Asia Times is one of the best sites for articles on global economics but I have a beef with an assumption by one of its authors. I see this a lot and I think it’s just wrong:
“Were the adverse effects of excessive money creation and huge budget deficits not to appear at all, much of economic theory would have to be rewritten. It would mean that excess money creation could magically disappear, leading to no real world effects.”
If you assume that no change (currency stability) means no effect then yes, they’d have to rewrite economic theory. But if you assume the world is changing then you have to consider the possibility that incredibly loose monetary policy might offset natural deflationary forces. In other words, no change means something strange is going on.
In this case the pain felt by society would be the high prices relative to what they should be paying. So perhaps without all of the money printing gas would be $1 a gallon. We don’t see the fact that we’re paying $3 as a problem because we’re used to it. But that’s a real impact on society when jobs are vanishing.
If that is in fact happening it’s the perfect tax because standard of living goes down due to job loss, furloughs, etc. while prices are stable. The alternative is prices rising when wages and employment are stable. Scenario one is no less painful but it’s harder to point the finger because job losses probably feel like more of a personal failure than $6 gas.
Photo by Iveta on Flickr.