We Need Quantitative Easing to Raise Employment

Quantitative easing would give the government more money to create jobs

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It could be that inflation is at the core of the political divisions on the economy in some industrial countries.

This is because people or organizations that owe money, including governments, benefit from inflation and those who have made loans stand to lose. It might be useful to make a distinction between money and purchasing power. Inflation increases the purchasing power of borrowers and decreases the purchasing power of lenders.

As this is at the core of our well-being we want government economic policies that promote or discourage inflation. Those who would benefit from inflation want stimulus and an increasing money supply. Those who stand to lose their savings want austerity and smaller government.

Inflation may be a way of dealing with the one percent but it also catches a lot of people who have worked hard to build up some savings. It should probably be considered a form of theft. It is no wonder the victims of inflation have such strong feelings.

It probably doesn't help for them to hear economists call for inflation to solve debt or economic problems.

It is interesting that when the representatives of those hurt by inflation get into government they appear unable to get debt under control and frequently increase it. This may be because they enjoy spending, have friends who need to be rewarded for past support and because they now have to deal with the debt problem. This may explain the rise of the tea party with its strong feelings of frustration.

The way to deal with the inflation conflict is to aim for price stability. This is probably easier said than done because I figure inflation is built into the way we create money. For more on this please look at my essay "LETS go to market: Dealing with the economic crisis."

It may be that inflation is becoming a moot point as it has been going down in spite if attempts to stimulate the economy and increase the money supply via quantitative easing. Does this indicate some other things we don't understand are happening in the economy?

This analysis is probably an over simplification as some people may be standing on both sides of the inflation issue and others may change from one side to the other during their lifetime but may not change their politics.

(The author of this comment has a web log on economics at https://economics102.wordpress.com/)

Art Powell 11:18AM July 21, 2012

QE is too little too late. We need large infrastructure projects and more small business loans and training programs.

Phil Crawford of CA 7:44PM July 20, 2012

They've done so splendidly to date, why not? Hey, maybe we can deficit spend until the only one who'll buy our debt is the FED? Sure, your family's share if a cool quarter million but really who CARES if your children can eat once they grow up?

Louis Nardozi of FL 5:52PM July 20, 2012

Finally, some clear thinking! (rather than some party line answer)

David of TX 1:53PM July 20, 2012

This is one point (there are many) on which MMT diverges from progressive economists like Weisbrot here, Baker, his co-director at CEPR in Washington, Krugman, Stiglitz et al.

I side with MMTers. QE is not the answer. What banks lack is not money to lend (they can lend even without reserves; in fact, they don't worry about reserves when they lend.) What they lack is creditworthy customers to lend to, which aren't in the mood to incur debt because they lack buyers for the products and services they can provide if the aggregate demand were higher. To sum it up: monetary policy is impotent to spur demand as the conditions are (with interest rates close to zero); only fiscal policy - government spending and/or tax lowering for households and selected businesses - can meet the sloppy demand head on. Deficit spending by the government means -- unerringly -- injection of financial assets into the squalid private sector that gave up buying things.

Frederico Carvalho of NY 1:53PM July 20, 2012