I don’t usually watch political talking heads, but I did happen to catch the first half of Glenn Beck’s new show today. I tried and failed to find a clip of his talk with Ben Stein, but the gist of what Stein said was that because we’re in a deflationary period, it’s fine that the government plans to print money, like to quote Beck like “it’s a new JK Rowling book” to help the economy. Stein says that there’s no problems to come from printing additional money in a deflationary period, and it’ll be a couple of years before that could cause any problems. He did not elaborate on what these problems a couple of years from now will be, or why it’s okay that what we do now will cause them.
I’m not particularly economy-savvy, so this sounds like a completely BS claim - how can printing new money not further devalue the dollar? Can someone explain why what he’s saying is reasonable?
Deflation is generally thought to be worse than inflation, and printing money is inflationary. The dollar isn’t devaluing, it’s becoming more valuable.
Yeah, Ben’s saying that the inflationary act of printing more money is OK because it’s offset by deflation. And a lot of hard money conservatives probably screamed in fury at their TVs.
Your first mistake was in assuming that the value of the US dollar is declining. It’s actually increasing, which is causing part of the problem. If you have a lot of debt, the value of that debt increasing over time is a BAD thing. We are in a period of deflation now, which is much worse than inflation. Deflation discourages money lending.
I’m not aware of any problems caused by printing more money, beyond inflation. I was under the impression that Ben Stein is a hard money conservative, himself. I’m pretty sure he’s right on the mark with that argument.
Well Ben Stein is right and indeed the Federal Reserve has been doing exactly that. The normal problem with increasing the money supply too much is inflation but that isn’t a concern right now. The economy has too little demand not too much and loosening monetary policy is one way of stimulating demand; and it’s a lot less intrusive than other methods like a fiscal stimulus. As for Zimbabwe there is little danger that the US will go there; if at some future date inflation looks imminent you can bet that Bernanke will tighten policy again. The thing about good economic policy is that it changes according to circumstances. You would think this would be obvious but it’s amazing how many people ( e.g. hard money conservatives) don’t get this.
Incidentally Ben Stein’s dad was a highly respected Republican economist. I guess if his dad had been a biologist instead, he would be defending evolution and making idiotic films about economics.
The amount of printed money is inconsequential. It’s petty cash basically. If people want more greenbacks then the government prints them…as many as the people want. But the total amount of dollars in circulation is small compared to the total amount of the money SUPPLY…which is quite large.
So…as others have said printing more money isn’t going to be a problem and Ben is essentially right on this one.
The government doesn’t really increase the money supply by “printing money” A relatively small percent of the total money in circulation is physical currency. The government increases or decreases the money supply through fiscal policy, including increasing or decreasin interest rates. I hate this misunderstanding.
Also, deficit spending is effectively “printing money”.
So how does the money supply get increased? I know that that normally happens when private banks lend money, but if they aren’t doing it, what is happening?
Something about how it’s obvious the gov’t designed money, since it folds so nicely when it’s put in a wallet, and it’s sized perfectly to fit into a pocket.
OK, I will take a crack at this. I am not an expert, but I did just take a course on the subject. I got an A. Smart remarks go here.
The phrase “government printing more money” is shorthand (in the U.S., anyway–Zimbabwe might be different) for “Federal Reserve Bank increasing the money supply.”
The money supply is increased in two ways–banks lending some multiple of their assets on deposit and the Fed purchasing assets using its reserves.
The Federal Government running a deficit/selling T-bills does not increase the money supply. Those actions increase the cost of private borrowing.
The Fed can increase its reserves any time it chooses.
The Fed has purchased a lot of assets lately–$2.5T, I believe. Some economists think that if the Fed had moved faster to buy up “toxic assets” we would not have gotten into a credit crunch.
We are currently in a deflationary period, because banks are unwilling to lend money. Effect of the Fed asset purchases has not shown up in a big way.
When the deflationary period ends and the inflationary starts, the Fed will take steps to reduce the money supply, by selling off those assets.
If the Fed paid way too much for said assets, they will not be able to significantly reduce the money supply and we will have significant inflation.
It’s my understanding that this is not really the case. Granted, this comes from a layman book by Steven Landsburg but I happen to think that’s a fairly reputable source.
In any case, the “printing more money” thing is just a poorly worded phrase that is easily used to deceive people. To this day I hear people touting the gold standard because then the government can’t just “print money.” I’m sure there are all sorts of interesting things to say about all this but the bottom line is that the phrase “printing money” is highly misleading or downright incorrect. Banks–private entities–aren’t making loans, therefore we are suffering from deflation. The government cannot force banks to lend money. Overall, the government can encourage lending but private banks drive the money supply and they are the ones that “print money”, except it has nothing to do with printing, so I can’t say whether Ben Stein knows what is up or not, since the whole problem is that government action right now in this very vein isn’t working.
As msmith notes,
Well, one hopes that these incentives drive private banks to do what we’re asking but there’s no guarantee it will happen, even if we give them money to loan out (which, of course, we have). When everything is happy you might wish to shortcut the events on the ground and say the government is “printing money” but if we’re trying to tell the OP what’s going on, this isn’t going to help.
