Low inflation might be the first step towards deflation. Many economists would argue that deflation is a worse situation for the economy because it leads to a sharp drop of consumption and therefore a huge recession follows?
They don't need to trickle down. Most of the printed money end up in the economy by gov spending. These can be anything from direct contracts or just paying gov salaries (they aren't limited to central gov for instance).
It works. You print money, increase the government spending by doing projects. This will make some contractors very rich, but also the workers get wages.
If that's your take on the topic, then how many cows do you figure had to be raised and slaughtered to fuel the calories we all wasted scrolling tp read your comments?
QE in itself doesn't necessarily cause long-term problems. It's about what the state of the economy is when doing so. If you're on a job market recession, oversupply of goods and services, QE is a strategy that could correct the economy with little tradeoff.
Every economic strategy causes tradeoffs somewhere, it's about when, how long, why, etc that matter
Kind of but not really. The real problem with deflation is that it discourages spending and investment. When the money you have is going to appreciate in value more than the things you might purchase with it, it's a lot more appealing to just sit on it instead. This lack of demand then drives prices down further, perpetuating the cycle until businesses start failing and then you're stuck with an unemployment crisis, and now even if the deflation stabilizes, it's left a whole mess that returning to inflation will make worse before it gets better.
You can print a bunch more money, but unless that money is actually circulating, it doesn't really do anything. And if everyone's just holding onto their money watching the value go up, they'll certainly want the new dollars, but they won't want to spend them. And if they're not being spent, they might as well not exist for inflation/deflation purposes.
Yes, but that needs to be done BEFORE we enter the deflation spiral. Once we're in it, poor people are going to be subject to the same economic pressures to save and stretch their money. Stimulus funds are definitely more effective going there than going to the rich, but the effect is still going to be blunted.
It's kind of like the gag in movies sometimes where a car will crash and then the airbags deploy after everything's already settled and they don't really serve their purpose anymore.
That’s kinda what we did during the pandemic. We drastically increased unemployment insurance, both the amount we gave people & the length of time they could get it, and when they were eligible. We had people who were suddenly making more by being unemployed than they’d ever made from working.
We also expanded the child income tax credit, which, despite its name, means we wrote checks to low income people with kids since it’s a “refundable” credit, meaning if you have no federal income taxes to “credit” (which low income
People usually don’t have) the govt just writes you a check.
We also increased SNAP a lot.
And there was the stimulus checks.
And we paid up to 18 months of unpaid rent & utility bills (and lots of people had 18 months of unpaid bills since we stopped all evictions & utility terminations so lots of people just stopped paying).
I worked on many of these programs in my city, county, and state. We were writing massive checks.
It had a few effects.
It led to the largest drop in poverty since the “Great Society,” especially child poverty.
All those trillions we spent doing that was a big part of inflation.
Cuz what makes giving low-income people money an effective boost to the economy is they spend it.
(And, unfortunately, some people spend that money on guns, drugs, prostitution, and other stuff you don’t necessarily want them to. This was disheartening for me to see first hand.)
But, most don’t do that. They’re paying rent, utility bills, food, clothes, etc. and so the money ends up w/ landlords, utility companies & whomever they’re buying stuff from. SNAP & child tax credit refunds likely go to food, clothes, etc.
And then we also saw lots of local & state govt’s increase minimum
wages (lots of cities and states are now in the $15-20 range, a few even higher).
when coupled with supply-side constraints that limit the ability to create more stuff, all that increase in money & spending puts upward pressure on prices.
For a brief moment, people feel richer… until the price increases come and absorb it.
And then we cut that money off. So we’re back to crappy incomes but new higher prices.
At that point, a lot of the ones then trickles up & lands in the pockets of the landlords & corporations.
And everyone gets pissed about the higher prices.
But if inflation is low and sales are below manufacturing capacity & you can make more stuff without supply side limits, then yeah, it can goose the economy.
But, we really suck at building housing, so a lot of it ends up getting absorbed by housing prices and higher rent since supply isn’t expanding much.
This is exactly what they do, and will do, it’s why everything managed to continue on without a revolutionary moment after Covid.
We’re so productive they’ve had to thumb suck the numbers for decades to keep the power structures in place. It’s why wealth is concentrating exponentially. All the money they print just flows one way.
Deflation is a symptom, rather than the core issue. The issue is people are reducing spending, and this reduced spending means businesses sell less, build fewer houses, dont invest to increase capacity etc. This leads to job losses and people end up spending even less, creating a vicious circle. This decline in economic activity shows up as low inflation or deflation in macro data. You can print money to counter it, but it doesnt address the root problem.
There is something called Impossible Trilemma in economics where government can only control two of three things: free capital movement, monetary policy, exchange rate.
The short of it is, if you have free capital movement and use monetary policy (cut interest rate, print money), then your exchange rate must float (will depreciate in this case). You may defend the depreciation until you run out of foreign reserve, but beyond some point your currency goes into freefall / hyper inflation. This is "bad inflation".
"good inflation" is demand-pull, not cost-push / money-supply driven. So yea, you can create inflation, but it wont be productive for the economy.
The reason is kinda basic supply and demand: increasing the supply of something would lead to the value of 1 unit of that supply decreasing over time. So in this case, increasing the supply of a currency would eventually lead to the value of 1 unit of that currency (i.e. a dollar) would decrease, which would cause everything else to rise in price, which would just in the best case bring you back where you started, worst case make the situation even worse.
In this scenario, iirc the best course of action is circulating and building trust back into the dollar. Personally getting rid of Fiat currency and backing the dollar to something again would be a step in the right direction imo.
Yes, this is exactly how you'd fight a deflation crisis, print money and start investing it, first thrhough public spending and then through near zero intrest loans.
It is called quantative easing... Tried it under Obama and Biden leading to they high inflation we were seeing at the end of the Biden Administration. In theory it can work, but it is like using a sledge hammer on a gnat!
The real problem is that it takes months/years to show effect, so you really can't tell when to stop!
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u/StuartMcNight 8h ago
Low inflation might be the first step towards deflation. Many economists would argue that deflation is a worse situation for the economy because it leads to a sharp drop of consumption and therefore a huge recession follows?