Comments
ss89898 OP t1_j2e0exb wrote
I assumed this. Day to day would collapse. Like if everyone was rich there wouldn't be anyone to deliver their mail or clean the streets. But is it possible that governments could do this if somehow all 195 of them agreed? They just never chose this because inflation would destroy everything? Like everything would become the same. Coffee would become $50 a cup or if you wanted to import resources from another country it would just be 10x more expensive and nothing would ever change? Has any country every secretly tried this? Like who is the police in all this?
Ansuz07 t1_j2e0nbq wrote
> Coffee would become $50 a cup
Exactly this. Prices would simply increase dramatically, rendering the additional money people received moot.
>Has any country every secretly tried this?
Yes, many have, and inflation is always the result. Governments have historically printed excess cash to pay of their own debts, which inevitably leads to massive amounts of inflation. Look up what happened in Zimbabwe.
ss89898 OP t1_j2e0wrj wrote
I remember Venezuela had something like this too. But I'm not sure if it was to do with the country printing money.
Moskau50 t1_j2emzcu wrote
> Like who is the police in all this?
It's not that there's an agency that tracks the amount of money and the "value" of goods and services and runs around changing prices to match. It's that, if you have more money, you're more likely to spend it, which means you'll accept a higher price on items. Since you're willing to pay more, companies will raise prices to match. That's what causes inflation.
Repeat this millions of times because all that extra money you spent means everyone else has more money, so they are willing to spend more, which means companies can raise prices, and the cycle continues until you're at new "stable" prices that are simply higher than the original prices, roughly proportionally to the extra money that was injected.
Ansuz07 t1_j2e0gee wrote
They can. The US government basically did this during the financial crisis to create money to loan to banks. They just made trillions of dollars appear in government accounts, and then loaned that money out.
The problem is that injecting huge amounts of money into an economy will cause massive inflation. The supply of goods available for sale doesn't change, so people who suddenly have large amounts of cash will simply pay more for the scarce goods that exist. Case in point, the recent inflation struggles are partly (not entirely) due to the relief funds given to people and businesses during COVID.
808RedDevils t1_j2e5zfq wrote
Yeah, those stimulus payments that the government sent out were poorly done. I realize some people needed them and those are the people which should have received them but me and my wife received thousands of dollars automatically even though we were both still working through the entire pandemic. They really needed more of a surgical approach instead of blanket payments.
Ansuz07 t1_j2e6kvh wrote
That's somewhat easy to say in hindsight when we don't have the ill effects of a more surgical program to compare. Its the key problem in economics - true experiments with control groups are incredibly rare, so we can rarely say which option was "best" with certainty.
A surgical program would have likely stemmed the inflation issue, but would also have likely taken much longer to execute, leaving people who needed funds without them for potentially months. It also would have "false negatives" - denying money entirely due to bureaucratic errors.
Whether or not that would have been worse than the partial impact it had on inflation is impossible to say.
MyFavDinoIsDrinker t1_j2ebxe2 wrote
That's not entirely accurate. Technically speaking, the US government doesn't create money at all.
What happens is the Federal Reserve adjusts the base lending rate, which adjusts how quickly banks are giving out loans. And every time a bank gives out a loan, it is effectively creating new money since it also holds on to the original money that loan was based on.
It is called "fractional reserve banking" and it is how almost all countries do it. Very few countries actually create money anymore.
Ansuz07 t1_j2ecbu5 wrote
While this is true, they used a different technique during the financial crisis.
tiredstars t1_j2e2c9s wrote
To spell this out a bit more, imagine you and I are the only producing, buying and selling things in the economy.
I grow five turnips for sale, you grow five carrots for sale. The government has printed £10 and we each have half of it. I want five carrots and I give you £5 for them. You want five turnips and give me £5 for them.
Now imagine the government gives each of us another £5 so we have £10 each.
What often happens is that an increased supply of money decreases its value. So now what happens is that I charge you £2 per carrot and you charge me £2 per turnip.
That's inflation. Now inflation has good and bad points - or rather it tends to benefit some and harms others. A careful increase in the money supply to help pay off debts can be a good thing for a country. The benefits can outweigh the costs. It doesn't automatically lead to runaway inflation.
There are also cases where inflation doesn't happen. Let's say I've got an unused field and I could grow more carrots, but you don't have the money to buy them. In this case the government creating more money can help the economy.
Knowing when this is and isn't the case is one of the big challenges for economists, central banks and governments. The US in the years right after the financial crisis is a good example: money creation stimulating economic growth and not driving inflation. Those conditions have probably changed now, though, and most developed countries are trying to restrict the money supply.
grumblingduke t1_j2e065z wrote
They can and do (although not quite in that way).
The main problem with it is that it devalues the currency. Money has no inherent value, so usually the effect of printing a load of money (or creating it on paper) is to decrease how much existing money is worth.
Simplifying a lot, the amount of actual worth or value stays the same (as nothing of actual has been created and no work has been done), but there are more dollars around, each dollar must be worth a bit less. And this leads to inflation which isn't necessarily a bad thing, but can be pretty disastrous if it gets out of control.
phiwong t1_j2e3cbg wrote
At a fundamental level (ignoring macroeconomics for the moment), money is a measure of value. Money is used as an intermediary to exchange of real goods and services.
Start with the idea that there is a deserted island with 2 people, A and B. A grows coconuts and grows 10 per year. B grows mangoes and grows 20 a year. Without any money, they decide to split their "production" through trade. B gives 10 mangoes to A in exchange for 5 coconuts.
Now they decide that they will "print" 30 dollars. Initially split between them equally ie 15 dollars each. Since this 15 dollars each is used to trade for their equal share of the goods, 5 coconuts trade for 15 dollars ($3 per coconut) and 10 mangoes trade for 15 dollars ($1.50 per coconut). At the end of the year after all that trading A and B both still have 15 dollars each and would have traded their goods through money. This is a stable situation that can simply repeat year after year.
Now say they decide that instead of 30 dollars, they want 300 dollars in their economy - so they print 270 dollars more and each now have 150 dollars each. Are they now "richer"? Do either of them get more mangoes or coconuts?
If you understand this example, then it is a start to understanding why printing money does nothing (at an ELI5 level) to make people "richer". People consume goods and services - money is just a means of exchange. More money without more goods and services is essentially meaningless.
Flair_Helper t1_j2enb0p wrote
Please read this entire message
Your submission has been removed for the following reason(s):
- ELI5 requires that you search the ELI5 subreddit for your topic before posting. Users will often either find a thread that meets their needs or find that their question might qualify for an exception to rule 7. Please see this wiki entry for more details (Rule 7).
If you would like this removal reviewed, please read the detailed rules first. If you believe this submission was removed erroneously, please use this form and we will review your submission.
Skatingraccoon t1_j2dzwjr wrote
A little thing called "inflation". More money in the system means everyone's money is worth less, which means they have to spend more to be able to buy less. Not a really good solution for anyone.