> That we had the tools to fight poverty and create better living conditions all along but deliberately didn’t chose to do so?

Yes, that's it in a nutshell. Even the standard 1940s mainstream Keynes doctrine is quite clear on the no hyper-inflation scenario - additional money supply will not result in excess inflation unless the economy is at full employment. And by full employment, it doesn't mean the headline unemployment rate of ~5% quoted in media. It means high labor force participation rates (currently at historical lows), low underemployment (currently at historical highs) and low unemployment rate. The fact we see persistently low inflation rates throughout the developed world for decades is intimately tied to these stats.

By finally having time to read Keynes directly from his own works, it's amazing how prescient the man was. Sans the dandy early 20th century English, these quotes are just as applicable today as they were in 1930s:

> ...the richer the community, the wider will tend to be the gap between its actual and its potential production; and therefore the more obvious and outrageous the defects of the economic system.

> [on classical economics] That it reached conclusions quite different from what the ordinary uninstructed person would expect, added to its intellectual prestige. That its teaching, translated into practice, was austere and often unpalatable, lent it virtue. [...] That it could explain much social injustice and apparent cruelty as an inevitable incident in the scheme of progress [...] commended it to authority.

> professional economists, after Malthus, were apparently unmoved by the lack of correspondence between the results of their theory and the facts of observation;— a discrepancy which the ordinary man has not failed to observe

Keynes worked until stagflation happened. That's the issue that made other models come forward

And of course, the hyperinflation episodes of those countries (and others) did really happen

But maybe the issue is giving the money directly to people instead of using it to pay government debt

Also, whilst Keynes had a number of policy preferences which are unfashionable now ('euthanasia of the rentier' through sustained low interest rates being one), the General Theory explicitly was about how governments could soften economic contractions like the one we're experiencing now, and explicitly wasn't about governments running structural deficits. At various times he argued that higher taxes were necessary and desirable if the government wanted to use more resources, and that government funded services were more desirable than widespread redistribution payments.

We are in a period of sustained low interest rates. It would be interesting to see if the percentage of people who own their home is going up as a result. I can anecdotally tell you that the interest rates being so low are motivating me to try to get a home loan ASAP despite the prospect of mortgage insurance because I personally do not believe that the interest rates will stay low forever...

Stagflation happened because of the oil crisis. This wasn't something that undermined keynesianism at all, it was simply a disaster exploited to push what eventually became trickle down.

> Keynes worked until stagflation happened. That's the issue that made other models come forward

Keynes worked after stagflation as well:

> I just do not think that is right. Stagflation is very easily explained: you just need an ‘accelerationist’ Phillips curve (i.e. where the coefficient on expected inflation is one), plus a period in which monetary policymakers systematically underestimate the natural rate of unemployment. You do not need rational expectations, or any of the other innovations introduced by New Classical economists.

[…]

> Stagflation did not kill IS-LM. In fact, because empirical validity was so central to the methodology of macroeconomics at the time, it adapted to stagflation very quickly. This gave a boost to the policy of monetarism, but this used the same IS-LM framework. If you want to find the decisive event that led to New Classical economists winning their counterrevolution, it was the theoretical realisation that if expectations were rational, but inflation was described by an accelerationist Phillips curve with expectations about current inflation on the right hand side, then deviations from the natural rate had to be random. The fatal flaw in the Keynesian/Monetarist theory of the 1970s was theoretical rather than empirical.

* https://mainlymacro.blogspot.com/2014/06/understanding-new-c...

> But my small quarrel with Simon involves how we got into this state. He dismisses the stagflation of the 1970s, on the grounds that IS-LM macroeconomics quickly adapted to the new information. Indeed, this happened very fast: by 1978 both the leading undergraduate macro textbooks, Dornbusch-Fischer and Gordon, had accelerationist Phillips curves and extensive discussions of stagflation. (Compare this with new classical macro, which failed decisively in the 1980s, but never adjusted at all.)

> Nonetheless, I remember the 70s quite well, and stagflation did indeed play a role in the rise of new classical macro, albeit in a subtler way than the caricature that it proved Keynes wrong, or something like that.

> What mattered instead was the fact that stagflation had in effect been predicted by Friedman and Phelps; and the way they made that prediction was by taking a step in the direction of microfoundations. Specifically, they asked what a more or less rational price-setter would do in the face of persistent inflation; their answer was, raise prices preemptively, and if everyone did this it would shift the Phillips curve up by the amount of expected inflation. Sure enough, the Phillips curve did seem to shift as predicted.

* https://krugman.blogs.nytimes.com/2014/06/28/stagflation-and...

What "other models" are you referring to?

Your quotations are actually in violent agreement with the poster you're responding to.

The accelerationist Phillips curve and various types of rational expectations based microfounded models you reference are, for better and for worse, the newer 'other models'.

Arguments advanced upthread that Keynes (and recent events) implies that the government could eliminate all poverty and unemployment through continuous money printing without consequence, or 1960s Keynesian arguments the government could at any point trade slightly higher inflation for lower unemployment (which were influenced by but not made by Keynes) were the casualty.

One thing both the original Keynes and modern mainstream interpretations have in common is they viewed large deficits as a tool for fixing the imbalances of a recession rather than the natural way of paying for things.

This is fascinating. Can you recommend any specific works by Keynes to dig into?

The reason that stimulus spending doesn’t result in hyper-inflation is that the increase in the money supply from the debt creation is almost completely offset by a drop in monetary velocity.

This is because most of the money injected due to a stimulus is quickly locked up due to structural issues where excess savings is quickly funneled to corporate profits, landlords and the ultra wealthy. These funds do not recirculate do the velocity of money drops and inflation doesn’t materialize. In fact the structural issues are so strong in places like Japan that deflation has will naturally result if the money supply isn’t increased with constant stimulus measures.

This creates a company store economy where the underclass or government has to perpetually roll an increasing amount of debt.

Kind of thinking aloud here, but could the Japanese situation be a consequence of their culture? That they have a higher psychological need for feeling safe, which means sitting on more cash for a rainy day.

Maybe the solution could be to run an unbalanced book. Money and debt are often created together, but if all actors of the economy really want to be cash positive, then maybe it calls for having more money than debt.

> Kind of thinking aloud here, but could the Japanese situation be a consequence of their culture?

Could be a component, just like in Germany. When your central bank rate is zero:

* https://tradingeconomics.com/euro-area/interest-rate

And your borrowing costs are negative going out thirty years:

* https://ca.investing.com/rates-bonds/germany-government-bond...

That's a pretty good indication that spending should increase.

Demographics is often said to be a major component. The older a population is, the less spending there tends to be, which tends to impact economic growth, and has a pretty good correlation with (low) interest rates:

* https://financialpost.com/opinion/the-natural-rate-of-intere...

* PDF: https://www.fraserinstitute.org/sites/default/files/why-are-...

After WWII Japan’s exchange rate was fixed in a way that penalized consumption and subsidized production (for export). The result was the rapid rise of Japan as an industrial power in the 60s to the 80s. This is the same strategy that South Korea followed and China is following today.

While this strategy in the short term dramatically increases capital investment in a country in the long term it seems to come with a demographic drag. Workers simply stop having children as they are the largest consumption driver. Long term this creates profound demographic changes that ultimately are culturally fatal.

When additional government spending doesn't lead to inflation, one obvious reason is that it is utilising what would otherwise be excess unused/idle capacity in the real economy.

It's only when the spending exceeds the amount of otherwise idle capacity that inflation occurs, as too much money chases too little real production.

It's evident that the economic shocks this year have idled a great deal of economic capacity.

It's mysterious to me how the public's opinion is formed of what economists say. The view inside the field is very different, and doesn't resemble what you say at all. Nobody in the field worries about hyperinflation for developed economies. The consensus is that governments can combat recessions. There was some challenge to this view in the late 70s and early 80s, when inflation was high, but by the end of the 90s the question was mostly settled. In the US, even the economic advisors to George W. Bush called for stimulus spending to combat the recession in 2000.

> Nobody in the field worries about hyperinflation for developed economies.

They might not, but could you ELI5 why they shouldn't be? Because as the interest payment on national debt grows, what happens eventually if not hyperinflation? You can't keep borrowing money to pay interest on existing debt, so you'll have to start printing money, right? How do you avoid eventual hyperinflation when you keep borrowing more and more money to increase your debt even more?

> How do you avoid eventual hyperinflation when you keep borrowing more and more money to increase your debt even more?

if i understand correctly, from reading bits here and there, its basically as long as you have something to offset the printing with (taxing out of circulation, ensuring the excess money is spent, taking out of circulation with bond offerings etc) then the "negative" value of the taxing/spending/bonds prevents the in-circulation (positive) cash to cause inflation.

its basically the debts vs liabilities balancing each other out on a national scale: as long as you balance the assets with some kind of liability, you are 'ok' afaiu

basically, modern monetary theory*

* https://en.wikipedia.org/wiki/Modern_Monetary_Theory

ELI5: When there is a lot of demand for something, the value of that thing goes up. When you increase the supply of that thing, the value goes back down. In other words, the value of a thing changes based on both supply and demand.

Inflation is where the value of dollars goes down. As long as you don't print more dollars than people are demanding, you won't get hyperinflation.

The U.S. dollar, for one reason or another, is in high demand all over the world. Other national currencies are not, so when they printed too much of their currency they got hyperinflation.

If the U.S. printed too many dollars too quickly, or demand for dollars dropped quickly, the dollar could see hyperinflation too.

You didn't account for the effect of increasing debt on the necessity to print money?

Debt is the demand. People (governments) are loaning the U.S. money in exchange for the U.S. paying them back in dollars. That's how bad they want dollars.

But obviously the question isn't "would they still want dollars?", right? But rather "at what price (i.e. interest) will they want dollars?"... and my point is that price will need to keep increasing as the US borrows more and prints more money to pay interest on its existing debt, right? I don't understand how you just neglect this feedback loop... it screams exponential growth to me.

You are absolutely correct. If demand for dollars drops someday the U.S. is in for a world of hurt. It would have to find some way to decrease the supply of dollars to match. Right now I believe that would have to be through increased taxation.

I'm saying that on the current path the US is on, it's not "if" to me, but "when". Or to be more precise, "at what rate". And I see that rate as monotonically getting worse.

And either way, then doesn't "nobody in the field worries about hyperinflation for developed economies" seem utterly misguided? It seems quite worrying given what I just described.

So, buy bitcoin!

Japan's debt-to-GDP ratio is 266%. Japan's inflation rate is below 1%. After the Napoleonic wars, Britain had a debt-to-GDP ratio over 200%, and didn't have serious inflation. There is no mechanical relationship between high debt and inflation. Countries generally only have hyperinflation when things have gone terribly wrong.

> You can't keep borrowing money to pay interest on existing debt

Actually, you probably can. The long-term trend of interest rates, at least in the West, has to decline over the course of 700 years:

* https://www.visualcapitalist.com/700-year-decline-of-interes...

There have been many gyrations, but the trend is pretty clear. It's easier to pay past (more expensive) debt with new current (cheaper) debt. The UK is still rolling forward debt from the South Sea Bubble (1700s), Napoleonic Wars (early 1800s), Crimean War (late 1800s), and World War 1 (1910s):

* https://www.theguardian.com/business/blog/2014/oct/31/paying...

* https://www.theguardian.com/business/2014/oct/31/uk-first-wo...

As a person, your accounts come 'due' in your lifetime, so when you die your estate holdings will be sold off, and remaining debts will be paid off. If there's not enough to pay it off, then the creditors are S.O.L.; if there's extra left over your heirs can get something.

A country/nation on the other hand just 'keeps going' (short of revolutions or being conquered), and so there's no cut-off date when accounts have to be settled.

Can you please ELI5 why a government would have to borrow money that it is able to print itself?

Strictly speaking, in the modern era, it is not "a government" that decides to print money, but rather the central bank, which are considered independent on government and do (should) not follow the orders of politicians.

The central bankers are hired for a fixed-term (though renewable) and are given a mandate:

> The Federal Reserve works to promote a strong U.S. economy. Specifically, the Congress has assigned the Fed to conduct the nation’s monetary policy to support the goals of maximum employment, stable prices, and moderate long-term interest rates. When prices are stable, long-term interest rates remain at moderate levels, so the goals of price stability and moderate long-term interest rates go together. As a result, the goals of maximum employment and stable prices are often referred to as the Fed’s “dual mandate.”

* https://www.federalreserve.gov/faqs/what-economic-goals-does...

If 'printing money' helps to accomplish that mandate they will do so, but they will (theoretically/ideally) not print money just because it would be convenient for political purposes.

It should also be noted that in most/may modern economies, private banks actually create the money the supply through issuing loans:

* PDF: https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...

Good video by Ben Felix on the topic:

* https://www.youtube.com/watch?v=K3lP3BhvnSo

Right, and this is specifically to avoid things like hyperinflation.

Do you trust Congress to manage the money supply? I don't. I think they'd use it to buy votes rather than to do what's good for the country, and the result would be disaster.

If you could get cash now by promising to pay it back with something you can manufacture for (nearly) free, wouldn't you make that deal too?

The catch of course is that there really isn't a guarantee that the U.S. will be able to keep printing dollars without the value going down

There is inflation. The dollar is incredibly weak right now on currency markets, relative to other currencies. Businesses that are not already sitting on large piles of cash are bearing the brunt of inflation right now, as they get screwed between the rising costs paid to foreign suppliers and the stubbornly low prices that American domestic consumers can afford. The performance of the average American business has drastically decreased this past year, contributing to layoffs and making the problem worse. You don't see it in the stock market because the prices of stocks are being propped up by the Federal Reserve, but it's been an open discussion over the incredibly fast gains in the stock market over the last several months whether stock prices are coupled to corporate fundamentals or not.

You clearly believe the dollar is worth less, and is likely to be devalued further, but aren’t willing to tie that to the higher stock market prices?

There are many factors that go into stock market prices besides the strength of the dollar. With interest rates this low, there's hardly anywhere else to invest one's money.

Correlation does not imply causation. True economic strength would result in both higher stock prices (reflecting stronger companies) and a stronger dollar (reflecting increased demand for those companies' goods and services). One needs to take the stock market prices in the context of the actions of the Federal Reserve and despite the weakness of the economy.

With inflation, the price of everything goes up, from candy bars to stocks.

perhaps inflation should consider the cost of equities, healthcare, and housing (more thoroughly than it does now)?

If I have a cash surplus that's where I'm most likely to use it.

This makes a lot of sense if you consider that increasing the supply of money is not enough to cause inflation on its own- there also has to be scarcity. Healthcare is scarce because it is tied to the availability of highly skilled labor and has seen significant cost increases in recent years as a result. Housing has been scarce because the amount of land near job opportunities has decreased as our economy has become more service-oriented. And this brings me to the one big item that was missing from the list in the OP: the pandemic has eased the housing crisis by encouraging everyone to spread out. The exodus of upper and middle class people moving into smaller cities and towns will bring more opportunities for service jobs to places with lower construction costs and a higher availability of land. The only question is whether the drawbacks of telecommuting are big enough to push everyone back into offices in a few years, reversing the trend.

> the pandemic has eased the housing crisis by encouraging everyone to spread out

AFAIK there were a few weeks in the first wave of the pandemic where people fled the city and landlords would face sudden issues to fill their apartments but this time is over. Speaking from anecdotes by friends trying to get apartments in the big cities thoughout Europe it has not gotten easier at all.

In Boston and New York it still seems to be a renters market

It is simple supply and demand. At the start of the pandemic people all over the world were selling stock, commodities, bonds, all demanding dollars. When demand goes up for something you can produce more of it without it losing value.

When the supply of dollars outpaces demand, then you get inflation. The only remedy there is to somehow decrease the supply of dollars, usually through increased taxes.

You’ll hear answers about the USD being the world’s reserve currency, and maybe that does help, but I think the real answer is that we will see hyperinflation eventually. The math eventually must catch up with us.

> The math eventually must catch up with us.

I think it is flawed math if you completely ignore substantial parts of the equation. AFAIK leading analyses in leading economic scientific journals have discussed the excessive spending of inflationary countries as the and only root cause for the inflation.

But, these leading papers often don’t even mention that the worlds biggest economies at these times (e.g. US) have cut ties and imposed economic sanctions on these countries just before the excessive spending and hyperinflation started.

How are these countries then able to buy goods on the international market denominated in USD, if they are basically cut off from the US Dollar monetary system? It’s almost as if an excessive shock of raised import prices propagates to a general increase in prices. This would mean economic sanctions imposed by the US on to Chile put them into a crisis, not their socialist government from back then with its spending programs.

But wait, that would not fit into the narrative so let’s just claim that these countries short term reaction to these shocks (print enough money in hopes to stabilize the economy) is the cause of the shock and hide it behind a wall of math that nobody wants to look at anyways.

Excuse me, I don’t have the classics at hand now so I can’t point sources.

Well I agree that the initial cause may not be the printing of the money itself, but it is hard to deny that “print enough money in hopes to stabilize the economy” is not a problem. It takes a bad situation and makes it worse. Because even if the US and Chile are having issues and Chile then prints 1 million for all its citizens and then comes to my county and they all say we have a million now we want to spend in your country it doesn’t really work. I think my point is it is two separate matter yes there was something crippling their economy ie sanctions but printing money still was the cause of inflation. Another option would be look at what is causing sanctions and work to resolve that.

> The math eventually must catch up with us.

[citation needed]

Specifically what "math" are you referring to? Can you provide a link to a Wikipedia article or some published paper which explains this "math"?

If there are more of something, its worth is less? If I gave a trillion dollars to every person in the nation, you think bread would still cost a dollar?

Clearly you would agree that some amount of money printing would cause inflation. At what number of dollars would we cross the threshold? $600 per person? $2000 per person? $10,000 per person? $100,000 per person? etc etc.

When I say “the math must catch up with us”, all I’m saying is that if we kept doing stimulus forever, at some point it will start to matter.

Inflation = quantity x velocity

Velocity is low/zero, and so the product will be small/zero.

People have been going on about inflation for literally a decade, since QE1 started under Bernanke:

> We believe the Federal Reserve's large-scale asset purchase plan (so-called "quantitative easing") should be reconsidered and discontinued. We do not believe such a plan is necessary or advisable under current circumstances. The planned asset purchases risk currency debasement and inflation, and we do not think they will achieve the Fed's objective of promoting employment.

* https://economics21.org/html/open-letter-ben-bernanke-287.ht...

Meanwhile Keynesian folks like Krugman have been saying we're in a liquidity trap because of the ZLB on rates:

* https://en.wikipedia.org/wiki/Zero_lower_bound

Japan has been in this situation for decades, and Krugman has been writing about it for just as long (1998):

* https://www.princeton.edu/~pkrugman/japans_trap.pdf

So we have a testable hypothesis: the inflationistas have been yelling about this for over a decade, and the (e.g.) Keynesians have been saying 'we'll be fine given the conditions'.

Given the (empirical) results, I'll continue to follow the Keynesians. If at some point they end up being wrong, then I'll re-consider (assuming they don't self-correct and figure out why their models got it wrong).

> how come we don’t see hyper inflation

It’s only been, what, 6 months? And we’ve only done one stimulus. Give it 10 years and a hundred stimuli.

Just be a creditor (let me mark that statement with a heavy /s sarcasm tag).

Most people might be losing their fair share of the pie in the current economic strategy but the creditor class has made out like bandits over the past 30+ years with no end in sight.

Talk about free market ideals but socialise all losses with corporate bailouts. It’s just win win win.

The only game in town today is “maximise shareholder value”. The pre-70s concepts of keep wages growing in lock step with capital’s gains (since the theory goes that boosts consumption and that keeps the world turning) has gone out the window.

Capital takes 100% of the growth. Labour is easy to keep distracted - divide and conquer: “Hey, gay people/single mothers/people from other countries/people with brown eyes are taking free stuff at your expense...”

Would it be fair to summarise that post as “they’ve cherry picked the graph to make it look worse than reality, but their point still stands - productivity growth hasn’t trickled down to most workers” ?

https://www.epi.org/publication/understanding-the-historic-d...

The assumption being that the rise in productivity was a diffuse one instead of the much more plausible concentrated one between international competition routing uncompetitive sectors and over regulation stymieing the continuance of tradional high paying jobs like construction, general failure to maintain public infrastructure.

So your theory is that we can actually stop working and start getting UBI and things will turn out fine?

Why does this all-or-nothing objection come up all the time? You see it with the minimum wage debate too, as in "why don't we pay everyone $100/hr" or whatever. It's just lazy thinking. The economy is a nonlinear system that affords many options beyond these ridiculous binaries.

tbf the 'many options beyond these ridiculous binaries' appear to be what the OP in this thread aggressively dismissed with their argument that because gold bugs are wrong about immediate hyperinflation from deficit spending in a massive economic downturn, all other economists who argue government ability to eliminate poverty through deficit spending in other circumstances might face constraints or tradeoffs 'just want to bully and shame the people that are in a bad situation'

Can the government deliver non binary solutions?

Very few, if any, people are suggesting that UBI is a substitute for a healthy labour force. It is typically viewed as an acknowledgement that there are serious social issues which have economic ramifications that may be addressable through a basic income.

Whether a basic income will address those problems is an open question. It may have a net positive, neutral, or negative effect depending upon the collective psychological response. In addition, how one views the outcome will depend upon their perspective. Suggesting that an UBI will result in people not working is a misleading ideological statement that has no basis in evidence. We simply don't know what the outcome will be. Even studies that indicate positive outcomes are limited by the scale of the implementation.

Besides, it's probably best to look at UBI through the lens of political stability, rather than social well being or economic outcomes.

EDIT: added a very important "not".

> So how come we don’t see hyper inflation with this excessive government spending?

Because the $ is the worlds reserve currency... The US moves the burden to ROW (rest of world).

However there is the https://en.wikipedia.org/wiki/Triffin_dilemma “The Triffin dilemma or Triffin paradox is the conflict of economic interests that arises between short-term domestic and long-term international objectives for countries whose currencies serve as global reserve currencies. “

EU Countries have similar excessive spending programs and the Euro is not the worlds reserve currency, yet we don’t see Venezualian Hyperinflation. How is that reconcilable with this theory?

The money is not going into productive use in the hands of most recipients. Its being used to pay down debts owed to the creditors in large scale. Debt loads have decreased significantly with the money distribution. Those who end up with the money struggle to find assets to invest it in, which is why the stock market, private equity markets, and all other asset markets are heavily inflated now. The money had to go somewhere.

Doesn't the money has to go back into the "real" economy at some point, i.e. fill a need besides having a bigger number in the bank account/Forbes list?

Or are the recipients of all this wealth already so rich they don't even need another sport car, yacht, villa by the sea or even another forward looking company?

I have to admit I don't understand being so rich I don't know what to do with my money. It feels like even if I had billions, I'd try to be an Elon Musk and use my money to create something. Or maybe even buy and bankroll a NGO, a sport team, artists, whatever. Is this already saturated, are all the opportunities that don't look like a sure scam already taken?

I feel so out of touch with this world, I struggle to even comprehend it.

I’m sure the wealthy are spending some, but on the whole people spend significantly less of their money as a percentage of income the more wealthy they are. All their needs are met. They can splash out cash for some things but not that much trickles down.

Not sure why you're being downvoted for good analysis.

The key is for your country to not have a significantly higher debt to GDP than competitors of similar economic development. The USA has further advantages in that much of its debt is owned by other Americans (who have strong vested interest in the ability for the USA to pay its debts).

That being said, we could have spent FAR MORE and increased debt FAR MORE in the USA without serious downsizes - even if COVID hadn't happened!

It turns out that "fiscal responsibility" literally does not matter and is in fact DETERMINTAL to the economy. The velocity of money is all that matters. This is why VCs who are never profitable are still a net positive for the economy, because they facilitate velocity. The US govt pumping money into the economy PREVENTED A FAR WORSE LIQUDITY CRISIS which we were at serious risk of earlier given that it looked like we'd be seeing DEFLATION rather than inflation earlier on...