Should the U.S. government send a debit card loaded with $2000 to every American and then reload it with $1000 every month until the pandemic passes?
Should the Treasury mint two trillion-dollar coins to pay for this?
In the weeks and months ahead, you will encounter —
To evaluate these proposals seriously, you need to understand what inflation is and what it isn’t. So, I want to offer a really brief explanation —
The aphoristic econ-prof definition of inflation is “too many dollars chasing too few goods.” Inflation scolds tend to focus exclusively on the first part of that formulation, the “too many dollars,” but that’s misleading.
It’s my opinion that the fear of inflation has its roots in two things:
The “cultural memory” of high inflation in the U.S. in the 1970s, which was driven primarily by oil production politics. High oil prices cascade into almost every other good and service; there’s no corner of the economy that’s unaffected. To stimulate a floundering economy, the U.S. government spent a lot of money, but that couldn’t change the underlying reality of an oil shortage. Thus: inflation.
The “hyperinflation ghost stories” of strange extreme periods like, e.g., the mid-2000s in Zimbabwe, a time when economy-wide production dipped calamitously —
“food output capacity fell 45%, manufacturing output 29%”—while the government printed money pell-mell. Thus: hyperinflation.
Notice that, in both of those cases, there is a real physical shortage of goods at the core, but it’s the currency inflation —
For ten years now, no matter what central banks have done, no matter how much money they’ve printed —
My personal (crackpot?) theory is that the answer has to do with (a) the digitization of more and more goods and services —
In the middle of 2019, the real economy could, in a way unimaginable in the 1970s, spin up additional production of nearly any good very quickly. This was especially true of electronics, which constitute so much of our consumption now. You want twenty million flat-screen TVs? They’re already on a boat!
You can only fear inflation if you believe the real economy can’t “keep up” with new money, and for all its other failings —
But it’s not the middle of 2019; we live in a different world now. The pandemic has totally disrupted supply chains. For months, it shut down all the factories in China! Here in the U.S., shipments are moving more slowly. Real people with real jobs —
So here’s where reasonable people can disagree. If you believe the pandemic’s effect on the production and distribution of physical goods is profound and lasting, then it’s not unreasonable to be concerned about “too many dollars chasing too few goods.” However! You should understand it’s the “too few goods” as much as the “too many dollars” that you fear.
But if you believe the underlying capacity and flexibility of global production is largely unchanged, and that there is currently a surplus of goods and services sitting idle, oil not least among them —
I’m down for the trillion-dollar coin is what I’m saying.
One more thing:
Inflation is the ultimate economic bogeyman, the nemesis of central banks, largely because it laser-targets the very wealthy, eroding the value of the dollars in their bank accounts. Inflation is the dark mold that blooms on the undersides of your oranges while they sit waiting in their pretty bowl.
But … what if you don’t have any dollars in your bank account? What if, on the contrary, you hold mostly debt —
There are a lot of Americans who hold a lot of debt, and, for them, a little bit of inflation might be a good thing.
That’s all to say: don’t accept the assumption that printing money causes runaway inflation. You need to have an opinion about the real economy, too.
(I really like how so many of these Byzantine coins have two dudes on them: expressions of continuity.)
March 2020, Oakland