STAFF NEWS & ANALYSIS
Don't Dial Back; Print Harder
By Staff News & Analysis - May 16, 2013

If The Economy Will Collapse When The Fed Stops Printing Money Then Lets Keep Printing … Gawker's Hamilton Nolan concludes a discussion of the European Depression with his best Zero Hedge imitation: It's only a matter of time before the Fed stops pumping money into our economy and we deflate along with everyone else and then the demographic retirement bomb hits and we have fewer younger workers supporting the baby boomer retirees and health care costs explode and everyone's cranky and hope seems like a faraway dream and all the Europeans are laughing atus. So enjoy this brief moment of self-satisfaction while it lasts. – Slate

Dominant Social Theme: This money thing is not so hard to figure out. Just keep printing.

Free-Market Analysis: Every now and then the mindset of Alexander the Great reemerges and people offer the simplest solution to the most complex of problems. This is one such case.

Alexander the Great confronted with the Gordian knot didn't try to unravel it. He simply sliced it in half with his sword.

And now comes an article in Slate with a similar proposal. Does a collapse threaten if the Fed stops printing money-from-nothing?

All right then, keep printing!

See how simple it is? Aren't you kicking yourself? You can relax now. You simply didn't think it through.

Feel better? Here's more from the article:

I'm always a bit confused by this particular strand of monetary policy pessimism. If our economy will deflate just like Europe's when the Fed stops pumping money into our economy, then the obvious solution is for the Fed to keep pumping money into the economy. It's only a matter of time until the sun runs out of hydrogen atoms to fuse into helium and the entire solar system becomes unviable. It's only a matter of time until the heat death of the universe dooms us all. But unlike hydrogen atoms there is no objective limit on the quantity of money the Fed can create. It should not create so much money as to cause an annoying level of price inflation, but it should create enough money to avoid deflation and should keep doing so forever.

You often here that the Fed is artificially supporting the economy, but that's no more true than saying that America's hard-working police officers are artifically supporting the economy by arresting murderers. You can't have a prosperous economy without a properly functioning state, and conducting expansionary monetary policy is just part of the job of a 21st century state.

Okay, on a more serious note, we don't even know how to unpack the misinformation in this squiblet of an article.

It is NOT the job of a 21st century state to conduct an "expansionist monetary policy." Where is this written? Is it part of some sort of obscure Ten Commandments we don't know about?

And who says you can't have a prosperous economy without a properly functioning state? Pre-Civil War America managed the trick pretty well, as have other countries from time to time. The state is no panacea. If it were, the world wouldn't be in its current mess.

Finally, the analogy to police arresting murderers is simplistic and even fatally flawed. For the metaphor to work properly, you'd have to postulate an unlimited supply of police – constantly expanding until everyone in society was a peace officer, at which point society would presumably shut down, as nothing else would get done.

After Thoughts

The idea that central banks can simply continue to print money is a simplistic one to say the least.

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