Re:Jack Dorsey: Hyperinflation is going to change everything
by AnimalMuppet on Saturday October 23, 2021 @02:27PM
(#28971012)
Here's my amateur understanding of how this works.
Inflation is different from hyperinflation. Inflation comes from a variety of causes and reasons. But hyperinflation only comes one way - government.
Forget money for a moment. Think in terms of the stuff that the economy produces. When the government wants too much of the stuff, they have a choice. They either raise taxes, or they print money. (Or, I suppose, they just take it at gunpoint and don't even pretend to pay for it. But at that point you have a dictatorship and not an economy.)
Raising taxes makes it clear to people that the government is taking from the people - the government is going to have more, and the people are going to have less. That's unpopular - so unpopular that it sometimes leads to the current government losing power. So governments that don't want to face the unhappy population sometimes choose the other alternative, printing money.
The problem is that printing money doesn't produce any more stuff. You have the same stuff with more money chasing it. That gives you inflation. And that's OK, so far. But the government usually wants to keep using more of the stuff. So next year, the cost of everything went up because of more money chasing less stuff, and all the employees demand raises because everything costs more, and everybody's unhappy because their income isn't enough to buy what they expected to be able to buy. So the government needs to buy even more stuff to be able to give away to make everyone happy. So the government prints more money so that it can buy more stuff. This feedback loop is what gets you to hyperinflation.
Two additional comments. First, the separation of the Federal Reserve from Congress, the separation of the money-creation authority from the spending authority, is a really big deal. It's enormously important. Any attempt to break that down should be viewed with immense suspicion.
Second, Modern Monetary Theory says that the government should print money to spend, and should use taxes as needed to remove money from the economy to prevent inflation. I also view this with profound suspicion, because it moves the inflation-control decisions from the Fed to Congress (or else it moves the taxing decisions to the Fed, but so far as I know nobody is suggesting that). Congress is going to make political decisions rather than technical ones; this is likely to end very badly.
Inflation is different from hyperinflation. Inflation comes from a variety of causes and reasons. But hyperinflation only comes one way - government.
Forget money for a moment. Think in terms of the stuff that the economy produces. When the government wants too much of the stuff, they have a choice. They either raise taxes, or they print money. (Or, I suppose, they just take it at gunpoint and don't even pretend to pay for it. But at that point you have a dictatorship and not an economy.)
Raising taxes makes it clear to people that the government is taking from the people - the government is going to have more, and the people are going to have less. That's unpopular - so unpopular that it sometimes leads to the current government losing power. So governments that don't want to face the unhappy population sometimes choose the other alternative, printing money.
The problem is that printing money doesn't produce any more stuff. You have the same stuff with more money chasing it. That gives you inflation. And that's OK, so far. But the government usually wants to keep using more of the stuff. So next year, the cost of everything went up because of more money chasing less stuff, and all the employees demand raises because everything costs more, and everybody's unhappy because their income isn't enough to buy what they expected to be able to buy. So the government needs to buy even more stuff to be able to give away to make everyone happy. So the government prints more money so that it can buy more stuff. This feedback loop is what gets you to hyperinflation.
Two additional comments. First, the separation of the Federal Reserve from Congress, the separation of the money-creation authority from the spending authority, is a really big deal. It's enormously important. Any attempt to break that down should be viewed with immense suspicion.
Second, Modern Monetary Theory says that the government should print money to spend, and should use taxes as needed to remove money from the economy to prevent inflation. I also view this with profound suspicion, because it moves the inflation-control decisions from the Fed to Congress (or else it moves the taxing decisions to the Fed, but so far as I know nobody is suggesting that). Congress is going to make political decisions rather than technical ones; this is likely to end very badly.