Here’s an example of some people making economic proposals that are sure to invite the immediate objection “That will cause runaway inflation!”
For example, one proposal is that there be a federal job guarantee. On this proposal, the government will hire absolutely anyone who can’t find work elsewhere, putting them to work on infrastructure.
Another proposal is that every child born in the US gets a sum of money put into a trust that they can’t access until they are 18. The sum depends on the child’s family’s income, but the numbers mentioned range from thirty to sixty thousand.
There are other similar proposals.
So of course, people will immediately think that by just pumping money into the economy like this, you’ll just end up causing inflation, and it will either be a disaster or will simply find an equilibrium which makes the added money practically worthless.
But those who make proposals like this are surely quite familiar with this objection, and I assume they’ve done some thinking about the matter and have a response ready for this kind of objection.
Infrastucture projects are a great idea except it would infringe on the livelihood of the private contractors that would normally be hired for such projects.
The goal is to foster a privatly funded economy that is self sustaining - allow for a fallback and people will rely on the fallback.
How does the gov’t deal with people that are just poor workers. They don’t show up on time and don’t put any effort into their work?
If the gov’t pays more than minimum wage, they are competing for workers in minimum wage jobs - forcing many industries to raise their wages/prices or go out of business - creating more unemployment and gaps in the service industries.
The government directly employing more people than it takes to run the government is socialism at its worst. It puts my tax paid money into the hands of people who don’t have the right skills for the job, thus are inefficient. My taxes would go up to pay for the less efficient workers or the gov’t would have to print money to pay them - devaluing every dollar I earn.
It’s better to maintain a capitalistic economy. Where people are ideally paid because they deserve to be and they are paid what they deserve to be paid for their skills and effort.
Gov’t money can better be spent developing new technologies and markets to open up new industries for private corporations to exploit for profit - employing more people in the process.
IIRC, Slate pointed pointed out that the Government spending is replacing private sector spending. Thus, the total amount of spending remains the same and inflation remains low.
I can’t pander to such a baseless assumption. These people are looking for a short term fix for the poor and unemployed rather than looking for a long term sustainable solution to the growing problem.
The growing problem is that everything we do takes fewer and fewer people than it did before.
The answer is to find more things for people to do.
Entertainment, Services and Power are the growth industries of the future. New variety in entertainment. More services for people who have money to afford them and Power for the ever growing needs of the population.
Inflation occurs when the amount of money in circulation increases at a rate faster than the increase in goods & services produced, i.e. the standard government prints money to pay the bills scenario. Or decreases at a rate slower than a decrease in goods & services produced, like during an oil shortage or war.
If these proposals are paid out of tax dollars, then they wouldn’t pose an inflationary risks. Borrowing the money to pay for them would have inflationary effect (since borrowing creates new money), and make purposeful inflation seem even tempting in the future, to make it easier to pay off the debt. And of course, if the government payed for these programs by qualitative easing or simply turning on more printing presses, it would cause inflation.
As for the fiscal viability of your examples, let me do some quick ball park figures.
There are ~15 million unemployed people in the US. Lets say half (7.5 million) seek employment under the job guarantee. If each job cost the government $20,000, that would be $150 billion total.
About 4 million children are born in the US each year. At $30,000 per fund, that comes out to $120 billion.
Given the current state of the US budget, the government would have do some combination of tax increases, slashing a good hunk of the budget elsewhere, print more money, or take on even more debt to pay for these proposals, with the last option being by far the most likely. So yes, they probably would have an inflationary effect, though probably not at “runaway” levels.
And of course, there are plenty of other arguments against those proposals that have nothing to do with inflation (or even the budget), though they are outside the scope of a GQ answer.