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Comment by jennyyang | Hacker News Reader

It's hard to say that this Great Pause actually "worked", since the governments of the world had to dump trilions into stimulus to make businesses not simply die. We and our children and our childrens' children will be paying for this with our taxes for decades to come.

If we have another Pause in the next few months, then it will be the body blow that completely cripples the economy, especially in the US. I can't see many small businesses surviving on a fraction of the income, especially when their margins are razor thin already.

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No-one’s saying it worked, as such (what would this even mean?) But it arguably didn’t cause the sort of rapid chaos (breakdown of supply chains swiftly followed by social order) that conventional wisdom says this sort of thing should.

At least in places where COVID has been largely suppressed now, the second time round shouldn’t be as economically shocking as the first; there’ll be way more focus on the test-and-trace approach that we just weren’t set up for in February. I would be somewhat worried about places where it was never really suppressed when it spikes again, though.

Conventional wisdom says that the market will adapt if there is a reasonable hope that this is truly temporary. I dunno about you but my family all believed that the stimulus was fine and it would work out but only because this is expected to be one time and temporary..

Making this permanent or even dragging it out would have severe economic consequences

Viruses tend to get less deadly over time. There are scientific reasons for this (ie the people most in danger die off earlier, or social adaptations favour spread by more benign strains over the killers). I expect the second wave to be more widespread but result in fewer deaths. The economic impact is more dependent on how we handle the crisis. If we handle it badly, ie how we are now, it will be worse than if we take the more mature approach.

Well... Both of those causes are bought with lives. So by reducing the number of cases and deaths, we may also have reduced the amount that the virus has attenuated.

When it comes to disease, all progress is bought with lives. We learn by our mistakes, at least we should. Those mistakes do mean dead people. But we still have to act.

We will also pay for it in cuts to social services, especially at the state and municipal levels, unless we raise taxes to pay for those too.

Why would we (assuming you mean the US) have to pay for this with our taxes, who do we owe the money to? The US issues it’s own currency and we printed money to keep the economy afloat. We don’t owe that debt to anyone?

The only reason extra taxes would be needed is to curb inflation.

The question is, was this a free lunch then, or will it be paid for via inflation?

Yeah, I accidentally left that out of my comment. I agree though, inflation is what we need to be careful of.

I don’t like the rhetoric that we will need to pay it back in taxes though because I find it misleading. The real is inflation, not some debt to be paid.

Inflation is too much demand chasing too little supply. If the money printing simply replaced missing demand, should we expect any inflation?

If demand stayed constant while supply decreased because fewer people were working, yes I would expect inflation.

I think that's too simplistic. If it were true you could just print your way out of any down turn with no consequences. Crazily enough there is a mainstream view in macroeconomics that you can do just that. I think people aren't stupid though. If suddenly there are more dollars, then a dollar should be worth less. Hence inflation.

I know this is the line of argumentation for MMT but it's _very_ sneaky to do that without saying so :(

To do what without saying so?

Inflation caused by currency debasement is a flat tax, which is comparatively regressive. It raises the prices of all items faster than wages, and everyone has to buy food, buy electricity, etc.

Someone will have to pay.

Inflation is not a given, though. Governments issuing stimulus payments != inflation, at least not necessarily.

Hm no; monetary inflation is reducing the value of each dollar so disproportionately affects those with more dollars, making it progressive.

Most wealth is tied up in assets that are shielded from inflation.

Poor people generally have high debt to asset and debt to income. Inflation helps them.

Sure it helps with the debt, but they will still need to buy the $200 bag of milk

I agree with the premise, but printing currency in the midst of a large economic crisis to keep consumers afloat is not guaranteed to result in inflation though, is it?

Supply chains were already starting to fray. There's a diner near me with a sign up front apologizing for raising their prices because of a beef shortage.

Borrowing money to fund consumption now won't result in long-term inflation if we consume less in the future to account for the pulled-forward demand. I doubt that will happen.

Fair enough. Isn’t that just a result of supply chains being hurt as a result of COVID? Those prices aren’t raising as a result of stimulus or wage growth, and should normalize as we return toward some sense of normalcy.

When was the last time you ever saw a restaurant lower their prices, regardless of the reason? Price increases have a tendency to stick.

Inflation caused by currency debasement is very much not a flat tax - the major effect of it is not on the prices (though some inertia and 'stickiness' of e.g. wages definitely applies as you note) but on all cash-denominated assets and contracts, especially lending.

In particular, it's a tax on all savings in cash and bonds (but not on investments in stocks), and it's a boon to all debt. For example, the total housing mortgage volume is huge - so if currency debasement causes any significant, rapid, unexpected inflation (expected inflation is priced in the interest rates) then it's a significant shift of wealth from the lenders (and, correspondingly, to all people and businesses holding money in banks) to the mortagage borrowers.

Maybe at the federal level, but state and local governments cannot print money. They will need to raise taxes to cover thier costs.

Can't they just get an indefinite loan from the federal government, since the numbers are made up and don't matter anyway?

That’s a reflection of poor execution on the part of the federal government though isn’t it? States and local governments will suffer the consequences for what the federal government did not adequately address.

In the US system, health is generally considered a state responsibility. The power of federal agencies over state governments on matters of health remains very limited, mostly to an advisory role. This trend towards laying everything at the feet of the national executive, the presidency, is a new trend. Once upon a time the president might have dismissed an outbreak as literally "not my job".

Printing money increases the interest rate for future borrowing. If the united states did not have outstanding entitlement programs that needed immediate cash, we could stop issuing new debt until the interest rate was manageable.

However, tax revenues can't cover our expenses so we are forced to issue debt and with printed money the debt is now going to cost more to service.

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