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Economics Economics Questions
1

I want to post this on my blog, but am not sure if I have things right. So I’d like the comments and critiques of those kind enough to give them. Even you, Esuric. Without further ado:

Why Printing Money is Good for Our Economy. Seriously.

by Smiling Dave

The answer is not, of course because it increases aggregate demand, like the Keynesian think, nor because it ensures and adequate supply of money, as the Chicago guys think. And why not? Because Keynes and Chicago are not describing what the problem really is. Since the problem they describe is non existent, printing money isn’t supplying any solution, obviously.

So why does printing money ease a recession? Because the basic problem that defines a recession [according to Hutt] is a stubborn unwillingness to lower prices, whether for goods or for labor. Printing money dilutes its value. Thus the price you are asking stays the same in dollar terms, but has been lowered in real purchasing power. Problem solved.

So, one may ask, doesn’t that make Ben Bernanke right for the wrong reason? Isn’t he doing the right thing, flooding the world with dollars? Is the Austrian scorn heaped upon him undeserved?

No. Because printing money has many consequences. And we won’t even go into the moral issues here, of robbing everyone of their life savings etc. The thing is, short term, printing money ends a recession. Long term, it guarantees a new one, of greater severity.

Now one may ask, how does printing money cause a recession? By the very fact that the new money is always used to burn up valuable resources. It is like printing money and using it to pay a demolition crew to knock down all of New York City.

There are several reasons why the money is always used in this way. The Austrian Business Cycle Theory explains one aspect, why private businesses use the money in such a manner. In addition, we all know that the money printed is given in generous handfuls to the govt, who gives it to its friends. Its friends are, by definition, folks who cannot make it on their own, but need govt handouts to thrive. Which means these are guys are making things nobody wants, meaning they are wasting resources as part of their very existence. And of course, wasting resources means poverty for all.

All this explains a great mystery. Why can the govt get away with constant inflation? Doesn’t anyone ever care that their money is worth less and less? And the answer is that it benefits a lot of people, the unemployed. At least in the short run.

2

I’m not really sure what you’re trying to do here. For any layman that’s going to be more confusing than anything. Even I can’t tell which parts you’re serious about. If the dollars are worth less, how would prices stay the same? That doesn’t make sense. The money is worth less because it buys less…meaning prices are higher. Otherwise, how is the money worth less? The only other way anyone would be seeing a benefit is if their wages increased relative to prices…which, again, I don’t exactly see how that’s supposed to happen. And how does devalued money help the unemployed?

3

Either prices change or money has the same purchasing power…

4

TY, JJ and Jack, for your important critiques.

I’ve modifed the article accordingly for clarity. I have also included refrences to articles by respected Austrians who make the same point.

Link is in my sig.

5

At least you took out the fallacious part about prices staying the same yet somehow money loses value. But you still claim devalued currency helps the unemployed, but offer no explanation for that. You mean it helps them find minimum wage jobs because it effectively lowers the minimum wage?

6

You mean it helps them find minimum wage jobs because it effectively lowers the minimum wage?

yep

7

You really think there’s not only enough of a time lag, but also a big enough gap between the two that even a significant number of these people who otherwise wouldn’t be hired actually do land a job? I really find that to be a stretch.