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Comment by skybrian | Hacker News Reader

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).

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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.

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.

You’ve moved the goalposts. OP claims that it’s not inflationary. You’re claiming it’s inflationary but that it’s beneficial. I’m only taking issue with the former.

Well that depends. If it's preserving spending power (you were laid off) then it wouldn't be a spending increase. The supply was already there.

Inflation is an average of price increases. You get price increases when supply can't expand as fast as demand while keeping the price of inputs the same. This depends on whether there are supply bottlenecks and what the nature of those bottlenecks are. There have been some supply bottlenecks due to deliberate closures, but mostly temporary.

In a recession, the assumption is that there is extra capacity already, particularly for labor.

I think this thread is full of people confusing absolute inflation with relative inflation (“inflationary”). A policy resulting in zero absolute inflation can be inflationary provided that absent such policy, deflation would have occurred.

I took this with OP stating (incorrectly imho) that a certain policy was not inflationary. I am not advocating that all inflation is bad.

I'll take the side that you are right based on the argument in the article but there are better arguments to make. Right now other factors are driving inflation down like lack of consumer spending, consumers outright not paying rent, and that the US dollar is spread across billions of people outside the US where the dollar underpins their economy or USD reserves back their currency. These factors offset the on paper inflation of injecting $5 trillion into the US/world economy but if this was, say, 2017 then they would definitely not.

Our current economic situation is more like 2008/2009 than a boom year where the velocity of money, not technically perhaps but the idea more or less, is very high. Even the decade since the 2008 crash has seen low inflation, at least in the US, and we've seen double digit drops in revenue and sales volumes for several months let alone numbers for the rest of 2020.

For a relevant example here, would WeWork/Uber/Tesla have raised billions in private funding in late 2009 or early 2020? Did the last decade boom in private equity cash on hand drive ability to gain investment ex. increase velocity of money in private investing? None of those companies are critical day to day for US citizens or the economy, at least compared to major banks or grocery stores and maybe they did actually see huge investments during difficult times, but I think the thought experiment stands.

But isn't the need to buy food to eat a certain guaranteed base level of velocity?

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.

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