't do that very often. Even with these new ways to fund a startup, you could lose your job and with it your income and healthcare coverage. What if that risk just went away? Of course some people would waste it, but think of all those folks that would turn their lives into hackathons until they struck gold.

fulafel 6y ago

Those people are already being provided necessities in richer countries paid from state issued debt, surely that causes inflation too according to your train of thought?