Beth had written:
>The policy issue about large money supply creation is surely the fear of banana-republic
>style inflation (assets and goods) and a subsequent break-down of the money-exchange
>system, rather than whether governments can "print money". The logical corollary to the
>debate on the use of large job creation schemes to fight chronic unemployment is whether
>the monetary stimulus will increase inflation, or raise it to a level where it accelerates
>endogenously or sets up unsustainable cycles public expenditure. If inflation owes more to
>supply-driven world commodity prices (ie oil) than money supply growth (within limits), then the
>printing money is less of a concern. However, one would expect that the causes of asset inflation
>differs from consumption goods inflation and that assets inflation is more affected by the growth
>of the money supply than goods inflation.
Bill replies:
(a) Government's do not spend by "printing money". That misnomer is often used by non-progressive
economists to decry expansionary policy. I have been on ABC radio debates with business chamber
types and they start saying "so you will have people with wheelbarrows at the bank before long"....
wrong, you don't need a wheelbarrow to consult a bank account. All government spending is
achieved via the same accounting adjustments irrespective of what liquidity drains are subsequently used
to sustain monetary policy.
(b) As a fact, the achievement of genuine full employment requires x number of jobs (with 2 per cent
being the definition of full employment). Unless you want to define full employment as something
higher than that - as in a NAIRU world.
The reason that there the economy is x jobs short, given the non-govt spending preferences, is because
the net government spending is too low. The unemployed are currently "in the public sector" being supported
by welfare. The minimum level of spending that is thus required would be the wages of the unemployed in
public sector jobs. At the safety net wage in Australia the level of demand stimulus would not be that much
once you take account of the support the unemployed already get. But at any rate, that is the minimum
measure of the spending gap.
If that is inflationary (or destroys the balance of payments) then you any broader "Keynesian" expansion
will do worse. It has nothing at all to do with "printing of money". There has to be a liquidity injection in the
form of government currency. Any "progressive" argument that tries to be cute by advocating neutral budget
impacts etc to appeal politically misses the essential point that there is a spending shortfall and a public
deficit is required.
So if you are arguing that the solution to unemployment via public sector job creation (as in the CoffEEDear Bill - this is the point I am making. That 'some commentators' seem to make an artificial distinction between certain types of expansion - exports and investment=good - consumption and community service (or job creation) = bad. When in fact there is not a priori reason for believing that one is more inflationary than the other (probably the latter is less) - Beth
Job Guarantee proposal) will be inflationary, then you are really arguing against any expansion. The JG
is the minimum expansion that is required.
Peter replied to Beth:Dear Peter
In response to both Beth and Bill, I think that there is a role for
government borrowing, that is when there is some concern over the
level of aggregate demand being too high. In other words, when the economy
is near full employment, or when demand inflation of the balance of trade
deficit
are concerns, then governments may borrow to reduce demand pressures. Of
course, taxes on high incomes or elsewhere can probably do the same thing
more efficiently, but that may be harder to sell politicly!
Bill comments:
why drain the liquidity with a government annuity that helps speculators et al underpin their
unproductive behaviour and which supports higher interest rates which may (possibly) damage
real investment behaviour.
better to use taxation.
Progressives have to agree on theoretical models and policies before worrying too much about
what is politically acceptable.
best wishesReceived on Tue Feb 4 06:20:22 2003
bill
------
William F. Mitchell
Professor of Economics
Director, Centre of Full Employment and Equity
University of Newcastle
New South Wales, Australia
E-mail: ecwfm@alinga.newcastle.edu.au
Phone: +61-2 4921 5065
Fax: +61-2 4921 6919
Mobile: 0419 422 410
http://econ-www.newcastle.edu.au/economics/bill/billeco.html
http://www.billmitchell.org
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