To Fix The Economy, Let's Print Money & Mail It To Everyone

[big_dog]

For the past six years, the Federal Reserve has been trying very hard to get Americans to spend more. First, it cut interest rates so borrowing was easier. When rates got as low as they could go, it tried to pump money into the economy by buying up tons of bonds from people. So far they've bought trillions worth of US Treasury bonds and mortgage-backed securities. And while there's evidence this has all helped the economy grow, the course the Fed chose clearly hasn't been sufficient for a rapid, sustained recovery.

So Brown political economist Mark Blyth and hedge fund manager Eric Lonergan are proposing another way to go about things in the latest issue of Foreign Affairs.http://www.foreignaffairs.com/articles/141847/mark-blyth-and-eric-lonergan/print-less-but-transfer-more The problem is that people aren't spending enough. So why not just have the Fed give people money to spend? Blyth and Lonergan would take the money being used to buy bonds and use it instead to finance checks sent to every household. They'd either make grants of identical size to everybody, or, preferably, larger ones for people in the bottom 80 percent of the income distribution. "Targeting those who earn the least would have two primary benefits," they write. "For one thing, lower-income households are more prone to consume, so they would provide a greater boost to spending. For another, the policy would offset rising income inequality." The plan, they argue, would require much less money than quantitative easing does to be effective: "Print Less but Transfer More," as their Foreign Affairs headline has it. http://www.vox.com/2014/9/9/6122517/helicopter-drop-money-print-fed-blyth-lonergan

[louis-t]

1. Bush did that. Printed checks with his name on them.

Cost this country a fortune to do it that way, but bush got political mileage out of it. His policies cost me over $100,000 in income, but he gave me $600. Swell.

[big_dog]

2. Foreign Affairs says something around 2k should do it

turnaround is fairplay.

[lame54]

4. Bought a lot of votes

[upaloopa]

3. Does inflation ring a bell?

When everyone has money to spend prices go up. You learn that in Econ 101. Demand outpaces supply. Study the old supply and demand curve.
That is what happened in the late 80's
The interest rate on our new condo was in double digits.

[yeoman6987]

6. That is what Republicans say about minimum wage.

Surprised to hear it from a liberal.

[Kingofalldems]

7. Except the poster said nothing about the minimum wage.

[upaloopa]

8. It's got nothing to do with politics.

Last edited Tue Sep 9, 2014, 05:24 PM - Edit history (1)

And some say we are better educated on this board!
Not that it matters to you but in economics 101 they teach that a good economy is one with low inflation and close to full employment.
Employment creates demand by workers making a paycheck and supplies that demand with goods made by the workers.
Giving money does nothing to create the supply demanded thus prices go up because those with the goods can get more for them as the price is bid up.
The answer to a poor economy is jobs not give always!
Also giving money has a short term effect. Once the money is gone you are right back where you started. A person with a job keeps on spending as long as there is a job.
Or take that money and hire people to fix bridges and roads. There is enough work there to fix the economy. The workers will spend their pay checks.

[tkmorris]

10. This is Econ 101

I am so Liberal some of my relatives seem to think I'm a Communist, but that does not mean I don't deal with facts. More money chasing after the same goods is an inflationary force, period. Now of course that is but one variable and can be more than offset by another, but you cannot deny the basic principle.

[Lefty Thinker]

11. That makes some serious and unwarranted assumptions

Particularly, it assumes a steady rate of production, i.e. maxed out productive capacity. That does not reflect the current situation of our economy. Increased production will soak up the extra dollars, preventing or at least mitigating inflation.

[upaloopa]

14. I kept it simple just because it seemed like that is what

was needed here. I studied global economics in graduate school among with 4 years of Econ in undergraduate school 30 some years ago.

[ProfessorGAC]

53. With That Background. . .

. . .all you could do was spout "supply and demand". Anybody who has evern done sophisticated econometric analysis knows that S&D is a two dimensional construct that doesn't apply consistently in the macroeconomy.

Too many intrinsic and extrinsic influences on money supply and value, produtivity shifts and swings due to changing social strata, the generalized distribution of capital and the percent of invested capital as a percent of the total macroeconomic value. That's just a few.

You should know better.

[ljm2002]

12. We're suffering from stagflation...

...where wages and income are stagnant but prices continue to rise.

Giving people money would help them to afford the rising prices.

It would not put much, if any, inflationary pressure on prices, because no business is forced to pay their workers more in order for the workers to have more money to spend.

If it was a one-time thing I don't think it would have much inflationary impact.

Right now the Fed plays all kinds of games with the money supply, including putting more money into the hands of the banks. Why not put some of it into the hands of the population for a change?

[upaloopa]

15. Because there is no worth to the money.

Suppliers will raise prices of necessities because they can because there are enough buyers to take the goods at the higher price.

[ljm2002]

16. Theory only gets you so far...

...the reality is that right now money is flowing upward and not being spread around.

It amazes me how much people accept the Fed "printing" money for the financial institutions (i.e. creating money electronically), not worrying about how much that devalues the money -- but suggesting that the Fed might spread some of that money around to the peons raises the specter of inflation.

Anyway, IMO it's an interesting suggestion. Given the forces at play right now, with 3 job seekers for every real job out there, with more and more low-paying services jobs replacing higher-paying jobs, and with outsourcing and AI continuing to take over available jobs, I think it's time to consider a minimum guaranteed income for all.

[upaloopa]

17. You know that they are called the 1% for a reason don't you?

When we talk about inflation we mean the price of all goods and services relative to the supply of money in the hands of consumers. The 1% does not represent the consumers in the above idea.
You give them money they save it. That is the difference between them and us. We spend they save.
I think like the right, your are trying to make sense out of a false ideology.

[ljm2002]

43. au contraire...

...the person who is trying to "make sense out of a false ideology"is you.

[Taitertots]

20. New rule: no mentioning Econ 101 until you take 301,302....

I'm so sick of stupid self destructive policies being supported for stupid pseudo-economic reasons.

[upaloopa]

22. I guess you can give a discussion on what you mean then

Why stop there?

[Bigmack]

37. Inflation...? CEO pay up over 900% since '78....

... $26 Billion in Wall Street bonuses (not pay..bonuses) last year.

Now that's inflationary!

And the working people who would get the money....I always like the idea of dropping cash from helicopters, myself... would spend every dime. Locally.
Very few of them would buy yachts, expensive hookers/wives, or offshore their money to avoid taxes.

Kinda like Social Security... a stimulus to the economy that actually feeds people.

[upaloopa]

38. Remember Romney's 47%? Some of them live right here

at DU? Just give everybody money and life will be just fine.

[valerief]

9. Can we print enough to put in our own offshore accounts, too? nt

[magical thyme]

13. We gave some $16 trillion to the banks to "lend" to us

and instead, they continued with their gambling and stealing.

If we give an equal amount to tax filers, that works out to $106,666 each. That assumes giving an equal amount to each tax payer. If we limit it to the bottom 80-90% of the country, we would each do somewhat better.

That would be life changing money, as well as truly economic boosting. Enough for many buried under student loans to be set free. Enough for many with upside mortgages to pay off their homes and own them outright. Enough for some to put a couple kids through college. Enough for some to renovate their homes to make them more energy efficient. Enough for some to start a business. Enough for some to finally retire. And so on.

Would some piss it away? Unfortunately, yes. But as long as they don't literally burn it or literally flush it, they'd be spending it somewhere, which would get into somebody else's wallet, and help them along.

(There were 122m e-tax filers in 2013, which was >82% of all filers.* 122x10^6/.82 = 148,780,487 filers. Rounding up to 150,000,000 taxpayers:

(16x10^12)/(150x10^6) = 106,666.67)

*http://www.efile.com/efile-tax-return-direct-deposit-statistics/

[upaloopa]

24. there are issues you are not aware of

Printing more money

If the Central Bank prints more money, you would expect to see a rise in inflation. This is because the money supply plays an important role in determining prices. If there is more money chasing the same amount of goods, then prices will rise. Hyperinflation is usually caused by an extreme increase in the money supply

However, in exceptional circumstances – such as liquidity trap / recession, it is possible to increase the money supply without causing inflation. This is because in recession, an increase in the money supply may just be saved, e.g. banks don’t increase lending but just keep more bank reserves.

See: The link between money supply and inflation
http://www.economicshelp.org/macroeconomics/inflation/causes-inflation/

[magical thyme]

25. I am aware that more dollars chasing fewer goods = inflation

I am also aware that we have been barely avoiding deflation, with home prices and real income plummeting and stagnant (in real terms plummeting), even while essentials such as oil and food are rising. (And yes, I'm also aware of why oil and food prices are rising.)

The $16 trillion given to the banks was supposed to end up in our hands via loans. That would actually have further increased the monetary supply, since banks loan out more than they have in reserve.

That $16 trillion instead ended up in more gambling on the same "investments" that led to the 2008 crash, as well as new real estate "investments" this time in renting out homes that once were privately owned. That's all going to come crashing down anyway.

And in the meantime, that $16 trillion is *not* circulating (and the speed of money circulating has at least as much to do with inflation as does more dollars chasing fewer goods) so for all intents and purposes, doesn't exist.

Give that same amount to taxpayers. A large number of them will use it to pay down debt, which in the case of the trillion+ in outstanding student loan debt will often go right back to the Federal government. In the case of mortgage debt, will go back to the lenders to beef up their reserves as well as freeing up those homeowners.

For myself, I would #1 pay off tens of thousands in FAFSA loans, so it would go right back to the Federal Government. #2 fix up my little house so that it was carbon neutral, which btw, would reduce oil/gas consumption #3, fix up my aging car (again reducing oil/gas consumption, and #3 quit working and live off it until I can collect social security, which would free up 2 p/t jobs for younger people who need work and again reduce oil/gas consumption.

I'm probably not alone. I expect a *lot* off people would use the money pretty wisely, having suffered so much in the last 6+ years.

[upaloopa]

28. There is a reason we are not doing what you say we should.

I pointed it out it doesn't matter to you.
It seems to me a lot like the right wingers who push supply side economics when time after time it has been proven that giving money to the wealthy does not trickle down because they save and do not spend.
It has also been proven that if you increase the money supply without increasing the supply of consumer goods you force prices up.
Take housing for example. I own a house. I want to sell it. Right now I am limited by the number of qualified buyers there are. But give everyone the ability to buy my house and up goes the price until I can get the best price. I want to buy another house and the builder knows there are many buyers now that everyone has money. So the builder raises the new house price to what the market will pay.
If you don't get that there is nothing I can do to show you.
You can be like the right and preach unrealistic ideology if you want.

[magical thyme]

29. like the right? seriously?!? I explained why I don't think it won't cause inflation

I will also add that the crash caused many trillions of dollars to disappear into thin air, since home values plummeted and much "wealth" was lost in the stock market and never really regained. So putting trillions back in will bring the money supply back to closer where it was before the '08 crash. The $16 trillion given to the banks was supposed to do that, but failed since they refuse to circulate it.

"If you don't get that there is nothing I can do to show you."

Oh, I "got" what you were saying. I also explained why I don't think it applies; how in fact it would actually be less money circulating if money was given directly to taxpayers than if the banks had used their $16 trillion as intended.

Since you don't get that, then back at ya. There is nothing I can do to show you. Have a nice day.

[upaloopa]

39. You have nothing to support what you say. No evidence, history

just your fantasy thinking and yes just like the right's fantasy thinking. You both make no sense!

[magical thyme]

40. Per Pew Research the 2008 crash cost $108K per household

September 2008 crash cost $108K per US household
The Pew Trust has done the math and it turns out the economic crash of 2008 incurred about $108,000 per US household in costs and stock and house-price losses:
http://boingboing.net/2010/05/25/september-2008-crash.html

The velocity of (money) circulation and inflation
....During the period of quantitative easing, we saw a big rise in the monetary base, but, inflation didn’t increase....To be more precise, banks didn’t want to lend this extra increase in the money supply, they just kept bigger bank reserves. Therefore, the money supply didn’t filter through to the wider economy.....
http://www.economicshelp.org/blog/9373/inflation/velocity-circulation-inflation/

What Is the Quantity Theory of Money?

The concept of the quantity theory of money (QTM) began in the 16th century. As gold and silver inflows from the Americas into Europe were being minted into coins, there was a resulting rise in inflation. This led economist Henry Thornton in 1802 to assume that more money equals more inflation and that an increase in money supply does not necessarily mean an increase in economic output. Here we look at the assumptions and calculations underlying the QTM, as well as its relationship to monetarism and ways the theory has been challenged.

The quantity theory of money states that there is a direct relationship between the quantity of money in an economy and the level of prices of goods and services sold. According to QTM, if the amount of money in an economy doubles, price levels also double, causing inflation (the percentage rate at which the level of prices is rising in an economy). The consumer therefore pays twice as much for the same amount of the good or service.

QTM Assumptions
QTM adds assumptions to the logic of the equation of exchange. In its most basic form, the theory assumes that V (velocity of circulation) and T (volume of transactions) are constant in the short term. These assumptions, however, have been criticized, particularly the assumption that V is constant. The arguments point out that the velocity of circulation depends on consumer and business spending impulses, which cannot be constant.

The theory also assumes that the quantity of money, which is determined by outside forces, is the main influence of economic activity in a society. A change in money supply results in changes in price levels and/or a change in supply of goods and services. It is primarily these changes in money stock that cause a change in spending. And the velocity of circulation depends not on the amount of money available or on the current price level but on changes in price levels.

QTM Re-Experienced
John Maynard Keynes challenged the theory in the 1930s, saying that increases in money supply lead to a decrease in the velocity of circulation and that real income, the flow of money to the factors of production, increased. Therefore, velocity could change in response to changes in money supply. It was conceded by many economists after him that Keynes' idea was accurate.
http://www.investopedia.com/articles/05/010705.asp

In case it is not yet obvious to you, what I am saying is that the crash of 2008 vaporized $100,000/family from the economy. The fed attempted to restore that money to the economy by giving the banks $16T to lend back to the people who were robbed. However, the banks are sitting on the $16T (not that the people who were robbed should be required to borrow back the money that was destroyed). Therefore, the economy -- and more specifically, the people who owned that money -- is still short that $16T. If the fed provides the $16T directly to the people who were robbed, it will begin to circulate again. It will not cause inflation. It will go a long way toward making the victims of the 2008 theft whole again.

[magical thyme]

42. and I hear crickets. No surprise, since my statements are supported by facts.

[quaker bill]

49. Thanks

finally some basic sense.

[MFrohike]

46. Ok, you are plain wrong

"It has also been proven that if you increase the money supply without increasing the supply of consumer goods you force prices up. "

Actually, no, that has never been proven. Not once. Why? It's a completely nonsensical statement. The issue is not the supply of goods and services, but the productive capacity of the economy. Sure, you would probably get a short-term rise in the price level due to a temporary shortage, but let's not pretend that an economy like the US, with its massive domestic productive capacity and global supply chains, would suffer more than a mild and temporary hardship.

The difference between inflation and a rise in the price level is subtle, but real. Expectations define inflation. When you argue that a one-off transfer payment to the citizenry will somehow create inflation, you sound like an Austrian. I don't mean to insult you, but it's a really ignorant argument to make. Did the Bush tax rebate back in 2001 create an inflationary cycle? No, it didn't. This suggestion is much the same, though it seems to be of larger scale.

[Taitertots]

31. Milton Friedman called, he said the 1970's want their pseudo economic theories back

[grasswire]

30. IIRC, the Bush checks were denied to those with student loans.

Or maybe it was student loans in default.

So an initiative like this would need to NOT deny those people the benefit.

In fact, maybe a good first step would be to just forgive all student loans. Period!

[magical thyme]

35. the article I read on giving the money directly to the bottom 80% said outright

there could be stipulations on its use, such as paying off student loans, purchase a home, etc.

I don't like stipulations on use as a general rule, but I'd take that over doing nothing and leaving us to tread water until we drown. Because that is essentially what is happening now.

The stipulations would need to include energy efficiency/renewables for those of us who scratched and saved and purchased homes outright instead of down payment on home plus investing in the stock market. To me, roof over head always has been and always will be more important than pseudo-investing in hot air.

[Bigmack]

44. I have a problem with "paying off student loans and purchasing a home"...

...the money goes directly to the banks.

I'm hoping for great shovelfuls of cash going to the lowest 80%ers.

They'll blow it on stuff... beer even.

That stimulates the economy.

Not wed to this idea, but it grates on me to think people might get a tiny windfall and just sign the check on the back and hand it to the bank.

[magical thyme]

56. Since the money was stolen from us to begin with, I believe a substantial

payment should be used to "make us whole" which is why the dollar amount that I believe should be given to us is so high.

And I don't think there should be strings attached as to how it is spent. It was our money to begin with, we earned it, we saved it, it is ours. So we should be free to spend it as we like.

I would happily spend the first chunk to get rid of my FAFSA loans (to the Federal Government, not the banksters) so they are no longer a monkey on my back. The balance would be spent on fixing my home. That would go into the pockets of insulators, home heating, thermal solar and solar panel installation.

Anything left over would be some fun money for me.

But that is my preference. Obviously a small, token payment (remember Lieberman's "I want to put $300 in the pocket of every American) would not be used in that way. Nor would a thousand or two.

AT $106 or $108K, I'm talking life changing money for most people. How they choose to use it is up to them.

[Tuesday Afternoon]

18. Daddy, There really is a Money Tree in the Back Yard !!

[marmar]

19. That service is only available to banksters.

[AZ Progressive]

21. The Right Wing wealthy need to stop this "we don't need you" attitude

They will collapse the world economy just because their aggressively hostile attitude toward the "peons" when the "peons" spending money are what's responsible for a robust economy.

[BlindTiresias]

23. It is an old problem

Happens every time in wealthy empires and always destroys them.

[valerief]

26. Will it get printed and mailed every day? If not, the govt should give ppl jobs. nt

[Taitertots]

32. What do think will happen when people spend the money?

Create jobs!

[valerief]

47. For a day. nt

[Taitertots]

52. Why? Do they burn the money after it gets spent once?

[valerief]

54. It gets siphoned to the govt via taxes for WAR so the rich can get richer.

People without jobs will run out of money if they don't it regularly. Unless everyone is given a trillion dollars at once. That might last a lifetime.

[Taitertots]

55. You think that would happen in one day

You are saying that expansionary fiscal and monetary policy doesn't have an expansionary effect on the economy. Your opinion is counter to economic theory and all the evidence ever collected.

[grasswire]

27. a presidential candidate needs to offer this to the electorate

and then watch his/her poll numbers.

[abelenkpe]

33. A one time check to people would do nothing to cure the problems facing the working class

What US workers need are steady secure jobs with benefits. Workers need countervailing tariffs and/or tax penalties for corporations that offshore jobs. We need to lower the cost of higher education so that kids who work their butts off through school earning high GPA's and entry into college aren't rewarded for their efforts by being saddled with debt. Workers need strong global unions to counter the power of global corporations that currently pit workers in different regions against one another.

If everyone in the lower 80 percent were sent a large one time check that money would immediately go to service the debts they already struggle to service. It would be a relief to many, but short lived. It wouldn't cause inflation because it would be a one time event. Only long term steady salary and benefit increases that exceeded current inflation in energy, housing and food would spur inflation. Claiming this proposal would cause inflation does not take into account how globalization, financialization and automation have effected our economy.

See:
http://prospect.org/article/40-year-slump (for another view)

Or just read the entire article posted above which also points out that one time cash events would not cause inflation

There have been others who have argued for a national income for everyone. We live in a time where available jobs just don't keep up with population growth and employers see no reason to increase wages or benefits for workers. What is clear is that to do nothing to alleviate the economic pressure on the working class and address inequality will only make matters worse in the future. So it's good that people are discussing different approaches.

[B Calm]

34. I would prefer a work program designed to rebuild America infrastructure.

[NightWatcher]

36. Two words: Bake Sale

I suspect that it will raise more in some states than others. Colorado, I'm winking at you.

[Taitertots]

41. The old helicopter money drop

Everyone from Paul Krugman to Milton Friedman support this option.

[Bigmack]

45. I posted about this above...

.. we do need to unwrap the bundles of bills, tho.

We don't want a "WKRP" type drop.

[roamer65]

48. The 1980 measurement of inflation says its 8-10 percent.

That's the one where they don't substitute hamburger for steak, etc, etc. Increasing the money supply even further will just drive up inflation. Prices are already 10 times higher than the mid-1960's. I don't think we need to add fuel to the fire.

[ileus]

50. I'd like enough to pay off 6 more years of student loans please.

[DetlefK]

51. Exactly that was the republican plan to solve the recession.

The republican plan: Give everyone a little bit money, people will spend it in a wise way.
The democratic plan: Focus monetary help in a coordinated effort on core-groups.

[B Calm]

57. BINGO!

[hunter]

58. Skim the scum off the top...

... and recycle the nutrients to those on the bottom of the pond.

Keep the water transparent and well oxygenated. That's the secret to a healthy economy.

Our current economy is anaerobic. It stinks.