Solution for the Economy

[MillsApparatus]

I'm so tired about hearing how bad the economy is and how there's nothing being done and that we need solutions. I have the perfect solution: print more money! I don't see why nobody's brought that to the table (probably because its too simple and so obvious).

Let's consider it: We need money in circulation. We don't have enough. We print more, then we have enough and the economy goes back to normal.

There is no flaw in this plan.

[djack]

At 8/8/11 07:05 PM, MillsApparatus wrote: I'm so tired about hearing how bad the economy is and how there's nothing being done and that we need solutions. I have the perfect solution: print more money! I don't see why nobody's brought that to the table (probably because its too simple and so obvious).

Let's consider it: We need money in circulation. We don't have enough. We print more, then we have enough and the economy goes back to normal.

There is no flaw in this plan.

I hope you're just a troll because the stupidity of that comment is mind boggling. In case you're not a troll do a Google search on the effects of FIAT money on the economy of the seceded South just to get an idea of the consequences of that idea.

[MillsApparatus]

How can there be a problem with this? The Tea Party is all for it as it is the best solution. We need money, we make money, we have money we reverse damage.

[Camarohusky]

I have a brilliant idea. Let's stop cutting the budget of the biggest employers' in the country, and stop allowing those who can easily afford the services to pay for them instead of stealing them.

[airsoftar]

At 8/8/11 07:22 PM, MillsApparatus wrote: How can there be a problem with this? The Tea Party is all for it as it is the best solution. We need money, we make money, we have money we reverse damage.

Im not sure if you are serious but for sport I'll take the bait. This plan would cause hyper inflation and ruin the economy irreversibly. For example, say there is 100 Billon dollars in circulation. Now the government prints and enters another 100 Billion into circulation. Now that your money is less rare in the market it is worth less, in this example, half. So an Xbox now costs $1000 and a soda is like $3.00. Take that times the federal debt (trillions) and a 3 bedroom house would cost 4 million dollars. No bueno.

[Gunner-D]

At 8/8/11 09:47 PM, airsoftar wrote: a 3 bedroom house would cost 4 million dollars. No bueno.

No bueno for people that are looking to borrow or spend money but muy bueno for someone who has 100,000$ in student loans, 250,000$ home mortgage, 25,000$ in car loans, and 5,000$ in credit cards with no savings or any other dollar assets. The dollar would be worth less, but dollar debt will also be worth less, which would be great for those in debt, especially at today's low rates, but would probably piss of our creditors (i.e. China).

[SmilezRoyale]

At 8/8/11 10:12 PM, Gunner-D wrote:

At 8/8/11 09:47 PM, airsoftar wrote: a 3 bedroom house would cost 4 million dollars. No bueno.

No bueno for people that are looking to borrow or spend money but muy bueno for someone who has 100,000$ in student loans, 250,000$ home mortgage, 25,000$ in car loans, and 5,000$ in credit cards with no savings or any other dollar assets. The dollar would be worth less, but dollar debt will also be worth less, which would be great for those in debt, especially at today's low rates, but would probably piss of our creditors (i.e. China).

Depending upon who gets the money first, yet, it would probably upset the chinese. Then again, the chinese have lent the US government more money [lent by buying debt that is] than they ever should have. Had they refused to do this several years ago, it would have been better for the

If you want full employment, it's very easy.

Take everyone who isn't employed and either

A. Draft them into the army
B. Throw them in labor camp
C. "Put them down"

And Voila' full employment.

And if you want GDP growth, that's also easy.

Produce 10 tons of concrete and order that the concrete be valued at 100,000,000,000 USD for each ton. If my math is correct, 1 trillion dollars of GDP was created.

If that sounds crazy, it was the state of the art growth creation policy 70-80 years ago. I wonder what people in 2080 will think about how "We" created jobs in the beginning of the 21st century.

[Proteas]

At 8/8/11 07:05 PM, MillsApparatus wrote: There is no flaw in this plan.

Yeah there is; you expect the government to do it. They can't do anything right.

Solution? Print your own money!

</sarcasm>

[Warforger]

At 8/8/11 07:22 PM, MillsApparatus wrote: How can there be a problem with this? The Tea Party is all for it as it is the best solution. We need money, we make money, we have money we reverse damage.

Because it's textbook inflation at its finest? Printing more money would devalue the currency as there's more supply then the demand for it (Zimbabwe being the prime example ) now if everyone had more money everything fine right? Nothing changes? Well no, pensions become worthless so retiree's have to get back to work, or leech off their offspring or just look for a homeless shelter, social security takes a dive even more etc. etc. It's a terrible idea based off a non-existent understanding of how currency works.

I'll just go on with examples, China has a large population, the largest in the world, thus China needs to print more money, so now the Yuan isn't worth very much, one Yuan is the equivalent of 10 cents.

And then there's Zimbabwe. Zimbabwe decided to take in a boatload of loans it could not pay off, it's solution? Keep printing money to pay the debt. The currency was so worthless that there were 100 Trillion dollar bills, and a huge stack of those wouldn't get you much, it got so bad that I think back in '07 or '08 the government was forced to let its citizens use foreign currencies.

But there's a nation in the past which did this which plunged it into depression....Germany in the 20's. Oh look how that ended up.

[SmilezRoyale]

At 8/8/11 10:53 PM, Warforger wrote:

I'll just go on with examples, China has a large population, the largest in the world, thus China needs to print more money, so now the Yuan isn't worth very much, one Yuan is the equivalent of 10 cents.

The population isn't the primary determinant in exchange ratios for currencies. The Chinese Yuan is devalued to the USD because the Chinese government engages heavily in buying US treasuries, and they do this with their own money. Because this makes Chinese exports cheaper than other countries exports, such as the US, and would thus bolster Chinese GDP numbers, and visa versa, making US exports less competitive and lowering our GDP numbers. The truth is that the primary beneficiaries are US citizens and the US Government. US Citizens are permitted a purchasing power that exceeds their actual international productivity, and the US Government is immunized from the consequences of it's extravagance.

China produces a considerable proportion of what the US, and what the world at large consumes. And if they didn't deliberately devalue their currency, the odds are that if the Chinese Government stopped supporting the USD, the Yuan would rise and the Dollar would fall, considerably.

[Der-Lowe]

At 8/8/11 09:47 PM, airsoftar wrote: Im not sure if you are serious but for sport I'll take the bait. This plan would cause hyper inflation and ruin the economy irreversibly. For example, say there is 100 Billon dollars in circulation. Now the government prints and enters another 100 Billion into circulation. Now that your money is less rare in the market it is worth less, in this example, half. So an Xbox now costs $1000 and a soda is like $3.00. Take that times the federal debt (trillions) and a 3 bedroom house would cost 4 million dollars. No bueno.

That's true under normal economic conditions. Your central assumption here is that we are under full employment, therefore the economy does not expand when money is created and therefore households do not increase their quantity demanded for money.
Another condition that could lead to a non inflationary expansion of the money supply is that households are willing to demand unlimited amounts of money at the given interest rate. In this scenario, an expansion of the money supply has no real effects (setting portfolio shifts aside) for the interest rate simply does not change, then investment can not react. Therefore, money supply expansion is not only not inflationary, but also not expansionary. If this takes place when the economy is not under full employment, then monetary expansion has no effects "good" or "bad".
This is the situation that we're living in, as you can see from the graph below , increases in the monetary base (currency+reserves) are not causing inflation (CPI Index is completely unrelated to the expansion).

I said "good" or "bad" because moderate inflation is desirable under a deleveraging economy, as Gunner D pointed out. We have lots of households that simply cannot repay their debts. They failing to do so is bad for debtors, but also bad for creditors. A good way of getting to a middle ground is through a reduction of their real debts through inflation.

However, neither inflation nor recovery will happen soon, so we're just talking hypothetically here.

As a side note to Warforger, the hyperinflation in Zimbabwe started as a foreign currency shortage because of a redistribution of land that crippled agricultural exports. The nature of their crisis has nothing to do at all with the US.
SmilezRoyale, your first post on this thread is a pure straw man attack.

[SmilezRoyale]

At 8/9/11 11:02 AM, Der-Lowe wrote: SmilezRoyale, your first post on this thread is a pure straw man attack.

Nowhere was it written "This is the strategy that present experts are calling for", only that

1. My suggestion outlines a strategy that would both end unemployment and boost GDP
2. These strategies were implemented to varying degrees in Germany and the Soviet union, and were taken seriously during their time. [i.e. state of the art]

My point is more that, if the goal was simply to create employment and growth, the the process is simple. The trick is to do it in such a way that does not render the concepts of employment and growth meaningless. Which my suggestion failed to do.

My preference would be for the Federal Government to have spend several times more in the past than what it had actually done, and done so in a very short period of time, say, 4 trillion instead of 1 trillion At least to such a degree that if it failed, the plan's proponents could not have blamed it's failure on the plan being too modest. If it ended up being successful, that's just as good.

[AdamRice]

Why don't they just turn the one dollar bill into the million dollar bill and then we can all be millionaires.

[adrshepard]

At 8/9/11 11:02 AM, Der-Lowe wrote: That's true under normal economic conditions. Your central assumption here is that we are under full employment, therefore the economy does not expand when money is created and therefore households do not increase their quantity demanded for money.

I don't think he meant an increase in the money supply through open market operations so much as literally printing the bills and handing them out to people, taking banks and deposits out of the picture entirely. Charting real disposable income expenditures seems to match the CPI much better than the monetary base does, so a sudden increase in income would probably lead to the inflation everyone's talking about.

[Der-Lowe]

At 8/9/11 11:38 AM, SmilezRoyale wrote: My preference would be for the Federal Government to have spend several times more in the past than what it had actually done, and done so in a very short period of time, say, 4 trillion instead of 1 trillion At least to such a degree that if it failed, the plan's proponents could not have blamed it's failure on the plan being too modest. If it ended up being successful, that's just as good.

I agree, but the political system does not work like that, unfortunately in this case.

At 8/9/11 01:20 PM, adrshepard wrote:

At 8/9/11 11:02 AM, Der-Lowe wrote: That's true under normal economic conditions. Your central assumption here is that we are under full employment, therefore the economy does not expand when money is created and therefore households do not increase their quantity demanded for money.

I don't think he meant an increase in the money supply through open market operations so much as literally printing the bills and handing them out to people, taking banks and deposits out of the picture entirely.

Well, when people (and economists, heh) say "print money", OMA is generally meant. But anyway, handing the money directly to people would change things completely, since it wouldn't be monetary but fiscal policy, a transfer program. I believe a mild relief program for the poor was included in the stimulus plan. And I'd favor such program, although it'd be a second-best. Transfers should be directed at those who are budget constraint, either statically (those who have low incomes and save little) or intertemporally (those who can't get a loan due to credit rationing).

Charting real disposable income expenditures seems to match the CPI much better than the monetary base does, so a sudden increase in income would probably lead to the inflation everyone's talking about.

I think the theoretical relationship is muddy. What creates inflation is excess supply of money (excess demand of goods). Expansive monetary policy affects both income and prices (positively), but it is not that growth causes inflation, but that both inflation and growth may have a common cause (reading Durkheim pays off 3 years later). An rapid expansion of aggregate supply, caused by technological innovation or massive immigration will lead to high growth and deflation. A supply shock will cause low growth and high inflation.
Graph below shows just that, the oil shocks. Taking a closer look (meaning, I did not post it to make this point, but just realized) it also makes us infer that the recent crisis has been one of a contraction of aggregate demand, ha.

[SmilezRoyale]

At 8/9/11 05:30 PM, Der-Lowe wrote:

At 8/9/11 11:38 AM, SmilezRoyale wrote: My preference would be for the Federal Government to have spend several times more in the past than what it had actually done, and done so in a very short period of time, say, 4 trillion instead of 1 trillion At least to such a degree that if it failed, the plan's proponents could not have blamed it's failure on the plan being too modest. If it ended up being successful, that's just as good.

I agree, but the political system does not work like that, unfortunately in this case.

Sometimes I wish the republicans would play a game of Chicken with the democrats to see who is willing to outperform the other in the field of spending, taxes, regulations, etc, in a way that was overt and deliberate. [I.e. if Obama wants a 2 trillion dollar stimulus package, the republicans refuse and instead propose 3 trillion] Of course for that to work the Republicans would either have to be motivated either by orthodox economic thinking, jedi mindtricks, or outright misanthropy. [As in my case]

[adrshepard]

At 8/9/11 05:30 PM, Der-Lowe wrote:

At 8/9/11 11:38 AM, SmilezRoyale wrote: My preference would be for the Federal Government to have spend several times more in the past than what it had actually done, and done so in a very short period of time, say, 4 trillion instead of 1 trillion At least to such a degree that if it failed, the plan's proponents could not have blamed it's failure on the plan being too modest. If it ended up being successful, that's just as good.

I agree, but the political system does not work like that, unfortunately in this case.

At 8/9/11 01:20 PM, adrshepard wrote:

At 8/9/11 11:02 AM, Der-Lowe wrote:

I think the theoretical relationship is muddy. What creates inflation is excess supply of money (excess demand of goods). Expansive monetary policy affects both income and prices (positively), but it is not that growth causes inflation, but that both inflation and growth may have a common cause (reading Durkheim pays off 3 years later).

I don't see how. The theoretical relationship is clear; an increase in income will increase demand, which will raise the price level assuming a constant supply. Even if technological advances increase production, they would still have to keep pace with income growth for there to be no inflation. I don't know Durkheim, but inflation and growth are reflections of price level and consumption, which reflect supply and demand. The empirical evidence as shown by your graph doesn't dispute that, it only suggests the same things aren't being held constant as in theoretical models.
The OP's idea would still lead to inflation barring some dramatic production increase of all goods.

[IncendiaryProduction]

Obviously we just need to make more gold factories, that will increase the value of money. Then we can print more money, or just approve McDonald's coupons as legal tender.

[Iron-Hampster]

print more money

terrible idea, I'm in shock that someone would suggest such a thing in this post WW2 day and age. And if the tea party wants this to happen then they obviously aren't worth listening to.

And trickle down economics doesn't work any better than this does either.

probably troll

[WizMystery]

I find it odd how people still don't know who this guy is. He's been trolling the forums for a long time guys.

[Der-Lowe]

At 8/9/11 07:49 PM, adrshepard wrote:

At 8/9/11 05:30 PM, Der-Lowe wrote:

At 8/9/11 11:38 AM, SmilezRoyale wrote: My preference would be for the Federal Government to have spend several times more in the past than what it had actually done, and done so in a very short period of time, say, 4 trillion instead of 1 trillion At least to such a degree that if it failed, the plan's proponents could not have blamed it's failure on the plan being too modest. If it ended up being successful, that's just as good.

I agree, but the political system does not work like that, unfortunately in this case.

At 8/9/11 01:20 PM, adrshepard wrote:

At 8/9/11 11:02 AM, Der-Lowe wrote:

I think the theoretical relationship is muddy. What creates inflation is excess supply of money (excess demand of goods). Expansive monetary policy affects both income and prices (positively), but it is not that growth causes inflation, but that both inflation and growth may have a common cause (reading Durkheim pays off 3 years later).

I don't see how.

This is why mathematics is so important in Economics *glares at Austrians*.
Anyway, this is my model. Any mathematical model in general and in Economics in particular consists of two types of variables, explanatory variables, and explained variables. Explained variables are the ones that the model tries to explain how they behave in respond to a change in the explanatory variables. In this case, the variables we are trying to explain are output, or its equivalent income, and prices. See how thiese are determined by (as always) the intersection of aggregate demand AD and aggregate supply AS.
AD slopes downward because as income increases, there is a higher level of real money demand, and for real supply to expand, lower prices are needed.
Supply slopes upwards because as prices increase, the real wage falls and businessmen are willing to hire more workers, therefore more is produced and output increases.

So my parameters are these: for demand, government expenditures and money supply. Both expand demand outwards.
What I was saying specifically was that as the money supply expands and there is no full employment, then a monetary disequilibrium appears. For money demand to increase, the interest rate must fall, which causes more output, and at the same time, more output is needed so that money demand increases. So at the same price level more output is needed to mantain equilibrium, ie the curve shifts outward. Since AS is upward sloping, the new equilibrium will be of higher prices and higher output.

The theoretical relationship is clear; an increase in income will increase demand, which will raise the price level assuming a constant supply.

Here you fall into a contradiction: you're moving a variable (income) that you're saying it's staying fixed (constant supply). What you would like to move is some factor that affects demand (government expenditures, money supply, pessimism, you name it) but that variable you're moving as a parameter cannot be the variable you're trying to explain!
What I think is causing confusion here is the microeconomic model of demand and supply, where indeed income is a variable that shifts demand, but note the difference: in microeconomics the explained variable is the output of one commodity, which is supposed to be irrelevant in aggregate production.

Even if technological advances increase production, they would still have to keep pace with income growth for there to be no inflation.

Yes, but there my mental exercise was to leave aggregate demand alone, and shock productivity so that Aggregate Supply expands to the right. Since AD slopes downward, there are lower prices and higher income. The ceteris paribus clause applies often in Economics for mathematical simplicity, and clarity.

I don't know Durkheim, but inflation and growth are reflections of price level and consumption, which reflect supply and demand. The empirical evidence as shown by your graph doesn't dispute that, it only suggests the same things aren't being held constant as in theoretical models.

Durkheim, just minor digression of mine: if A and B happen together it may be that A causes B , or that there is event C which is causing both. I meant that if there's growth and inflation, it may be that growth causes inflation, or there is C, expansion of AD, which is causing both.

To test this, the model points that growth and inflation might go different ways if it is that Aggregate supply moves while aggregate demand stays constant. This is what happened clearly three times in the graph: when the inflation rate went up to 12.5% 15% while at the same time growth went down -2.5% and 0%, and then inflation falling to 1.5%? and growth going up to 7.5%. These are all supply side shocks, the first negative, as the US was unable to import enough oil for production, and therefore real income corrected itself through inflation, and the last one a productivity boom that made goods suddenly cheaper, and increased income.
Moreover, Price level and consumption determine inflation and growth tautologically: growth is the percentage change of income over time, and income is consumption, government expenditures, investment and net exports, whereas inflation is the percentage change over time of the price level.

The OP's idea would still lead to inflation barring some dramatic production increase of all goods.

Depends on the size of the transference. The output gap curently stands at 1 Trillion dollars, according to the CBO, so that amount should do the job.

[adrshepard]

At 8/10/11 01:05 AM, Der-Lowe wrote: AD slopes downward because as income increases, there is a higher level of real money demand, and for real supply to expand, lower prices are needed.

I'm assuming this is an error. Lower prices are a result of increased production or reduced demand. Also, the term "real supply" doesn't make any sense, because a unit is still a unit regardless of prices, inflation, etc.

Supply slopes upwards because as prices increase, the real wage falls and businessmen are willing to hire more workers, therefore more is produced and output increases.

Right.

What I was saying specifically was that as the money supply expands and there is no full employment, then a monetary disequilibrium appears. For money demand to increase, the interest rate must fall, which causes more output, and at the same time, more output is needed so that money demand increases.

The last part of that sentence doesn't make any sense. In what you're describing, increased output is the result of a demand increase stemming from lower interest rates. Output isn't responding to money demand, but to demand for goods.

So at the same price level more output is needed to mantain equilibrium, ie the curve shifts outward. Since AS is upward sloping, the new equilibrium will be of higher prices and higher output.

Those are two different scenarios. Higher prices and output would occur along the curve. Shifting the curve to the right an equivalent amount would increase output but not the price level.

The theoretical relationship is clear; an increase in income will increase demand, which will raise the price level assuming a constant supply.

Here you fall into a contradiction: you're moving a variable (income) that you're saying it's staying fixed (constant supply).

I wrote incorrectly. I meant to say a stable supply curve.

Moreover, Price level and consumption determine inflation and growth tautologically: growth is the percentage change of income over time, and income is consumption, government expenditures, investment and net exports, whereas inflation is the percentage change over time of the price level.

That's not a tautology. Increases in consumption, or more specifically in the income that enables it in the forms you mentioned, represents economic growth (nominal). That is moderated by inflation, which describes the purchasing power of income.