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If you're a progressive and want to fix problems like unemployment, the health care and health insurance systems, infrastructure, education, our energy and climate crises and want Government to deficit spend to do it, sooner of later you'll get the question: “Aren't you just 'printing money'? Here's my answer to that one.

No!

Because:

1) Today the Government prints very little money. It mostly just “marks up accounts” using a computer when the Treasury spends, or when the Fed buys financial assets, in return for reserves it creates. So, literally, I'm not saying we should “print money,” I'm saying we should deficit spend by “marking up” non-Government accounts.

2) Also, the idea of "printing money" being a bad thing is a hangover from the days before 1971 when money was backed by gold or other commodities. "Just printing money" referred to printing it without acquiring the gold or silver or other commodities needed to back it. So, before 1971, there was a contrast between old money, which was commodity (largely gold) -backed, and merely printed money which was not. Money that was backed was worth something; printed, but unbacked, money was worth less, or even worthless, depending on conditions.

3) Now that we have our fiat currency system, to describe Government deficit spending as “printing money” is way off-base, because it ignores two important realities:

First, these days ALL US Government money is fiat money. It is all unbacked by any commodity. There is no distinction between old money and newly created money. And the new money created when Government deficit spends, is worth no more and no less than the old money.

Second, assuming that the Government did create money without issuing debt (the closest thing you can get right now to the old "printing money") to pay its bills, would the effect be bad or intolerable, or would it be good? That's the real issue raised by Government spending deficit or otherwise.

4) So, I know your printing money” question is raising the issue that Government deficit spending for state revenue sharing programs, payroll tax holidays, Job Guarantee programs, or other Government deficit spending I favor would have a bad outcome because it would cause inflation. What you're really asking me is not whether I'm in favor of “printing money” but whether I'm in favor of inflationary deficit spending?

My answer to that REAL ISSUE is no, I'm not proposing inflationary government deficit spending. I'm proposing Government deficit spending targeted on job creation and other valued outcomes until we get full employment. There's no evidence that such spending is inflationary at all.

If you have any I'd love to see it, but all I see right now is some commodity inflation which has nothing to do with Government deficit spending, and also a great deal of deflation in other areas of the economy that has everything to do with the fact that the Government is deficit spending far too little, and also on the wrong things, to enable the economy to perform up to its potential.

(Cross-posted at All Life Is Problem Solving and Fiscal Sustainability).

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Comment Preferences

  •  Monetary Policy (0+ / 0-)

    As part of my longstanding interest in economics, I've been mildly fascinated by the details of monetary policy at least ever since the Thatcherite Monster introduced the horribly wrong doctrine of monetarism to Britain (where I lived till I was 28) three decades ago.

    Over the past couple of years this interest has been re-kindled by the financial crisis and the concomitant explosion of blogging by well-informed economists.
    One blogger whose writing on monetary economics and policy I've found particularly enjoyable and insightful is Andy Harless
    http://blog.andyharless.com/

    Anyway, here are some of his posts on monetary policy for anybody who's interested in the niceties of things like money, interest, debt, inflation, (un)employment, and in seeing through some of the fog surrounding such issues:

    http://blog.andyharless.com/...

    http://blog.andyharless.com/...

    http://blog.andyharless.com/...

    http://blog.andyharless.com/...

    http://blog.andyharless.com/...

    http://blog.andyharless.com/...

    http://blog.andyharless.com/...

    http://blog.andyharless.com/...

    http://blog.andyharless.com/...

  •  I'm afraid I disagree with you 100% (1+ / 0-)
    Recommended by:
    Dude1701

    We are, effectively "printing money".

    The result of printing that money is simple: It will work its way up through the economy, and end up in the hands of the rich. They will then lend it back to us. The results are straightforward. We get an exponentially increasing load of bogus debt at the top of our economy -- debt that most folks just think of as "the rich people's money". But money is debt. Every time we inject more fantasy money into the economy, beyond the amount required to accommodate/permit our expanded productivity, we get higher prices (in housing, energy, education, health care) and we increase the amount of income that we need to generate in order to service that bogus debt.

    The solution to most of our social problems is pretty simple: Run a balanced budget by taxing the wealthy at rates they would view as punitive (e.g., 90 or 95% of every dollar over 10 million).

    To put the torture behind us is, inevitably, to put it in front of us.

    by UntimelyRippd on Wed Jun 15, 2011 at 04:14:01 PM PDT

    •  If you run a balanced budget (1+ / 0-)
      Recommended by:
      psyched

      then net financial assets in the private sector will never increase, regardless of population growth. There will be no additional financial resources to pay additional workers. Unemployment will continue to increase. If you run surpluses, the private sector will go more deeply into debt year-by-year, and eventually it will be impoverished. the views you've expressed above are austerian in nature and have no basis either in good theory or empirical evidence, so whether you agree with me or not is really not important.

      •  how amusing. (0+ / 0-)

        in the first place, as i noted in my comment, there is a level of monetary expansion necessary to accommodate expansion of the economy. thus, your complaint on this point reflects a general disinclination to take the trouble of actually reading the ideas you are dismissing.

        our current monetary system is horrifically overinflated -- it's the trick by which the plutocracy disguises from us the unsustainability the model that they pretend is The Only Way.

        My view is not at all austerian. To the contrary. austerity measures are invariably the response of the plutocracy when the math no longer works. the plutocracy proposes austerity because the alternative is taxing away of their ill-gotten wealth. i don't believe in austerity, i believe in confiscating the surplus debt that inevitably accrues excessively to the wealthy (due to inevitable flaws in the way that markets distribute wealth), and applying that debt (more appropriately understood as credit, once confiscated) to socially useful objectives.

        Beyond your unwarranted smugness you offer no sensible rebuttal, merely an empty appeal to non-existent authority ("no basis in either in good theory or empirical evidence"). The theory is straightforward, though it seems not to appeal to the anointed priests of Political Economy: exponential growth is not sustainable. It leads to instability and chaos. The evidence is scattered throughout the last 2500 years of western history. I suggest you revisit whatever investigations you have made into the accumulations and distributions of wealth, beginning with the advent of Rome. The patterns are not obscure.

        To put the torture behind us is, inevitably, to put it in front of us.

        by UntimelyRippd on Wed Jun 15, 2011 at 08:21:15 PM PDT

        [ Parent ]

        •  (sigh) (1+ / 0-)
          Recommended by:
          Dude1701
          in the first place, as i noted in my comment, there is a level of monetary expansion necessary to accommodate expansion of the economy. thus, your complaint on this point reflects a general disinclination to take the trouble of actually reading the ideas you are dismissing.
          Every time we inject more fantasy money into the economy, beyond the amount required to accommodate/permit our expanded productivity, we get higher prices (in housing, energy, education, health care) and we increase the amount of income that we need to generate in order to service that bogus debt.

          If we inject NEW money by increasing wage incomes then wage incomes can't be disadvantaged.  I am not real sure why normal, well adjusted people seem to be completely unaware of this fact.  Inflation caused by increasing wages is called "demand pull" inflation and it is GOOD for the producers in the economy and bad for the money hoarders.

          As to the reclamation of the money, you are correct.  The money should be reclaimed at the point that it would otherwise accumulate to excess.  But have a care:  Money must serve as a store of value also, or it will not command the respect needed to engender the seeking of it.  IN short: there must be a way to "save".

        •  The crux (0+ / 0-)
          . . . our current monetary system is horrifically overinflated -- it's the trick by which the plutocracy disguises from us the unsustainability the model that they pretend is The Only Way.

          How do you know the money supply is over-inflated? With respect to what standard. I see too little demand in the economy right now. If the Government spends and in the spending supplies money to people who will spend and not to those who will save it, then the output gap will shrink. When it's shrunk to such an extent that we begin to see demand-pull inflation, then come back and tell me that there's too much money out there. But until then, I just don't believe it.

    •  I'm still getting used to.... (0+ / 0-)

      Modern Monetary Theory and the way it undermines traditional ways of looking at things -- such as your assertion that we should have a balanced budget.

      If you're interested in learning more about the basics of accounting -- and thus what a balanced budget means -- there's a project at New Economic Perspectives which is slowly developing a Primer on MMT.

      This past Monday Randall Wray wrote a short intro. regarding National Accounting identities.

      You might enjoy it.

      •  It always surprises me when people (0+ / 0-)

        can simultaneously be so arrogant and so wrong at the same time.

        It took me a while to figure out just exactly how insulting you were or weren't trying to be -- but following you back through your comments to LGID's Mosler diary, I conclude: Extremely insulting.

        Having skimmed LGID's Mosler diary, I further conclude that this whole MMT paradigm is less than insightful. It doesn't seem to be 10 minutes beyond the old, "we can borrow as much as we want because we owe it to ourselves". To say that this lacks sophistication is to understate; what's worse the philosophical underpinning of the MMT model seems to be an arrogant crypto-exceptionalism -- so deeply in the crypt that i suspect its practitioners don't even recognize it.

        Overall, the Mosler model is, in fact, unsustainable. His treatment of trade deficits is childish to the limit: it suggests a failure, both intellectual and ethical, to comprehend exactly what debt and credit are. Which is not to say that I disagree with everything he has to say -- for example, I also support government-engineered full employment at a living wage. I just don't believe in accomplishing that -- or anything else -- by "printing" endless quantities of money.

        To put the torture behind us is, inevitably, to put it in front of us.

        by UntimelyRippd on Thu Jun 16, 2011 at 05:14:53 AM PDT

        [ Parent ]

        •  I'm not insulting, type is not.... (0+ / 0-)

          a very good medium to convey underlying emotional states of typed statements.

          I don't have the knowledge to evaluate any economic theory to any great degree, but tend to read merely as a means to 1) learn a little, w/emphasis on a little and 2) to keep up, to some small degree, with different people's ideas in a broad way (as opposed to a scholarly way), cuz I'm no economic scholar (even a casual one).

          So...  don't know how to evaluate Mosler's treatment of the trade deficit.  I do, however, think that most of the MMT people I've read don't advocate "printing endless quantities of money", though they seem to advocate a lot of printing.  Just think they also recognize that there's constraints to printing thus that wasteful or misdirected printing isn't a good thing at all.

          Anyway, I have a pretty difficult time following Mosler most of the time, prefer reading Wray and others.  Not that I have the background to say "I agree" with them --  or any other economists.

          •  well, the bottom line on mosler's trade deficit (0+ / 0-)

            theory is, "It doesn't matter how much we borrow from the Chinese, because we're borrowing it in dollars, and WE determine the value of a dollar." in other words, after promising them good value in exchange for their resources and their labor, we laugh all the way to the printing press.

            i'm not sure mosler knows that's what he's saying, but it is what he's saying. it's a phenomenon i (and some compadres) observed during the 1980s: are the japanese crazy? all they're asking for in exchange for all this cool stuff is arbitrarily scarce units of "credit" called "dollars"! what makes them think we won't stiff them?

            but in fact, we didn't even have to explicitly stiff them. the ultimate denouement was that if they had ever tried to collect on the debt, our economy would have collapsed, followed by theirs. instead, they got stuck with the Lost Decade.

            To put the torture behind us is, inevitably, to put it in front of us.

            by UntimelyRippd on Thu Jun 16, 2011 at 02:32:52 PM PDT

            [ Parent ]

            •  Heard this argument before (1+ / 0-)
              Recommended by:
              psyched

              It's garbage. When we offer Treasuries we do so with no guarantee that we will do anything special to keep the dollar "hard." The dollar is a freely floating currency. Every investor knows that. They also know that the Chinese peg the Yuan to the Dollar, and have done so while shoring up the dollar so that they can export more to the US.

              Warren's right. We determine the interest rates on the dollar. We can force them down to zero interest if we want. If the Chinese don't like it, then they can stop exporting all those goods to us and let American manufacturing recover a bit. In any event, we don't owe the Chinese any special consideration.

              The people we owe that consideration too are our own working people. They need jobs, a decent economy, health care they can afford, good solid retirement support, top quality education and all the rest. If getting that for them, involves deficit spending (which it does) then it is much more important to deficit spend, than it is to take care of the value of the dollar so that the Chinese don't get screwed. Our first obligation is, and should be, to our fellow citizens, who have gotten screwed almost continuously for the past 40 years.

              •  Ah. (0+ / 0-)

                At least you admit that you have no interest or concern in honoring any obligations, as regards the reasonable expectations of the people with whom we trade.

                Unfortunately, since you and I do not inhabit the same ethical universe -- or more precisely, as far as I can tell, you don't inhabit any ethical universe -- I'm afraid there's really not enough common ground for us to have a sensible discourse.

                To put the torture behind us is, inevitably, to put it in front of us.

                by UntimelyRippd on Thu Jun 16, 2011 at 05:08:51 PM PDT

                [ Parent ]

                •  What obligations? (1+ / 0-)
                  Recommended by:
                  psyched

                  Are you really claiming that the Government of the United States commits to obligations to bond holders other than the obligation to pay back the debt instrument when it falls due along with the interest return promised? If so, I think any such claim is ridiculous. It is not supported by any ethical theory I'm aware of, nor is it supported by the contractual obligations the Government enters into when it sells a bond. You say:

                  At least you admit that you have no interest or concern in honoring any obligations, as regards the reasonable expectations of the people with whom we trade.

                  But I admit no such thing. The reasonable expectations of the people we trade with are that we will pay back what we've promised in the currency we promised. Any other expectation is a figment of your over-active imagination, and imposes an illegitimate obligation on American workers and taxpayers.

                  Finally, as far as ethics and morals are concerned, anyone who would claim that those we trade with ought to have their needs prioritized over the needs of his fellow working Americans is, in my view, sadly lacking in any meaningful idea morality and ethics.

          •  Only one correction (1+ / 0-)
            Recommended by:
            psyched

            katiec, we don't advocate 'printing' we advocate 'deficit spending.' For reasons I've stated above, they are not the same thing.

            •  For reasons you've stated above, (0+ / 0-)

              the difference between them is a con. Though I don't doubt your sincerity -- I'm sure you believe the con, just like the guys who sincerely believe that the income tax is unconstitutional.

              To put the torture behind us is, inevitably, to put it in front of us.

              by UntimelyRippd on Thu Jun 16, 2011 at 05:16:31 PM PDT

              [ Parent ]

              •  You can label it (1+ / 0-)
                Recommended by:
                psyched

                anything you want, but nevertheless, it is what it is. And it is not "printing money" in the classical sense of this term.

                And in the sense you mean it; it is nothing more than deficit spending. So, your determination to call it "printing money" is nothing but labeling something you don't like with a pejorative term that doesn't apply.

                Try that old game all you like, but eventually people will understand that it is only deficit spending we are talking about here; that old and new money are worth the same thing dollar for dollar in the absence of inflation, and also that deficit spending adds net financial assets to the private sector, while balanced budgets and surpluses do not.

                •  Your determination to not call it (0+ / 0-)

                  "printing money", just because the currency is not printed, but credited electronically to a non-paper record-keeping system, is a disingenuous exercise in fraudulent semantics.

                  In any case, your conversation has become tedious.

                  Yawn.

                  To put the torture behind us is, inevitably, to put it in front of us.

                  by UntimelyRippd on Fri Jun 17, 2011 at 03:03:04 PM PDT

                  [ Parent ]

                  •  As you well know, (0+ / 0-)

                    that is not the core of my argument. I pointed that out to show that we literally do not "print money," and that the process of money-making has changed in the past 40 years. However, that wasn't my main objection. That objection was that under the gold standard, "printed paper money" that was unbacked by gold was worth less than paper money that was redeemable in gold or some other commodity.

                    However, now none of our money is backed by any commodity. So, the truth is that any new money the Government produces through its spending is worth exactly what the old money was worth, assuming there is no inflation. It is just as good, or bad, as the old money. So, when you say that Government spending or Government deficit spending is just "printing money," intending to evoke the old image of "money printing" in places like Weimar, you are attempting to lie about the reality of what is going on. I won't let you do that. Deficit spending is not "printing money" in the sense of the term intended by the epithet "printing money."

                    So, since it is not even literally "printing money," I'll be damned if I'm going to allow you to spread the lie that this is like Weimar merely because you're labeling it "printing money" with the intent of discrediting it. I'm afraid that if you persist in misusing the language, this way, you'll have to fight me over the semantics, and believe me I won't go away.

                    But, since you find this all so tedious, perhaps you will.

            •  Yeah, I was just.... (0+ / 0-)

              following the "printing" language of the guy who thought I was being a brat :)  I THINK I understand the difference between deficit spending and helicopter drops -- though I have to admit I still have to actually think about it.

              I'm really enjoying Wray's Primer by the way.  

              •  I am enjoying it too (1+ / 0-)
                Recommended by:
                psyched

                Helicopter drops are something different. When "the Bernank" does quantitative easing he may drop currency on the banks; but he swaps the currency for outstanding debt instruments. That type of swap adds no net financial assets to the economy. It just replaces debt instruments with bank reserves which don't get used anyway.

        •  Arrogant and wrong (1+ / 0-)
          Recommended by:
          psyched
          It doesn't seem to be 10 minutes beyond the old, "we can borrow as much as we want because we owe it to ourselves".

          MMT advocates don't favor borrowing money endlessly, or even at all. I, for example, want deficit spending unaccompanied by further debt issuance, or alternatively, the gap between Federal spending and tax revenues closed completely through Jumbo coin seigniorage. Also, MMT people think it's silly to borrow borrow back one's own currency to pay for spending, when have full constitutional authority to make more.

          You also said:

          Overall, the Mosler model is, in fact, unsustainable. His treatment of trade deficits is childish to the limit: it suggests a failure, both intellectual and ethical, to comprehend exactly what debt and credit are. Which is not to say that I disagree with everything he has to say -- for example, I also support government-engineered full employment at a living wage. I just don't believe in accomplishing that -- or anything else -- by "printing" endless quantities of money.

          What's unsustainable about it? Warren says that the trade deficits will stop when other countries don't want to accumulate dollars anymore. What's wrong with that? What's wrong with the idea that imports increase our real wealth and exports ship real wealth to other nations?

          If you don't Warren's views on debt and credit, then please lay them out with appropriate quotations and criticize them. Right now you're just characterizing his views without stating them or criticizing them.

          Finally, no one is advocating "'printing' endless quantities of money. Not Warren. Not me. And not one other MMT writer. Your claim that we are saying that is without substance. If you think I'm wrong, find some quotes.

          •  ALL issuance of currency is "borrowing", in (0+ / 0-)

            a not-at-all vague sense, because money is debt. It's just a question of how the vigorish gets paid.

            You think you aren't advocating issuance of endless quantities of money, but that's because you fail to grasp that if you don't, the whole system will grind to a halt at the point when the debt all ends up in the hands of the plutocracy.

            How you can fail to grasp that is a bit of a mystery to me. Try drawing yourself a few flow charts demonstrating exactly how (and why) the money is going to flow through the economy, and into whose pockets it all must inevitably settle.

            To put the torture behind us is, inevitably, to put it in front of us.

            by UntimelyRippd on Thu Jun 16, 2011 at 05:15:05 PM PDT

            [ Parent ]

            •  Currency is debt (1+ / 0-)
              Recommended by:
              psyched

              But, it's a funny kind of debt. Consider what the Government issues paper money, that's no interest debt. However, the bearer of the paper money is owed no more by the Government than the obligation to replace that money with other money of the same kind on demand. Since the Government makes both the old money and the new money. That debt is operationally trivially, in a way that the money you owe the bank for your mortgage is not. You also say:

              You think you aren't advocating issuance of endless quantities of money, but that's because you fail to grasp that if you don't, the whole system will grind to a halt at the point when the debt all ends up in the hands of the plutocracy.

              You'e assuming too much. That may happen; but it also may be true that the plutocracy will lose the present conflict and will be constrained again, as it was by the New Deal. No one, and certainly not you, yet knows how things will turn out. And there is no ineluctable political law which says that all financial assets must end up in the hands of the plutocracy. The future is open and we can still do much to restore our democracy against those who would destroy it. But we don't help this cause at all by opposing deficit spending for job creation, and calling it "printing money." That's exactly what Peter G. Peterson and the Koch brothers do.

  •  Thanks, LGID (1+ / 0-)
    Recommended by:
    Actuary4Change

    for this very good and useful diary.

    cheers,
    psyched


  •  Different times require different solutions (1+ / 0-)
    Recommended by:
    radmul

    We need inject money into the economy because no one but the government will do so right now.

    When private corporations aren't hoarding cash, then having the government spend too much may be inflationary.  Right now, it would not be.

    Numbers are like people . . . Torture them enough and they'll tell you anything.

    by Actuary4Change on Wed Jun 15, 2011 at 05:37:28 PM PDT

    •  I agree (1+ / 0-)
      Recommended by:
      psyched

      But don't forget that we also need to employ the unemployed. That may require injecting money into the economy. But more than the additional money; this is about putting people back to work, having those people add to national wealth by producing valuable goods and services, and Federal Job Guarantees that will cushion and future failures of the private sector to employ most Americans.

      •  The visceral reaction (0+ / 0-)

        that people have to the "printing" money,issue is that they do not see where and how the limits to printing money will come from.

        They see the problem in a way similar to the problem that comes about in Lake Wobegon, where "every body is good looking, and all the children are above average" They cannot visualize the checks on money printing by the government, and where the checks will come from.

        In a gold or other commodity backed currency, the checks come from the limits of the supply of the commodity.

        I do not believe that this issue has been adequately addressed to many people's satisfaction. They do not see MMT as describing the situation as exists today, but rather see it as advocating such a system. And there are a multitude of reasons for such advocacy, and this is why we abandoned the gold standard and moved to a fiat currency.

        The advantages and disadvantages of a fiat currency system as opposed to a commodity based currency system, and the limitations of each have to be well understood before the question of "printing" money can even be discussed.

        •  That may be (0+ / 0-)

          Hi CA,

          But since we're always getting the "printing money" charge, we need ti be ready to answer it in some way. The answer may not be decisive; but it has to be good enough to illustrate that the charge "printing money" is not a straightforward charge, but at a minimum involves using a scare term from gold standard days in an appropriate and pejorative rather than a descriptive and minimally objective way.

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