This is my take on what commentator mark has to say here.
If a government can just print money then there is no absolute requirement for them to get their revenue from taxes, or for them to borrow money from anyone. I take it you agree with this – the problem is the fear of generating inflation.
No it isn’t like that. Neither is their any strict limitation on me going to the local corner shop with the contents of The Monopoly box. Sayeed will tell me to fuck off but strictly speaking… Why am I reminded of the Ark-ship B here from Hitch-hikers? You know they define leaves as currency and when massive inflation hits they embark on a scheme of disastrous deforestation.
But what is the mechanism by which inflation will increase? If the market mechanism is functioning, price increases when demand for a product increases more than supply (or supply declines). Money does not have a magic property whereby its mere existence increases the price of goods – people have to spend it to make this happen. I take it you agree with this also.
A year ago Sayeed sold Coca Cola for 10p less a tin than he does now. Is this because the Cola Mines of Atlanta are running low? No. This is due to inflation which is caused by the government not even pretending to print money (or grow leaves). Let’s look at this scarily for a moment. If I wanted to buy a reasonable house in a nice area I would need a quarter of a million quid. A hundred years ago I could do it for 500 quid. If scarcity is the driver then please explain how come a rough doubling of population has led to a 500-fold increase in property prices? No the driver was inflation and what Mark Wadsworth calls “Home Ownerism”. How does that work? It works like this. I think we can all agree that say a holiday in Acapulco is a luxury but food in the belly and a roof over your head and a sources of heat, light and water are absolute basics. Mr Ugg the caveman would agree with that one. Now when the price of all basics other than housing rises the likes of the Daily Mail and the Express go rightly mental. House prices going-up to silly levels is though seen as “a good thing”. It’s like when they go on about abandoning collective bargaining for salaries across the country so say a nurse in London is paid more than a nurse in the Orkneys you just make the situation worse because you might as well write cheques drawn on the public purse directly to Rachman. Or another way of looking is this. If we need to bend the market out of shape to allow a nurse (essentially a graduate job these days) to afford a modest roof over his or her head in London then isn’t something deeply structurally wrong?
In this case producing more money will increase production, because a man who was doing nothing will instead be making aircraft and a factory which was sitting idle will be producing missiles. We are increasing demand for aircraft and since there is idle supply, it is unlikely that the price of aircraft will increase by much. As a worst case scenario, the price of aircraft will increase a lot – but this is still unrelated to the price of stadiums, the price of coca cola or anything else unless demand for those increases also.
A Mk14 Spitfire cost twelve grand. An F-35 costs the thick-end of a hundred million. The Typhoons over Libya cost us 80 grand an hour -operating costs -not capital. Aircraft do cost more. We only don’t notice it because airlines are vicious because they have to be – razor-edge economics. And your argument is pure Keynesian nonsense. You might as well say we can cause economic growth by paying Fred to dig a hole and Dave to fill it in again. If people want it and are allowed it will happen. Your example of missiles is curious. Think on that.
If demand for a certain product is too high, the government could reduce demand by lowering spending or increasing taxes upon it.
Which is why the government increases taxes annually on addictive substances and things you can’t get around like fuel. Oh, but you don’t have a car? Don’t matter. Even if you walk to the shops someone had to deliver their stuff. There is a way round it. Living in a yurt on sunshine and eating shit off the trees in some Allah forsaken ‘stan.
But this is a very different story from “reducing spending on aircraft is neccesary to make a stadium” – that simply isn’t true.
Let’s say you have a twenty. You could go to the movies with your date or have a takeaway with him or her. Not both. To say otherwise is the economics of magic beans.
The sad thing is that right wingers are very happy to oppose the idea of aggregate demand when it suits them, but are still prepared to use the very same idea to argue against government intervention.
And I am amazed that you think people need to be taught the bog-standard, intuitive views which you have expressed. Where do you think you learned these ideas? I think I remember seeing a similar view of inflation on an episode of Duck Tales once…
Why do intuitive views need to be taught? They are like intuitive and frequently wrong. Here is an intuitive idea for you all. In my mother’s house in Gateshead there is a Monopoly set. As a small child I used a Biro to add zeros to my notes. Now at some level I knew this didn’t work but I did it because I was a kid and everyone games Monopoly anyway. If I had kids I would rather they watched “Anal Angels XV” than play that game for it is wicked. It really brings out the worst in people. The only other game I ever saw that lead almost to the Rozzers being called was Risk and that “incident” wasn’t strictly speaking game-related. That was because after copious libations a bloke wearing a Soviet general’s hat and mirror-shades, drunk and affecting a Libyan accent (he was from Sussex) urinated in a Scouser’s sink. Crazy student days! Damn fool! He’d taken North America which is the key to the whole game. My point is QE or whatever is exactly what I knew was wrong with what I did with Monopoly money when I was eight. Gideon Osborne has a lot of catch-up to do. Yeah, I said it. I trust small children from the early eighties (like me!) more than Oxford PPE graduates. Or Nottingham University chemistry students (almost as bad as medics) playing board games and causing fisticuffs. They never played Risk again.
It is important to tie our ideas of money to what is happening in terms of real products and services.
If only that were true! But you need to define “real” here. And that is tricky. That is why there is a market. For example let us say a hip-replacement operation costs 10 grand. Now I don’t like hospital food or being taken apart by doctors (I have lived with medical students) and I don’t have a gammy leg so that isn’t a ten grand value to me. It would be if I was walking like Dr Strangelove. 10 grand though would buy a nice little motor -now that could be useful. I now have to get my Dick out. My Philip K Dick. His long short story Paycheck has a lot to say about value.
Dick said of the story: “How much is a key to a bus locker worth? One day it’s worth 25 cents, the next day thousands of dollars. In this story I got to thinking that there are times in our lives when having a dime to make a phone call spells the difference between life and death. Keys, small change, maybe a theater ticket – how about a parking receipt for a Jaguar? All I had to do was link this idea up with time travel to see how the small and useless, under the wise eyes of a time traveler, might signify a great deal more. He would know when that dime might save your life. And, back in the past again, he might prefer that dime to any amount of money, no matter how large.”
If you are familiar with th idea of opportunity cost, answer me this. What is the opportunity cost of a stadium? In what way is it a aircraft except in the sense that we have chosen it to be?
The opportunity cost of anything is the cost of what else you could do with the money. To put it simply a fairly wealthy soul might buy a Porsche but that means he or she has chosen their form of German metal and they can’t then buy the Mercedes too. That is opportunity cost. Either/or.