Thursday, December 24, 2020

If You Didn't Get $12,000 From the Government This Year, Consider Yourself Among the Scammed

 In response to my post, On Chapter 4 Of Stephanie Kelton's "The Deficit Myth: Modern Monetary Theory and the Birth of the People's Economics." Domminick Armentano writes in the comments:

Good argument RW but let's see whether it always applies. Assume the Covid 19 Relief package provides loans or actual money to owners of firms where employees have already been laid off. The money is printed out of thin air. The owner uses the money to produce new goods or services (the old goods he was producing 5 months ago are gone) and pay new income to workers (the old income that was generated 5 months ago is gone). So, first glance, I see new output and new income produced with the new money and I don't see any "bidding" away of labor resources from some alternative use. Who is "crowded out"?

This is all part of an argument I use to reject out of hand. My assumptions was always: Everybody working; resources and the supply of savings relatively fixed: there had to be crowding out with deficits and monetization (and rising interest rates). BUT rates have been falling and have stayed down for a decade or longer...even long rates. The gov. and Fed. have engaged in massive deficit spending and monetization for the last 15 years through two sharp recessions. There has, of course, been some "inflation" in some (asset) prices but certainly NOT the sort of numbers we saw in the late 1970s and early 1980s were I remember borrowing money at 12%.

RW response:

I see numerous problems with this take. The problem is not that owners of firms don't have things to produce. The problem is government lockdowns are preventing them from producing. No money is needed to launch owners into production mode, the restrictions on production via lockdowns have to be removed, that is all.

Indeed, black markets are  developing in extremely restrictive areas such as San Francisco where even haircuts are now given after a secret knock at a door and then entry is provided to the salon with boarded-up windows. This is not an aggregate money problem, it never is, it is an abusive government problem.

As far as this comment, assuming there is an owner mad enough to launch a new business that could be locked down at any moment:
 The owner uses the money to produce new goods or services (the old goods he was producing 5 months ago are gone) and pay new income to workers (the old income that was generated 5 months ago is gone). So, first glance, I see new output and new income produced with the new money and I don't see any "bidding" away of labor resources from some alternative use. Who is "crowded out"?

If a product has a price and is bid away by newly printed government money, then the person that was willing to pay the lower price is crowded out. This has nothing to do with added production. Markets clear, new bidding just distorts who gets the factors of production that is all.

As for price inflation, to buy into government propaganda indexes that there is little price inflation is always dangerous. As I have pointed out, the goods people are buying are facing significant inflation.

Food prices are up over 3.5% over the last 12 months, whether it is food bought for home or away from the home.

It should be remembered that President Nixon in 1971 imposed wage and price controls when the CPI was only 4.0%. 

To not be concerned about current price inflation of basic goods, makes one less responsible than Richard Nixon.

Further, the Great Money pump was just started earlier this year. All such money pumps start with a climb in capital assets and we are seeing that price explosion in capital assets, everything from the stock market to housing prices.

It takes time for the money to work its way to the consumer economy. That the increase in food prices is already over 3.5% is frightening. 

To not be concerned about price inflation at the present time makes one a good candidate for a position on the Federal Reserve Board of Governors. However, as I pointed out in The Fed Flunks: My Speech at the New York Federal Reserve Bank, the Fed has never gotten anything right.

The irresponsible Fed printing of nearly $4 trillion dollars in less than a year is outrageous. That is $12,000 per every American man, woman and child. It is very difficult to see how this will not make price inflation a major story in 2021. Did the average American get $12,000 from the Great Money Pump? Not a chance, the elitists got it and that is about it. As Nixon pointed out in 1971:
Inflation robs every American. Every one of you the 20 million who are retired and living on fixed incomes they're particularly hard-hit. Our homemakers find it harder than ever to balance the family budget.

Money printing is always bad. It is a scam designed to shovel funds to those close to power at the expense of the general population.

If you didn't get $12,000 from the government this year, consider yourself among the scammed. This is the beginning and end of the story.


  1. I agree money printing is bad and that all the piggies used Covid to come to the trough. In a private property society the government couldn't mandate businesses to close, understood. But in a private property society, wouldn't there be compensation to businesses that were forced to close by other firms or entities? If a factory accidently releases a dangerous gas and the neighboring businesses have to close for a week to ensure safety of their customers, doesn't the gas emitter pay compensation? The government forces a business to close, doesn't it owe expected lost revenue as compensation?

  2. I got this email from FedGov (Medicare) yesterday. You can't make this stuff up.
    Headline: "Watch out for COVID-19 vaccine scams!!"

  3. I am not making any case for Fed pumping obviously! Goodness, I am on record for abolishing the Fed! And, yes, I agree that no amount of "inflation" is acceptable and it's entirely correct that wage and price controls were imposed (Nixon) when inflation rates were quite low and this is always a danger given political insanity. With the massive monetization currently, the risks of accelerating inflation are certainly substantial.

    However, I was making a more modest set of arguments which I don't think you effectively rebutted. My gym closed for 3 months. No output and no income but substantial overhead costs. Savings and Working capital depleted and bank loans impossible. Lockdowns over BUT only a few customers dribble in. Working capital required now to cover overhead, hire back instructors, and start new marketing efforts to restore customer base.

    Now assume that "money out of thin air" goes to gym owner (loan or gift). He pays his rent (partially suspended for months), hires back some instructors, and spends new money advertising and promoting "new" products and services. Maybe he even pays (some) of the money back...just like a bank loan that he could never swing. BTW, would a bank loan have crowded out anyone? And precisely where does the new money crowd-out anyone?

    In fact the new money fills in lost rent to landlord. New money fills in lost wages to laid-off instructors. New money allows the production of new services that were "lost" during the shutdown. So the new money DOES in fact lead to new output, RW, contrary to your argument. Supply is crowded IN rather than crowded out, and that goes for savings, too. And that's why, of course, interest rates have gone down, not up, as they would have (over these last 2 decades) if there had been an actual crowding out effect.

    Could all of this be over-done? Absolutely, and Kelton admits as much. When all gym instructors are employed, if my gym wants to expand output, they must bid instructors away from other gyms. If all gym equipment is employed, to expand output requires my gym to bid those resources away from other employments (used equipment prices rise). Rents will rise as my gym bids additional space (for new output) from competing employments. Crowding out and the price inflation associated with it. But until all of this happens, crowding out is either nil or minimal, and Kelton's major thesis (unfortunately) still has not been vanquished.

  4. Because I am an EPJ subscriber, I got more than $12,000 by profiting off this madness. But to your point, that did not come from money given directly to me free of charge by the banking cartel.

    But i am thankful to you. Merry Christmas!

    David B.

  5. In Hungary, I have made a study of food inflation at my local supermarket since the start of the pandemic. In September, the March - September inflation of 7-8%. I wouldn't even trust the official CPI for food from such monsters as the government