Federal Money Printing Does Cause Inflation
Just only where the money goes.
Epistemic status: Saturday morning coffee musings on printing a lot of money and the difference between wall street and main street. And as usual, I may only know enough in some of these topics to be dangerous, not an expert. Please correct me.
I saw this Tweet yesterday about how we’re seeing inflation, only we’re not seeing it in consumer good prices, we’re seeing it in consumer stock prices and it really made me think.
- Commenter in a private group chat
In 2008 a lot of money got printed. Where did it go? One argument is that it went to financialized assets. That’s a fancy way of saying that the government knows how to print money, so it printed a lot of money. The government doesn’t really remember how to put that money to work. It used to! See: Dams, bridges, roads, water reservoirs, etc. Instead the government gives that money to banks. They trust the banks to put the money out into the economy.
But say you’re a bank and you just got a lot of money from the government. You could (a) invest it in stocks, real-estate and other things where you know how to put money or (b) you could analyze a bunch of big infrastructure projects that you aren’t good at analyzing. Or you could be Goldman and take the bailout money and then make money for helping clean up after your mess, too.
Governments react with institutional muscle memory. Governments haven’t flexed the muscle that builds roads and bridges and similar stuff for a long while. To be fair, things like subways are a lot more expensive now.
So banks get all this money to deploy. And then stocks and real estate and other financialized things go up a lot. Maybe that’s because if you print a bunch of money and it just stays floating around with other money then only the money stuff will go up. If you follow this road you may end up at Modern Monetary Theory.
Disclaimer: like quantum mechanics, people who claim they understand Modern Monetary Theory probably don’t understand Modern Monetary Theory.
“Where should the government spend?” is the crux between Classical Keynesianism vs. money printing.
Aside: I recently read The Price of Peace, a Keynes bio. I really, really liked it.
A Classical Keynesian: The government can't just lend out huge amounts of money and let the financial system distribute it, decentralized, to increase real economic activity. The banks will keep it financialized. You need to directly spend it with big works: highway system, hoover dam, water reservoirs, power plants.
Money Printing: Central planning like that is very inefficient! Governments are super inefficient at picking where to spend money.
The superposition of the two: Do Classical Keynesianism on collective action problems like infrastructure. Print money for the rest.
But what’s the balance between the two? I suspect we’ve leaned too far towards “print money and let the private economy work”. Especially since we’ve socialized the losses (bailouts). The private economy works when the risk/rewards are in the same place. But we pump money into the places where the risks are bailed out: banks.
The US has had borderline ~free borrowing from the rest of the world for decades. That we didn’t borrow massively and directly invest in roads, schools, bridges, housing, and other collective-action problems may go down as one of the worst own-goals in history. Instead we’ve spent it on two foreign wars in the middle east with little to show for it, and a lot of credit bubbles.
Fun: A joke about incels and date formatting is better than you expect: tweet. See the lineage of the meme in one tweet. Meme evolution is so fast now. Proof-of-work to be “in” scales with the tools to find the memes. Bitcoin proof-of-work scales as does cultural in-grouping. Social media needs a Proof-of-Stake system, e.g. costly signals like tattoos?
Changes in Venture Capital: Parker Thompson (aka Startup L Jackson) announced a new venture fund. The fund is built on AngelList’s decade-long unblocking of VC. Here: with Rolling Funds. Disclaimer: I have a very tiny stake in AngelList. I worked there 8 years ago.
Not Fun: COVID deaths trend down as cases have surged. Are we getting better? Not really. The falling numbers in the NE were offsetting rising deaths in AZ, TX, FL. Source: tweet from the Covid Tracking Project. US Deaths per-person not #1, though.
Current Effects of Protests: Only 1 of the 37 states that painted Black Lives Matter on their streets ended Qualified Immunity. Play culture games, win culture prizes? So What? Register to vote. Vote.
New Terms for New Ideas: “Covidiocy”: being dumb about COVID risks. Source tweet. Two days ago hundreds gathered near me in SF to skate down the street at 20+ mph, do tricks, sometimes fall and get hurt. Risk is fun. Risk you can isolate to yourself can be educational. I usually love this annual gathering. This year: very few wore masks. Young adults conflating two kinds of risk: Risk to self vs. others. Covidiots.
Good News: A single injection every two months prevented H.I.V. better than the daily pill Truvada (NYTimes).