The most important aspect of the claim about spending money is the broken window fallacy. Henry Hazlitt wrote a great book on the subject called Economics in One lesson.
The simple example is that we can't go around breaking windows to stimulate the economy. Sure, the window manufacturer and the window replacement companies might benefit, however that money which went towards the window could have gone elsewhere.
Engineering taught me one very important lesson. We can never get something for nothing. There is always a trade off. If the government is handing out money, it has to come from somewhere. Its either taxes, which means that tax money collected can't be spent elsewhere. Or it has to be printed, which is inflation.
Some people say, people aren't spending it, they are saving it! Thats important too. Unless they are keeping it in their mattress, that money is deposited in banks, which loan out the money for capital improvements, etc.
Lastly, my anecdotal experience is that "free money" tends to be squandered more than earned money. Which means poorly allocated funds towards resources less valuable to a strong economy.
"money has to come from somewhere" is not a bad thing. Not all the money is reasonably allocated with equivalent side-effects.
For example, it could come from the $748 billion dollars that are allocated for the military budget, which would take away $327 billion and still leave the US as the country spending the most money on the military.
Maybe that means we stop wars that break windows in other countries for a year to focus on healthcare issues, and maybe even, down the line, we find money to improve education for the future generations.
We spend more on Social Security and Medicare+Medicaid. Not that we want to use the money from either over Defense, but the notion that we spend more on the military is a myth.
Money given to people benefits people. Money given to the military benefits fewer people per dollar spent, and silly percentages of that military money is wasted and lost.
Every dollar you take from SS/Medic* impacts a person. You could cut the military budget by a large chunk before you'd have to actually impact a person.
The simple example is that we can't go around breaking windows to stimulate the economy. Sure, the window manufacturer and the window replacement companies might benefit, however that money which went towards the window could have gone elsewhere.
You misunderstand. The window is already broken. Everyone would be better off if the windows was fixed, but if the government doesn't help pay for it the window will never get fixed, the glass company goes out of business, the store with the broken windows goes out of business, and everyone gets addicted to meth.
keeping it in their mattress
Apple has $16bn under various mattresses overseas.
Exactly, and bank deposits are the source of loanable funds so they are still very much a critical part of the living economy. This isn't the 1920's where people literally had wads of cash completely removed from the banking system, nobody does that shit anymore.
Has there been any research done on the different economic effects of businesses putting their money in a bank account (indirectly creating more loanable funds) compared to other things they might do with it?
If banks aren't lending then having more loanable funds available means the money is effectively under a mattress. Unless it's being invested in equities or something instead of being loaned out.
The costs are inflation and national debt; Which with the Federal Funds rates at 0% are already costs that the monetary supply is accommodating.
Beyond that, we're still below inflationary targets and the dollar has grown accidentally stronger (and exports have decreased in ratio) under current economic policy. In effect, an inflationary effort could be significantly beneficial.
It's hard to be an Austrian and a decent human being. Moral hazard is real, but it's hard to stand by and watch humans suffer in a world full of abundance.
> It's hard to be an Austrian and a decent human being. Moral hazard is real, but it's hard to stand by and watch humans suffer in a world full of abundance.
Pardon the negativity, but this is a childish way to disagree with someone. Very few people think "I don't care what happens to people", mostly simply think there are better ways to do the most good. A person's inability to understand someone else's morality doesn't make that person superior, it makes them arrogant and ignorant.
It's much better to "steel man" a point of view, find the strengths in its arguments and understand it, then argue against those rather than just dismissing it out of hand because it doesn't align with your presuppositions.
Nothing is stopping all of the people who feel that wealth redistribution is required to be "a decent human being" from contributing voluntarily to charity. You're not being magnanimous by demanding that somebody else do something.
EDIT: and further, you're adopting the air of moral superiority while happily hurting people who haven't even been born yet.
>Its either taxes, which means that tax money collected can't be spent elsewhere. Or it has to be printed, which is inflation.
I thought the lesson we learned from the largest money printing in modern history is that printing money doesn't directly equate to inflation. Especially in a world with active Global Trade.
No. In this case, monetizing the direct subsidy would be creating less deflation, not inflation. And deflation is something we all want very badly to avoid because of all the concomitant pathologies for monetary velocity and contractionary effect.
> Engineering taught me one very important lesson. We can never get something for nothing. There is always a trade off. If the government is handing out money, it has to come from somewhere. Its either taxes, which means that tax money collected can't be spent elsewhere. Or it has to be printed, which is inflation.
If we leave the money aside for a moment, what we're looking at here is the need to massively reorganize our way of life to fight this virus. We need more medical care, more ventilators, less contact, less travel, etc. This is going to be really expensive. We're trying to turn a big portion of the economy on a dime.
Think of it like WW2, when the US converted automobile assembly lines to build planes.
There's going to be economic dislocation, and it's going to be rough. We need to reallocate resources rapidly. Once we've figured out what we need everybody to be doing, we can work out the money end of things.
And yes, we will pay for this with diminished wealth and higher taxes in the future. But if we allow this virus to spread freely, it will overwhelm our medical system and millions will die.
there is so much hyperbole here. Massively reorganize our way of life? Lets keep perspective. We're talking about building some temporary hospitals, temporarily increasing our respiratory support. This isn't the Spanish Flu. We have months of data showing so. Millions won't die.
What makes you say that this isn't the Spanish flu?
If we look at the mortality rate in places that are doing heavy testing, such the Diamond Princess and South Korea, it looks like we have slightly below a 1% fatality rate among people who test positive assuming adequate modern medical care for everyone.
The CDC's worst case scenario is 1.7 million dead in the US. Some British epidemic modelers put it closer to 2.2 million dead in the US assuming no health care overload.
But of course, medical systems in Lombardy, Washington and the Bay Area are already stretched to the limit. Wuhan had 80,000 patients and had to be reinforced by multiple Chinese provinces. And these overloads were with just a few 10s of thousands infected. The natural peak, assuming current numbers are correct, would far exceed our medical system's ability to cope.
At which point that 2.2 million number goes up. I've been staring at the numbers, running the calculations, and I keep getting roughly the same worst case answers as the CDC.
Unless there's some critical number that we're missing, we're in an ugly fight until we have a vaccine, or treatments that allow most people to breathe unaided. Until then, our best hope is to figure how to live life outside lockdown while preventing exponential growth.
>The simple example is that we can't go around breaking windows to stimulate the economy. Sure, the window manufacturer and the window replacement companies might benefit, however that money which went towards the window could have gone elsewhere.
The "windows" in this metaphor are already broken by the coronavirus. Our only choice now is how soon to fix them and which windows get fixed first.
>Unless they are keeping it in their mattress, that money is deposited in banks, which loan out the money for capital improvements
This isn't borne out by evidence, banks refused to lend during the 2008 recession.
The simple example is that we can't go around breaking windows to stimulate the economy. Sure, the window manufacturer and the window replacement companies might benefit, however that money which went towards the window could have gone elsewhere.
Engineering taught me one very important lesson. We can never get something for nothing. There is always a trade off. If the government is handing out money, it has to come from somewhere. Its either taxes, which means that tax money collected can't be spent elsewhere. Or it has to be printed, which is inflation.
Some people say, people aren't spending it, they are saving it! Thats important too. Unless they are keeping it in their mattress, that money is deposited in banks, which loan out the money for capital improvements, etc.
Lastly, my anecdotal experience is that "free money" tends to be squandered more than earned money. Which means poorly allocated funds towards resources less valuable to a strong economy.