What I learned in high school economics is that printing more money means greater inflation. Why isn’t this a problem? Or rather why aren’t people more scared about it being a problem?
The US "fixed" that problem by squashing the ability of workers to demand more money - starting with Reagan in the 80s and extending all the way 'till now. The problem is that increased prices just meant a lower standard of living and more people more precarious. By the time Covid hit, a large precentage of people were living pay check to paycheck. 28% of renters didn't paid rent in July and 30% won't be able to this month. That printed money has essentially had devastating consequences.
That seems like an incredibly simplified and wrong explanation. Monetary policy changed drastically in 1979 in order to get inflation under control.
Sources:
https://www.pewresearch.org/fact-tank/2018/08/07/for-most-us...
Total compensation as a percentage of national income has remained pretty steady, which means productivity growth is being passed on to employees.[1] Not necessarily as wages thought.
Considering that wages is the main income of lower incomes this means that most growth has gone to higher incomes.
The raw data indicate that total compensation as a percentage of GDP/GDI has been falling since at least the early 1970s. These percentages are derived by comparing nominal dollar values within the same year (e.g. 2018 total compensation divided by 2018 GDP, both in 2018 nominal dollars). Unlike estimates of long-term real wages, these percentages are not dependent on inflation assumptions. The long term trend paints a clear picture that people who earn most of their income (including benefits) from wage labor have been losing ground economically for decades.
Even without metrics, this conclusion is supported by living memory history. In 1970, a single middle-class full-time income could support a comfortable lifestyle for a family of four. In 2020, a single middle-class full time income can't support housing costs in most (possibly all?) urban centers.
We're going backwards.
And back in 1970, could a single middle class income support a family of four in Manhattan? Urban centers have always been expensive.
https://nplusonemag.com/issue-34/reviews/other-peoples-blood...
Just to drive the point home, observe that goods and services which can’t be produced elsewhere have experienced massive inflation: healthcare, housing, education.
There is a whole fascinating YouTube series on the eurodollar that goes extremely in depth:
tl;dr: people not buying things = deflation, but giving everyone money = inflation. How this balances out is uncertain.
look up money supply - m0, m1, m2, m3, m4, velocity of money
figure out how federal reserve "printing money" (what does that even mean) affects the different buckets
look up difference between how reserve requirements affect money supply vs "helicopter money"
look up the federal reserve mandate to target 2% inflation while keeping unemployment as low as possible
figure out how the federal reserve balance sheet works (eg what happens if debt the federal reserve owns defaults)
and you'll be much closer to understanding our current economic situation than you were in high school ;)
- Treasury makes bonds and sells them into the market. The market impact of this tends to increase interest rates (cost of bonds relative to dollars) a bit.
- The government uses the money raised to buy goods and services. This causes the price of goods and services (relative to dollars) to go up a bit.
- The Fed makes dollars and buys bonds. This pushes interest rates down and is roughly the inverse of step 1.
Netting the Fed and Treasury actions (which people never do, mostly because they vary independently according to independent policy), the effect of recent fiscal and monetary policy is "the government" making cash and buying things with it (as well as giving it out to people who need it.)
I guess it's the Fed's job to worry about price stability, but the above does make me think that the fiscal policy is just as relevant to inflation -- if govt spending as a proportion of the economy changes, it gets easier/harder for others to buy things. I guess interest rates mostly change behaviour, and have a less direct (though maybe no less real?) impact on scarcity.
government fiscal policy has a much more direct effect on m0, m1 through stimulus and other direct lending and spending efforts, which have a high velocity and directly impact inflation
now...what happens if the assets on the feds balance sheet start to default?
However, I think that national inflation often doesn't give a complete picture, and the more significant effects of inflation are often localized closer to the money. A lot of the insane COL in the Bay Area is an example of this. Exactly where is closest to the money in this instance is difficult to say.
The other type of inflation, cost-push, happens when the cost of goods rises independent of demand. Abuse of monopoly power can cause cost-push inflation (hello, business software pricing) but so can increased costs of labor.
On balance, cost-push inflation is a more probable outcome of the pandemic. It's physically harder to Do Stuff because workers need to stay further apart and because many will get sick and be unable to work. This will drive up prices to an extent, but price rises will be constrained by slack demand caused by reduced employment.
Regardless, inflation is complicated, even if you wanted to you might not be able to cause it, at least not in a controlled manner.
If you compare the stimulus payments in similar annualized terms it is nearly half of GDP. $9.36 Trillion.
Having said that, the relevance of GDP in a conversation about inflation is unclear to me when GDP does not account for inflation.