Free Money

by Will on August 20, 2010

Above: Patti Smith is awesome

Perhaps I’m going to sound like a broken record. But I can’t stop being frustrated by the anemic, counterproductive thinking that people are doing about the economy.

We’re in a general glut. People are not spending enough money to support all of the productive businesses that want to operate and all of the laborers who want to work. Consumers are nervous and are keeping their cash under their beds rather than spending it (not literally). Businesses and investors are keeping their cash locked up in janitorial closets (not literally) rather than investing, expanding, or hiring.

In short, there is an excess demand for cash (and similar assets): people can’t get enough of the stuff. What is the correct response to Demand? Supply! Give the people what they want! Print more money to make up for all the money under beds and in closets.

This policy prescription often gets labeled “Keynesian” these days, but actually comes from Milton Friedman. I’m old enough to remember when he was considered a stodgy right-wing uber-conservative.

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