Crawl Across the Ocean

Saturday, July 24, 2010

A License to Print Money 2

Let me preface this by saying that I'm a fan of Paul Krugman. I've read most of his books, read almost everything at the Paul Krugman archive, and read all of his columns and blog posts since he started working for the NY Times. This blog even has a 'Krugman was right, I was wrong' tag that I use on occasion.

Another strand to this post is that, over time, I've generally come to the conclusion that the simplest way out of the current economic mess for the U.S. would be to print money and distribute an equal share to each citizen until they get a little bit of inflation and a reduced debt load for debtors.

So imagine my disappointment when I read this recent post by Paul Krugman where he said,
"So why not forget about open-market operations, and just drop the stuff from helicopters? Well, remember that at this point cash and short-term bonds are equivalent. So a helicopter drop is just like a temporary lump-sum tax cut. And we would expect people to save much or most of such a tax cut — all of it, if you believe in full Ricardian equivalence."

Both Tyler Cowan and Brad Delong immediately noted that this didn't make any sense, as did a vast number of commenters on the original post.

How disconnected from reality do you have to be to think that if you give money to people who don't currently have any, they wouldn't either spend some of it or pay down their debts with it?

What vision of America must you have to imagine that the only people in America that exist are people who, given a $5,000 cheque from the government, would save all of it and not spend a dime.

It's especially frustrating because it seems as though there is almost a conspiracy of silence around pretending that America's economic woes couldn't be solved by printing a little money. And when one of the few prominent people you can expect to be both knowledgable and a straight-shooter takes on the issue, he uncharacteristically dodges the question with half-truths and deception.

The jedi mind powers of the creditor class are powerful indeed.

Updated to add, if you are interested in more elaboration on my opinion that printing money is the solution to the U.S.' economic problems, this post does a good job summarizing my views on the topic.

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