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.
In your example, these truckers have stopped producing goods (services in this case). That means that production has gone down. If the supply of money remains fixed, there is more money chasing fewer goods and services. This drives prices up.
Said another way: if those truckers had less money (or no money) then they wouldn’t be competing with other buyers for goods, and prices would fall (purchasing power increases).
This is an extremely simplistic analogy and ignores other forces such as velocity and trade balances, but illustrates the point.
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)
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.
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.
> The 30% who are working under federal jobs programs will have working lives completely decoupled from the workings of the market. The movements of markets – particularly financial markets – will be irrelevant to everyone except for a group of weird, chart-watching, twitchy nerds who fulfill the boring job of capital allocation to an increasingly irrelevant section of the economy.
And earlier
> That money is mostly chasing the same goods that were available before the crisis (rent, groceries, and debt service) so it’s not crowding out other buyers and causing inflation (inflation occurs when more money chases the same goods, so buyers get into bidding wars that drive up prices – when the same quantity of money is chasing the same quantity of goods, there’s no inflation).