Hard money types often evince a kind of “spooky action at a distance” view of printing money and inflation: do the first, and the second will follow necessarily. It makes some intuitive sense, to be sure. But it’s wrong. There was an amusing error from PayPal the other day that demonstrates what’s wrong with this view:
If you thought you had $92 quadrillion, what would you do?
That’s the question Pennsylvania man, Chris Reynolds, was about to ask when a PayPal error credited his account with $92,233,720,368,547,800.
(A stack of $92 quadrillion in hundreds, incidentally, would be about 6.3 billion miles long, significantly larger than the diameter of Neptune’s orbit.)
Phrased this way, it’s easy to see why there was no inflation—nobody ever spent the money! It was just a change in a spreadsheet. A number in a computer had a really huge value for a few minutes, then didn’t anymore.
The point is that increases in the money supply only cause inflation insofar as they get transmitted into the real economy. If Mr. Reynolds had actually withdrawn a few trillion from his account somehow and went around buying stadiums and whatnot, then you’d see the prices of the things he was buying start to rise, and then general inflation as the money percolated through the economy.
Aside from the general point here, the reason I bring this up is that we’re gearing up for another pointless debt ceiling hostage crisis, and the president ought to remember he has emergency money-printing powers should things reach an impasse.