Tuesday, February 24, 2009

Davidson Writes A Letter

This is from last Sunday's (22 February) New York Times:
Paul D. Ryan repeats the tired idea that when the Federal Reserve prints money for the government to spend on economic recovery, the result will be inflation because "it is a situation in which too few goods are being chased by too much money." This is based on a false assumption that the output of the country will not increase when government lets contracts to business to produce more goods and services that will improve the productivity and health of our country.

If there is significant unemployment and idle capacity in the private sector (and who can deny there is?), then this deficit spending will not cause inflation. Rather, the "printed" money spent on a recovery plan creates profit opportunities that induce private enterprise to hire and produce more goods. Then there will be many more goods for this money to chase and no inflation need occur.
Paul Davidson
Boynton Beach, Fla, Feb 14, 2009
The writer is editor of The Journal of Post Keynesian Economics

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