Kevin Drum made an interesting observation this morning – a lot of major central banks would like to see more inflation right now, but so far no one has pulled it off. A bunch of people replied that maybe one of the central banks should try printing a lot of money, so Drum pointed out that Japan already did that.
So the conclusion is…free money is really free? Can we print out the entire federal deficit? Alexander Hamilton would roll over in his grave, but think of the positive side. America would finally qualify for a decent mortgage rate. The Fed could mail fat envelopes of cash to everyone with a social security number. I bet that would poll pretty well.
I would guess* the answer has more to do with the psychological side of finance. Maybe printing money has no effect as long as everyone thinks that the bank is still being responsible. If international investors get nervous that the bank is really shooting the moon, maybe they will all get worried at the same time and all the bad stuff we associate with an inflation spike will kick in irreversibly all at once. Or maybe it’s not enough for the Fed to print money. Rich folks mostly just squirrel excess cash away in in some foreign account where it gathers fees and puffs up investment bubbles and generally doesn’t do anyone much good.
Perhaps you also need to get that scratchola into the hands of people who will reliably stimulate the economy with it. That is to say, poor people. If you give a poor person ten dollars they will spend most of it right away, in America, on stuff that supports jobs in America. Poor people all having enough money to buy eggs (and a refrigerator) will pretty much a priori make eggs (and refrigerators) more expensive. In my happy fantasy world where Republicans return the value of the air they consume, I can imagine coupling a major QE push with a comparable surge in infrastructure/jobs and safety net spending. Betcha ten bucks we would hit two percent inflation pretty quickly, and without the likely very bad consequences of the Fed just leaving the presses running until China and Europe hit the panic button.
(*) Professor Krugman is trying to knock a stuck bag of Welch’s fruit snacks free from a vending machine, so I’m just going to sit in his chair here for a minute and write this. Don’t tell him, ok?