What of Deficits and Inflation?

A brief note here to answer a question about inflation. All spending carries the risk of inflation. The question is whether or not deficits automatically translate into inflation. The answer is no.

The government could at this moment issue $40 trillion. If that $40 trillion merely sat in an account somewhere unspent, it is not a problem. The problem occurs when the $40 trillion is then spent on goods and services. In doing so, aggregate demand increases. If the economy is unable to meet that demand, then the price level will rise. 

We must begin thinking correctly in terms of real resources and not "money". Real resources are finite. Currency in the US, UK, Canada, Japan, Australia et al., is not finite; it is infinite. However, once you begin spending that which is infinite to buy that which is finite, inflation will be a possibility, whether that spending is public or private. 

If you want to create demand-pull accelerating inflation with budget deficits, then you must spend persistently more than the economy is capable of producing. If there remains the ability to increase output, then that budget deficit is not a problem. How do we know whether or not we can increase output?

Unemployment. If it remains, then the deficit is too low.

The Money Supply, the Price of Money, Monetary Policy and Inflation

Much confusion surrounds the items in this article’s title. Thanks to orthodox viewpoints we have nearly an entire populace that believes Jack and the Beanstalk is a true story. Now, of course, I’m not being literal. I am, however, trying to make a point. Like, say, Tolkien, orthodox economists fashion a fantasy world all their own. Unlike Tolkien however, these economists write their fantasies down and then push it onto the populace as reality. Much of it is mere assumption. 

Inflation: Ad Nauseum

It just won’t stop. Oh, you can tell people to focus on long-term involuntary unemployment and the negative effects thereof, which make the effects of inflation seem like a walk in the park – and it should be the main topic of discussion – but, no. Some people must talk about inflation and, quite frankly, 99% of these “some people” have no idea what they’re talking about. Why is that, you might ask? Well, it’s all quite simple really. 

The US Government Does Not “Print Money” to Fund Spending

On May 11, 2016, CNN ran an article by Heather Long with the headline, “How can Trump 'print the money'?”, filled with misinformation that only neoliberalism can conjure up, finishing strong with warnings about the U.S. becoming just like a small African nation called, you guessed it – Zimbabwe. Let’s debunk the article.

From the start, allow me to point out that I am not a Trump supporter. People who know me, know that this is true. In the article, Ms. Long asks, “So how exactly do you print money?” The actual answer is, you don’t. 

Inflation - Yet again and again and again and...

In reference to Social Security we see statements like this one floating around out there:

"with a ton of baby boomers retiring and not enough workers there will be more money chasing too few goods = inflation"

The subject making the above statement is conjuring up the words of Milton Friedman (more money chasing too few goods) to warn us all that "inflation" is something to fear when it comes to federal spending and Social Security. The whole premise is pure nonsense. Now, why am I saying that it's nonsense? Isn't it true that his assertion could occur? Yes, it is a possibility, but only given some very extreme factors. In other words, the chances of Social Security causing accelerating inflation right now or in the very near future is extremely low. Here's why.