this post was submitted on 16 Jul 2024
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There is a Planet Money (podcast) episode about this. It's a fairly new economic theory, but actual PhD level economists have said this. Government prints money, and to bring down inflation they need to get taxes to reduce the amount of money in circulation, to control inflation. The epidsode was in the 2019 timeframe, I think.
Something that absolutely works in the abstract, but kinda hard to fit into my current model of reality.
You have to look at it from the perspective of mathematics, like systems control theory and balance / equilibriums. Money flow is comparable to energy flow. Mathematical equivalence principles allows for multiple descriptions of the same phenomenon because every externally visible system behavior can be implemented in many different ways.
So even if that's not how the underlying implementation looks like, you can switch the system to work like that without changing anything about how you interact with it. And that allows you to analyze the system in different ways that might not work in the current system
I'm a mathematician, so yes; I can confirm. 😂 I was trying to avoid that comparison, but I did use the same techniques I use to compare algebras when my sister and I stumbled on this way of thinking about the economy. I've never heard of systems control theory, though.
It's not really abstract, it's pretty close to how advanced economies already work in practice. Fiat currency is the proxy by which goods and services are valued and exchanged. It is the underlying goods and services themselves which actually have intrinsic value, and printing money doesn't actually change that. Deficits are inflationary and surpluses are deflationary. Growth is deflationary and recessions are inflationary. Governments in these economies will always run deficits because you can't have both growth and a surplus at the same time. At the end of the day macroeconomics isn't balancing a spreadsheet as much as it is about balancing the money supply and economic activity.
This is also why something resembling capitalism is pretty much inevitable in an advanced economy where scarcity is a factor governing economic behavior. If you are using a fiat proxy to mediate economic inputs and outputs, you will end up with market forces. Pretending you can centrally plan around that is naive, which is why harm reduction is the right strategy.
Except that money is put back into circulation through government spending, especially when they're running the kind of deficits we see in the US.