At least someone on the IMF hasn’t bought into the “magic money tree” thinking of Modern Monetary Theory - the deficit-running politicians’ friend that relies upon the same fellows who borrow money into existence to turn around and tax it out of existence.
Taxpayers who heartily enjoy voting for politicians who offer free money don’t so much like the idea of high prices and high taxes that come as a result of so much “free stuff.”
Milton Friedman famously said: “Inflation is always and everywhere a monetary phenomenon, in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output.”
“We printed too much money and didn’t think of unintended consequences”
Yeah, the short version. Maybe “didn’t think” is not quite accurate though. Here the longer version:
"We printed too much money, we suspected it would come back one day to haunt us, but since that didn’t happen right away we printed a lot more, it made things so much easier politically, and was very popular with most people we care about.
We even adopted a name for it to help giving it pseudo-scientific backing. To our defense, that name did carry ‘theory’ at the end.
Perhaps we were also curious to see how far we could push it.
In any case, as our Noble-prize winning colleague said, who cares about savers?"
“Inflation is always and everywhere a monetary phenomenon, in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output.”
What if the problem isn’t money increasing too fast but output increasing too slowly? Or falling?
Wouldn’t that generate inflation, too? And is that a monetary problem or a supply problem?
I am getting older, and may not be as sharp as I was a decade ago. But I seem to recall some recent worldwide event that had a significant impact on production. I think it also affected shipping, which has an impact on getting production to markets.
“Inflation is always and everywhere a monetary phenomenon, in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output.”
What if the problem isn’t money increasing too fast but output increasing too slowly? Or falling?
Wouldn’t that generate inflation, too? And is that a monetary problem or a supply problem?
The problem is the gap between the two. If output is increasing at 0.01% per annum while the money supply increases by 1% per annum, you’ll have inflation. If output is increasing by 10% per annum while the money supply increases by 11%, you’ll have about the same inflation. If output is decreasing by 1% while money supply stays flat, again you’ll have about the same inflation.
The government can futz with the money supply more easily than with total production.