That has to happen. The government cannot deficit spend for free. The cost is inflation, and guess who pays - you and me.
Greedy responses by the rich arent things that have to happen, they're things allowed to happen by a broken market. Proper competition would limit this
There was still inflation due to the deficit spending. Just because inflation was low doesnt mean it wouldnt have been lower without the deficit spending
The fed should have predicted this as its pretty textbook economics. But they won't be held to account and working class people will pay the price through higher prices and lower wages. Then the remedy will be higher interest rates and a risk of higher unemployment and economic stagnation,
[0] https://mleverything.substack.com/p/where-did-the-12-trillio...
The Fed has caused many recessions in the last 40 years because they prematurely raised interest rates because they were scared of the inflation boogeyman.
I believe the Fed is doing a fabulous job threading the needle between inflation and recession in a very challenging, no right answer environment.
For example Debt to GDP was low and interest rates were high throughout most of the last 40 years so it mostly didn't cause inflation, it caused us to move towards higher debt to GDP and lower rates. But that game eventually plays out and the system requires the stimulus to avoid a deleveraging event but you don't have rates to dig into or GDP to borrow against.
But just saying we did it a bunch and it didn't have that effect last time I think really misinterprets the situation
And the mortgage industry handed out mortgages without checking if they can be repaid for a long time before the 2008 crash.
Markets don't respond instantaneously.
And this was exactly what was predicted with QE after 2008 - inflation would happen and the government wouldn't have the discipline to pull back quickly enough.
Also it depends on how you measure inflation. Technological progress leads prices down over time. So money printing eats up all the gains from technological progress and then some on top of that. If there was no deficit spending or money printing we would see prices go down every year, because why wouldn't they? Every year we get better and more productive. Economists have convinced themselves that lower prices are a bad thing and politicians use it as cover to print money and spend
https://wallstreetonparade.com/2022/01/these-charts-are-the-...
It could be scale. It's double what its been at its peak in 2008 and for two years straight now.
> (that it gives money to poor people),
12 trillion was allocated, less than half of which went to legislative programs like income support and direct payments. More than half went to things like asset repurchases, liquidity measures, lending facilities, etc. Relatively little spending was "money to poor people"
[0] https://datalab.usaspending.gov/americas-finance-guide/defic...
Deficit spending does not always produce this because it doesn't always put extra cash in peoples pockets to spend.
Whether those hypothetical scenarios are realistic and likely to happen is an entirely separate topic, but it's not an ironclad law of nature in the same way that gravity is. It is a much more contingent and circumstantial observation.
I didn't say it did. Don't omit any of the words I wrote.
Although perhaps you mean by the second portion ", and guess who pays - you and me." that it's not always inflation and can show up in other ways [I don't mean this in a snarky fashion, this is perhaps what you meant?]?
Note, currently a lot of other countries besides the US are having inflation because of international supply issues. They didn't print money - that suggests we'd also be seeing it if we hadn't printed some.
Actually, we definitely would be seeing economic issues if we hadn't rescued everyone, because we'd all be incapacitated due to COVID. That's called successful investment.
Source?
Hong Kong is currently providing an example of what happens when you keep society running (via incoming travel bans) so well that nobody bothers getting vaccinated for when it does break through. But since that's omicron, which is a bit milder, they're still doing better than we would've done.
CDC data shows that exposure was never a serious risk for children. COVID-19 is less dangerous to children than RSV, and we never shut down society because of RSV.
https://www.cdc.gov/coronavirus/2019-ncov/cases-updates/burd...
What matters is if the money is spent past supply limits, not if it’s printed.
Although, if you go there the quality of life is high enough that it always seemed like they’re just sandbagging the numbers to keep everyone else away. It’s not all leftover 80s investment.
Relatively speaking, if the dollar is strong and the US continues to export goods/services, then some of the inflation is absorbed by other countries.
Also, with higher interest rates, more people would buy government bonds instead of investing privately. Deficit spending on its own doesn't logically imply inflation or money-printing, or even an inflation pay cut. Wasteful spending does.
You talked past the conclusion here.
QE after the 2007 financial crisis also didn't cause much inflation
Not to mention there are some real estate markets that have lost value in recent years
Cherry picking one or two categories which are impacted by countless other issues does nothing to prove your point.
How does putting money in a drawer cause prices to go up? How do you have a deficit without somebody somewhere putting money in a drawer?
Money supply is a stock. Spending is a flow. Spending is from income less taxation, which means the next person earning the income gets less than you spend. If the spending continues then all the income disappears in tax. There is a finite transaction sequence and no deficit.
What that tells you is that government spending even if there is a balanced budget can cause inflation - because it depends upon the level of flow, not the stock.
If I know lots of drawers stacked with cash exist, I'll value it less. At some point those dollars will chase the goods and buying and render the dollars I'm holding less valuable.
Pension funds are stuffed full of savings, and they get bigger with every passing year. Do they ever decrease? If not then when is that going to happen?
Are you valuing your income less because of the ever increasing level of savings?
Because nobody else is.
Same thing with cash in a drawer, it may exit the drawer someday.
Similarly all the oxygen molecules in the room may spontaneously move to one corner of the room long enough for you to suffocate.
But I bet you don't walk around in a diving suit.
Didn't Italy get the Germans to take the fall for their deficits a few years ago?
Put another way, if inflation is 10% then you get 10% more tax dollars in, to offset the loans.
Of course _never_ actually paying them back is even cheaper :)
In practice the government going into debt denominated in its own currency, and printing more of its own currency are essentially the same thing.
Mechanically, when the interest rates go higher the Fed policy, the fed just buys the debt itself, driving up the market price (therby down interest rate). In effect, this converts US debt into cash. Similarly, they can sell treasury debt, driving up the interest rate.
It is just a quirk of bookkeeping that the we keep track of how much money the treasury owes the federal reserve.
The stimulus check represented 804 billion dollars in direct to citizen spending of the government's 6 trillion dollars in spending. If your argument is "giving money directly to individuals causes inflation" we can start there, but government spending alone does not cause inflation; the Emergency Economic Stabilization Act did not meaningfully grow inflation.
We probably would not know fully in 5-10 years, but my own hypothesis is that America had it's own dark labor pool of incredibly cheap labor and when (1) Citizens were allowed to have some breathing room and look for better oppurtunities and (2) the CBP used Covid to massively ramp up deportations, labor became more expensive which clearly affected the rest of the economy.
I didn't say that, either. I was clearly talking about deficit spending.
I wish people would stop adding words to my statements, and then arguing based on the added word.
In this case, "directly".
> In fact, before 2020, there is no modern economy where you could clearly point to and say "the government overspent, and caused massive inflation".
Did you forget the 1970's United States?
Expanding on that, from 1800 to 1914 the US had zero net inflation. Zero. We've had inflation ever since. What changed in 1914? The switch to a fiat money system, which enables endless deficit spending.
The same thing happened with every other country that switched to fiat money. Yes, I know about Japan, but not much about it. I did read that they have no GDP growth. The lack of inflation could be because people simply stash their money in the bank, keeping the excess money out of the economy.
This is simply false [1].
[1]: https://www.minneapolisfed.org/about-us/monetary-policy/infl...
Also, I don't mean exactly zero. It's an inconsequential difference spread out over more than a century compared with 1914 to today.
My take on it is that it's like physics - if you conduct an experiment and determine that the laws of physics don't apply, you've either made a mistake or our understanding of physics is all wrong. Which is much more likely?
My take on the 2009-2021 not causing huge inflation is there was something else going on. Two possibilities:
1. quantitative easing deferred the inflation to the future. There's been a lot of talk in the last few months about it putting the whole financial system onto another precipice.
2. That it did cause inflation - it's just that it compensated for massive deflation caused by the banking collapses.
Or maybe the 25% inflation we see today is just a delayed effect.
(Yes, I know the official rate is 7.5%. But everything I buy seems to have gone up 25%.)
How else is someone supposed to interpret "That has to happen. The government cannot deficit spend for free. The cost is inflation" and "It is a law of nature."? Now it's not direct, but happens through the ether. I can also argue inflation happens whenever my dog sees his shadow.
We've gone from "It's a law of nature" to "only when the government does deficit spending" to "only when the loans aren't paid back" to "it's not direct".
>What changed in 1914? The switch to a fiat money system, which enables endless deficit spending.
What's the argument here? That the Unites States should revert to producing cotton? That the United States should return to having a smaller economy than 1920's India? The amount of economic change between 1914 and now; as well as the intentional effects of inflation on US investment absolutely dwarfs any comparison you are trying to make. Zero net inflation is not a desirable thing on it's own. This is a luddite argument; in lieu of actually providing evidence that hyperinflation is a direct consequence of deficit spending, you've simply argued we should to return to living like cavemen. It's like seeing a car crash and pointing to the invention of the Model T as the downfall of modern society.
If the economic laws are so clear cut as you claim there shouldn't be ambiguity; and yet here we are as you struggle to even clearly explain why the "laws of nature" were so clearly upended in 2008.
If Italy really got the Germans to take the fall for their deficits a few years ago and suffered no negative effects from it then there would be a free lunch at the macro level as well, although I find that unlikely.
Nobody said they didn't suffer negative effects from it.
Reconsidering things on the macro level I think while there may be no free lunches there are obviously lunches that coincidentally may be so cheap that they are next to free.
For example: aid received from France by Americans during Revolutionary War, treaties signed said supposed to be paid off by Americans siding with France in case of war between France and England, but since French Government changed since time of treaty signing when war came America said oops sorry, we're staying out. That was a really cheap lunch.
1. Demand experienced a little blip while supply was and still is decimated. Most of the middle class kept their jobs and kept spending, despite the fact that factories shut down for significant periods of time and crushed the supply chain so badly that it will not catch up for years.
2. Consumer spending categories changed abruptly, again, exacerbating demand issues.
3. Many service workers got a chance to involuntarily experience job hopping in a high labor demand economy. Labor is most expensive on the margin.
4. A lot of people dropped out of the job market for good. Boomers are retiring. And a nontrivial number of people died too.
because businesses and people were given regular financial jolts via deficit spending.
The amount of money the typical office worker has saved on just those two expenses is more than the stimulus checks.
where did all the trillions of dollars go .
it somehow ended up in these people's pockets one way or another.
The economy has pretty consistently getting better and poverty has been going down since the 70s despite increasing our deficit spend rising every single year and inflation steadily going up.
Having an outlier period in inflation over the past three years because of a deadly pandemic is hardly a condemnation of the idea of deficit spending.
Or is this time really different, as we approach 125% of GDP?
I didn't condemn deficit spending. I simply pointed out that the extra money doesn't come for free - you and I are inevitably going to pay the bill.
Edit: I should clarify that economics does not have laws in the same way physics does. The ‘law of diminishing returns’, for example, is more of a trend or generalization than an absolute, and is frequently violated in a way that gravity is not.
Economics is also still not a well understood field. There may be government policies with unexpected effects due to that incomplete understanding. We have seen this many times.
Is that an Economics law?
> Economics is not physics
Countries often deny the reality of economics, until their economies crash. Not one has successfully repealed the laws of economics.
Wishful economic thinking never works.
It's almost as if it's fundamentally a law!
We had a budget surplus in 2001 didn't we?
Any private company doing government-style accounting would find themselves in jail for fraud. "off budget expenditures" - what a scam.
Since when did savings cause price changes?
What we have is less stuff being produced because of an increase in bureaucracy and shirking. If we got rid of the bureaucracy and sacked the shirkers, then prices would come back under control.
Or alternatively we can tax those in favour of bureaucracy and shirking, so that the transfer is 'fully funded'.