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Comment by WalterBright | Hacker News Reader

> There is nothing that says increases are inevitable.

Several trillion dollars in new spending proposals make it inevitable.

Most of those several trillion dollars of spending proposals are spread out across several to the 10 years, and many of those proposals are paired with revenue increases that will offset the spending costs.

So, no, the existence of spending proposals absolutely does not make it inevitable.

Have we not printed 1-3 trillion dollars in the last two years? Like, a substantial proportion of all circulating dollars? How does that not immediately devalue the dollar?

Disclaimer, I am not an economist and don't know what I am talking about.

But, the birds eye view formula from my macro classes is MV = PY, where M is the money supply, v the velocity of money, P prices, Y real GDP.

GDP is usually going up, we have more people (and we hope they are each more productive). So that means that either the money supply or velocity must go up, or prices go down (deflation). Velocity is fickle and probably interrelated with consumer expectations around P (if you think things are going deflate for one thing, you might wait longer to make a purchase hoping to pay less in nominal terms, and this has the effect of shrinking MV even more relative to PY).

Since V is hard to control directly, in practice M has to increase regularly to prevent deflation. What we saw with the pandemic was large decreases in V and unexpectedly small decreases in Y. The fed increased M and it absorbed this differential. My understanding though is that the inflation doomers think the drop in V was transitory and now we'll see a sudden spike in all that money being unlocked and circulating

I assume that inflation (CPI) can be reflected by the increase of money supply only when people can't find a way to transfer the money to somewhere inflation-proof and can only spend it on consumer goods. That's absolutely not the case in modern days. Look at the housing price, that's where the money's gone.

Basically that’s my understanding. Anywhere you stick the money with low velocity will have the same effect on the left hand side of the equation to absorb increases in money supply. You’re right that people pick durable assets like houses to put it in, but it would have a similar effect on the velocity of the money supply if they buried cash in garbage bags for 15 years en-mass. People don’t do that because they expect reasonable and small inflation; you could imagine if that expectation went away though (either expecting deflation or very high inflation) how the money supply lever could stop being effective.

Through the velocity lense, the fact that QE and stimulus checks have very different inflation effects also becomes apparent- if you give a check to someone living paycheck to paycheck, they will spend it in their local community nearly immediately and it will be passed around quite a bit before getting locked into an asset price somewhere. If you edit the banks accounts at the fed or have the fed buy assets though, it seems to go quickly into asset prices where it sits for years before leaking into the economy as a whole, with a much much lower velocity. So $1 there != $1 here in terms of increasing prices.

First of all, the monetary base is only a small share of money supply - most of that is debt.

Secondly, printing those dollars does immediately devalue the dollar, just not to the degree you might expect.

The average American has no savings, they will not immediately renegotiate their wages upon the news that this money has been created. Therefore, their opinion about the value of the dollar has little impact. They have no dollars to sell for other things, they spend just as they used to, demand stays the same, prices are stable if not for supply issues. Stimulus checks are an exception to this, but we did see price increases in anticipation of that spending.

Those who manage wealth on the other hand already know that dollars are trash, now they are just a little bit trashier. They do not hold large dollar positions in the first place, instead they buy up all sorts of assets - stocks, bonds and real estate. This inflates prices and depresses interest rates, increasing paper wealth and encouraging cheap borrowing - exactly what the government wants.

In other words, massive inflation has existed for years, it just does not affect every part of your life equally. If you are in the market for a house, your purchasing power as a worker has been completely annihilated. If you are in the market for a hamburger, you are fine.

I was responding to a claim that the recent proposals for new spending made it inevitable.

Past spending isn’t relevant to the claim I was responding to.

"Democrats openly admit that their strategy is to pass new entitlements like national child care, disguise their cost by pretending to phase the programs out inside the 10-year budget window, but assume they will become permanent as they always do. This means the real cost of the Sanders-Biden-Pelosi budget is $4 trillion, and it will put the U.S. on a path to European entropy."

https://www.wsj.com/articles/the-3-98-trillion-trojan-horse-...

Forgive me if I do not consider the WSJ to be a credible source regarding this subject and this holds doubly true for the opinion pieces they run. To be honest, unless the WSJ editorial board is frothing at the mouth I know that any government proposal or program is far too small or ineffective to actually be worth the effort. They say you know a politician is lying when their lips are moving and I know a WSJ opinion article is lying to me when they make the effort to print the words onto the page.

I'm curious what your source of news is.

Daily/weekly read list is The Economist, FT, BBC, New Scientist and sometimes Le Monde or Suddeutsche Zeitung if there are events across the channel I need to care about; I will scan articles from the Times and Guardian but mostly for laughs.

The WSJ used to not suck. I had a subscription through college up into the early 2000s and my college roommate interned for them prior to joining as a copy editor in the early 90s so I have a bit of a soft spot for what the WSJ used to be. The opinion/editorial section was always hot garbage, but it used to be the case that the articles were high quality; ever since Murdoch bought them the quality of journalism has gone to shit and now the journal is only useful to wrap fish or as the punchline to a bad joke.

Fair enough.

First, that WSJ editorial is pay-walled, so I’m not going to respond to anything from the WSJ editorial. Rather, I’ll respond to the Penn Wharton analysis [1]

First, I don’t take exception to the Penn Wharton decision to assume permanency of a bill (though it’s odd to me when the press then refers to it as a scoring of the reconciliation proposal, when it explicitly notes that it isn’t a scoring of the proposed legislation). However, it does seem odd to me to rely on such a scoring to describe the inflation of that assumed spending as “inevitable”.

Is it fair to say it’s the goal of the Democrats pushing this legislation to make these programs permanent? Yes, that’s the goal. Does that guarantee that will be the case? As someone who wants many of these programs to become permanent, no, it’s absolutely not inevitable that these programs will become permanent.

Second, the argument was not that spending will increase, but that debt to GDP to increase. For that to be the case, you need to show that the debt will increase (and faster than GDP).

To do that, you need to consider the revenue side as well. The JCT score considers the actual proposal (not the assumed future proposal) and finds revenue that mostly offsets the spending [2]. This means the “spending proposal” would have limited impact on the deficit, and therefore the debt.

The Penn Wharton scoring does absolutely nothing to convince me of the inevitability of the debt to GDP increasing. First, it’s based on at least two pieces of hypothetical legislation. Second, it assumes no revenue changes are made when those programs are made permanent.

[1] https://static1.squarespace.com/static/55693d60e4b06d83cf793...

[2] https://www.jct.gov/CMSPages/GetFile.aspx?guid=3fbf5966-deea...

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