Pre-QED 95: printing money (with judgment)
In this post I concluded by telling you that:
It hasn't happened yet.
In other words, Munchau did not explain to us that the only way out of the crisis could be.
But I ask you to pay attention, because I am almost certain that he is about to tell us, and I wanted to tell you why.
As I believe you have seen (thanks to whoever writes to you), central bank officials have no difficulty in admitting what we have always said here, for the simple fact that it is a trivial textbook truth of the second year: the creation (and therefore also the non-creation) of money to finance (and therefore also not to finance) public investments is a political choice, it is not subject to particular technical constraints, other than the macroeconomic one deriving from the potential creation of any inflationary tensions: that's all .
This is why we here advocated the idea that public borrowing requirements were monetized (that is, investments were not financed by issuing public debt) at least until the 2% inflation target was reached. The topic is not far from the issues raised in the conference of 12 . It could in fact be reformulated by saying that as long as there is a large output gap , that is, as long as the supply potential far exceeds demand, it makes perfect sense to finance demand (public demand, in my opinion) with money, because the availability of unemployed workers and machinery unused, it allows to satisfy this demand without creating pressure on prices. Obviously, crucial to this reasoning is that the output gap is measured well, a topic that Heimberger particularly addressed. Translated further, saying that "in Italy the output gap has closed" (that is, that supply is barely sufficient to satisfy demand) is equivalent to saying that one can not think of financing further demand by issuing money because otherwise inflation would be generated.
Now, as always, we (almost) get the good ones too: we learn from Voxeu, a highly reputable and therefore significant blog about the future orientations of the elite, that as long as there are no inflationary tensions, it makes perfect sense to issue money. The authors do it in 2021 with a posture that I do not like for the reasons set out in 2015, that is, because they talk about financing private demand with a helicopter money mechanism, rather than public infrastructures with the usual monetary financing mechanism described in the books. of text, but the fundamental point is clearly highlighted: the only limit to the monetary financing of the expenditure is not "where do you find the money?" (answer: you issue them), but "how much inflation do you feed?" (answer: during a very severe recession, very little). Proposing helicopter money as a "contingent" rule (ie dependent on circumstances, in particular on the rate of inflation) is a huge step forward: it means getting to where we were six years ago!
So soon Munchau will get there too, he'll write about it in the Financial Times , and the QED will be done.
While we wait, the companies close and the infrastructures go down the drain (often the first thing is caused by the second, as some entrepreneurs explained to us today in Pescara).
But like every cultural revolution, this one too has its times and, unfortunately, its victims.
We are doing our best.
This is a machine translation of a post (in Italian) written by Alberto Bagnai and published on Goofynomics at the URL https://goofynomics.blogspot.com/2021/07/pre-qed-95-stampare-moneta-con-giudizio.html on Mon, 05 Jul 2021 20:33:00 +0000. Some rights reserved under CC BY-NC-ND 3.0 license.