Just Print The Money

“People may have different ideas about how to pay for it,” Jen Psaki said Tuesday, while elaborating on Joe Biden’s multi-trillion dollar plan to give the American economy a facelift.

The plan is actually two proposals, which together comprise what may ultimately be a ~$4 trillion makeover aimed at addressing everything from the country’s crumbling infrastructure to chronic underinvestment in research to myriad societal inequities to the tax code.

“We’re open to hearing them. So hopefully people will bring forward ideas,” Psaki added.

This is a maddening discussion. So maddening, in fact, that I’m compelled to simply step back from it and speak as though I too believe the ridiculous fiction that says the government needs to embark on a quest for offsets in order to “pay for” things like 20,000 miles of better roads, repairs to the nation’s most critical bridges and the elimination of lead pipes from water supply lines. (All of that is included in the infrastructure plan.)

Attempting to incorporate this discussion into what are sure to be dozens of articles about Biden’s longer-term economic stimulus package will be as maddening as the discussion itself. Given that, I wanted to publish a brief piece (this one) reiterating the main points so that I can simply refer back to it later, as opposed to incessantly recapitulating.

There’s no need to “pay for” any of this. The federal government doesn’t need to borrow or tax to do it. I’m more extreme on this point than any MMT advocate because ultimately, I view things through a philosophical lens rather than through the lens of disciplines like economics which, stripped of their pretensions to scientific rigor, amount to little more than disparate (and desperate), competing theories about humans and how they interact in different settings. Having subjected myself to what, for most people, would count as extensive post-graduate work in both political science and economics, I can tell you, definitively, that there is nothing more “scientific” about the latter than the former. Nothing. Neither are amenable to any kind of deterministic conclusions.

So, we can’t say much about the purportedly inflationary effects of, say, Congress simply changing laws, abandoning any pretense to whatever “fiscal rectitude” means these days and/or instructing the Fed to create money with nothing in the way of offsets.

It’s true that inflation is a constraint, but if we’ve learned anything since the financial crisis, it should be that we have no idea what the threshold is for policy largesse when it comes to generating inflation in the developed world — especially when demographics, technology and debt continue to distort and otherwise undermine traditional dynamics.

How many times have you heard (on Twitter or on someone’s blog or in some newsletter penned by people peddling economic doomsday fantasies) that inflation is coming? Or that you should buy gold now, before it’s too late? Remember that 2010 “open letter” to Ben Bernanke published by The Wall Street Journal and signed by a who’s who of purportedly “smart” people, all of whom predicted “currency debasement and inflation” if the Fed persisted in accommodation? How have any of those predictions and pseudo-forecasts panned out? That’s a rhetorical question.

I should offer a caveat or two. We’re not completely bereft when it comes to understanding how inflation can manifest in advanced economies. It’s just that what we know is obvious, and could easily be addressed with new laws.

For example, we know that if we deliberately screw up and refuse to fix the situation (e.g., letting the free market dictate the provision of healthcare) or create perverse incentives (e.g., college tuition in the US) we can generate what looks like runaway inflation for certain goods and services. And we know that when everyone suddenly wants to buy something that’s made out of wood, the price of lumber will rise.

Other than those types of obviously inflationary scenarios which require nothing in the way of high-level thinking to grasp, we don’t know anything about inflation in the post-1990 developed world. While I haven’t studied it as extensively as a Larry Summers or a Janet Yellen, the gap between my study and theirs is smaller than the gap between the average reader’s and mine. So trust me when I tell you (again) that nobody knows anything with certainty about inflation in developed economies. The figure (below) is another “Any Ideas?” chart.

All of that to say that there is no reason whatsoever to believe that simply creating the money to fund a multi-trillion dollar economic modernization plan would be any more inflationary in the US than “funding” such an initiative with tax hikes and “borrowing” a currency that America has the sole legal authority to issue.

Ultimately, the above is meant to be provocative. It’s deliberately incendiary. I’m putting the extreme version of the argument out there so I don’t have to keep repeating it to readers over the course of documenting Biden’s two-part plan to reimagine the economy.

To be clear, I do believe that at some point, inflationary pressures would mount if you, say, sent everyone a check for $5 million. In the same vein, inflation expectations would doubtlessly pick up if the public started to connect “too many” dots.

However, I don’t believe anyone has anything like an accurate read on where the thresholds are. If they did, then so many people wouldn’t have been so spectacularly wrong over the past dozen years since Lehman.

If you want to know when, if and how inflation is coming, you’d be better off asking a philosopher than you would an economist or an analyst.

Read more: If Enough People Read This, Hyperinflation Is Coming Next Week

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13 thoughts on “Just Print The Money

  1. If we can “find money” to loan to mega corps who offshore the majority of their workforce overseas and then throw all of their earnings in tax shelters outside of the US, we can “find money” to replace lead pipes. If we can “find money” to give so many tax breaks to Donald Trump that he pays effectively less taxes than a below the poverty line two job worker, we can “find money” to fix bridges”. If we can “find money” to tax break Jeff Bezos, the richest man who ever lived, into ZERO TAXES, we can “find money” for anything.

    There are things that have needed taking care of for decades. For decades there have been pieces on PBS and various news networks about “crumbling infrastructure” and the “how are we going to pay for it” crowd has pushed those projects off while Billionaires tax break themselves into more riches and less taxes.


  2. Until you are talking about stuff like energy or material return on investment you aren’t even tethered to physical reality so economics is most of the time just philosophy with pictures.

    The $5 million dollar issue is interesting though because while it is easy to imagine how bad an idea it is… it is also I think easy to see how good an idea it is if you change the time factor of the impulse or reduce the jerk (change in rate of acceleration). So you take that same check, put it into an annuity for everyone that delivers say $2k per month for your lifetime, pays all your medical expenses and education costs. Now you give the economy time to build capacity to support it and it’s no longer an issue. When you die the remaining money evaporates.

    So we can narrow down inflation to the effect of attempting to get an economy to output more than it has capacity for faster than it can build it. So it has nothing at all to do with printing money but with failing to plan and act with long term systems thinking.

  3. I think the real problem with implementing MMT would be the discipline to change government spending behavior in the event inflation does appear. Politicians are very good at spending money when given the chance. They are very bad at reducing spending. Inflation is the constrained variable, and in the absence of the political will to respond appropriately, implementing MMT will eventually lead to an inflation spiral–not because the theory is wrong, but because the theory is right.

    1. MMT isn’t something that’s “implemented”

      MMT already is

      The government spends first, and taxes/borrows later

      No spending is “paid for.” It is planned to be paid for. If the government wants to drone somebody in Pakistan, for example, that’s not free. The drone is expensive and so are the missiles. And the people controlling the drone have to be paid. That unfortunate individual (in Pakistan) will be droned irrespective of whether China decides to boycott a 10Y sale and regardless of whether everybody in America decides to stop paying taxes

      If China invades the UK next week, the US will not wait around to “find” money to defend Britain. Rather, we would spend a quadrillion “unsourced” dollars (if that’s how much it took) to drive the PLA out of London. There would be no arguing, no budgeting, no nothing. We’d just ramp up the war machine, spend, and go.

      There is no such thing as “paid for” spending.

      1. I understand all of that. Replace “implement” with “embrace” and perhaps it will clarify my point. I’ll rephrase my original argument:

        If politicians embraced the tenants of Modern Monetary Theory, they would start spending a lot more money. They would get that money by simply updating the spreadsheet that keeps the Treasury Department dollar balance and not wasting any time with the kabuki theater of selling bonds. They–politicians–would be good at this. What they would not be good at is responding appropriately in the event that inflation begins to go up. Their inability to respond appropriately to the constrained variable would lead to spiraling inflation.

  4. I think the need to pay for at least part of the spending can be a useful fiction. I would argue we need higher marginal tax rates and inheritance taxes (as well as enforcement) to rein in the rising inequality in the US. The vast majority of voters will never understand and have no desire to put in the effort to understand something that is so counter intuitive to them. I also worry that while we seem to have competent people in charge today but who knows what the competence of future administrations will be.

    1. I think we’re past where there is anything useful about the fiction. Most of the utility generated is directed at disproving government as a functional enterprise. It’s never used to forgo a war and it’s regularly used to stop healthcare coverage. Time to dispel the mythology once and for all. People who refuse to understand it weren’t going to be onboard either way.

      Taxation can certainly be a punitive or preventative measure against inequality and its consequences. I think Bernie is clear evidence that a major portion of the population is fine with punishing billionaires for being criminals or pricks with their power and influence.

  5. Thanks H, again, for the clarity you continue to provide on MMT and accessory issues. Your take has helped shape my take for some years now. MMT is what it is, it’s just the way things work.

  6. Since I’m receiving SSA benefits, I keep track of the trend to the annual COLA. Here’s what I see, so far.

    Month CPI-W Index Mo. Percent chg Trend to COLA Adjusted M-O-M

    July-20 252.636 0.20%
    August-20 253.597 0.38%
    September-20 254.004 0.16%
    October-20 254.076 0.03% 0.19% 0.20% 1.27%
    November-20 253.826 (0.10%) 0.20% 0.20% 1.27%
    December-20 254.081 0.10% 0.23% 0.20% 1.45%
    January-21 255.296 0.48% 0.39% 0.40% 1.57%
    February-21 256.843 0.60% 0.80% 0.80% 1.95%

    So far, the trend is 0.80% (rounded). Oh, that’s some scary inflation right there, ain’t it?

    Note that every year the trend to COLA (Jan-May) usually increases, and usually Jun-Aug the trend decreases. Sometimes you’ll see a spike when a hurricane, or hurricanes, drive up the price of gasoline or some other commodity.

    Inflation doesn’t have a darn thing to do with how much the government borrows or spends.

    H told ya’ll it “has always been a fiction, and a periodically pernicious one.

    And he told you that “the notion that funding, for example, college tuition, infrastructure and healthcare is “too expensive” is just a useful diversion when politicians need to “explain” why they can’t pursue an agenda they don’t care for or, perhaps more to the point, agendas they believe might upset the existing order or otherwise irritate special interests.”

    … when politicians need to “explain” something is, indeed, a “periodically pernicious one”, indeed.

  7. The American Society of Civil Engineers (ASCE)

    This study by ASCE shows how the persistent failure to invest in our aging infrastructure impacts the economy, including GDP, jobs, personal disposable income, and business sales. The electricity and water/wastewater reports (above) were conducted after this full economic study.

    The ASCE finds that with an increased investment of $281 billion a year — $5.48 more per household a day — the U.S. can eliminate this drag on the economy, protecting by 2039:

    $10 trillion in GDP, nearly half of the annual U.S. GDP in 2019
    More than $23 trillion in total output (primarily business sales)
    More than 3 million jobs in 2039, two times the number of Walmart employees in the U.S.
    More than $3,300 in a family’s annual disposable income each year from 2020 to 2039, which is over half of the average American’s household’s monthly expenditure of $5,102.
    This program will create millions of new jobs
    Biden has pledged his program will not increase the national debt a penny
    The proposed corporate tax increase to 28% still leaves it where it was when Trump recklessly cut it to 21%
    Even before the pandemic, McConnell/Trump increased the debt by more than $4 trillion
    Infrastructure programs like this are estimated by Wall St. analysts/economists to produce more than twice their size in economic activity
    There is a high cost ($3,300/taxpayer PER YEAR) for NOT fixing infrastructure, according to the American Society of Civil Engineers


    Oh, one last bullet point.

    Republicans hate it because Joe Biden

NEWSROOM crewneck & prints