Tuesday, 12 October 2010

Printing Money is Good

A comment piece on CiF argues that printing money during a recession has no down side. I'm not an economist so can someone let me know whether this is correct or not. Intuitively it seems wrong to me.


  1. No one else has responded so through the power of a medium I will attempt to resurrect my GCE.

    Money and wealth are not the same thing. Printing money has the effect of increasing the amount of notes in circulation but does not change the amount of wealth. Ergo it causes inflation.

    The effect of inflation is that wealth is transferred from people who have savings to people (and institutions) that have debts. The government is a debtor (else it wouldn't need to print money) and therefore gains wealth.

    The theory is that the state can now spend the newly acquired wealth to kick start the economy. This spending may or may not have a multiplier effect. Once the economy restarts then confidence is restored and the general public also start spending. The inflationary policy also discourages saving.

    Against this we have the idea that the market needs to clear before the economy picks up. That a recession is an extreme instance of the market dealing with failures and bad ideas. In that case, Government measures tend to postpone the clearing. In the worst cases they tend spend wealth upon supporting industries that are hardest hit, which by definition are the most in need of clearing.

    That second item is a case of the Broken Windows fallacy. In brief, there is an assumption that government spending creates jobs, but rarely is this compared with the jobs that are destroyed by government spending. Wealth has been transferred, not created. Those who lose wealth lose the ability to spend it on their own projects and therefore cessation of that activity causes jobs to be destroyed. Keynesians would argue that in a recession such wealth is hoarded (instead of spent) and transferring it to the state ensures that it is used.

  2. Dean Baker is a Keynesian plantpot of the highest order. Best advice to you and your readers would be ignore everything the deranged idiot says.

    Printing money can never, I repeat NEVER, add to real wealth in an economy.