Common sense doesn't cut it

I read this morning, from Saturday's DT, that one of Crow's (see reference 1) madder ideas is to fund lots of additional government spending by printing money. I have no idea whether he does have this idea, but I did get to wondering why it was mad.

Let us suppose the government does this by printing paper pound notes, thus avoiding the niceties of quantitative easing and ignoring the costs of printing, which last I think one can reasonably assume to be small - although quite possibly larger than those of the electronic alternative, even allowing for the costs of the electronic infrastructure.

So the government hires lots of building labourers which it deploys on useful, labour intensive projects, paying the labourers with pound notes at the end of each week. We ignore the practical difficulties that might be involved in such a venture.

We suppose that there is plenty of slack in the system, with plenty of labourers hanging about waiting for the call. We suppose that the government is going to pay them a lot more for working than it was already paying them for not working, that we really are injecting new money into the wider economy.

So we are getting some value from the projects. We are getting some people back to work. We are geeing up the economy. So where is the down side?

First off, it seems likely that this new money is going to translate into inflation. Bidders at markets - be they bidders for hogs or bidders for houses - will respond to this new money by bidding higher. Prices will go up. The value of the pound will go down, the foreign bankers who bankroll our various deficits will get nervous and eventually the UK will do a Greece. The whole edifice will come crashing down.

Second off, in some way that I can't quite put my finger on, all this amounts to a tax by any other name (see Juliet). The government is sucking resources out of the system which would be better deployed by those hard-nosed characters out in the real world, rather than by cheap & flabby suits in ministries. I associate to the men from the ministry, a program I used to like as a child. Plenty of it available on YouTube, although nothing like as funny as I remember.

Third off, I seem to remember that Hitler financed Germany's pre-war recovery using a variation on the printing of money theme. And it was not the printing of money that brought him down.

Fourth off and contrariwise, I also seem to remember that debasing the currency is a very bad thing, certainly according to the accounts by Sellar & Yeatman of various bad kings doing it.

So I am left with the feeling that Crow is wrong, partly because he is not one of us and can't possibly be right. But also that the ramifications of printing money are far too complicated to be worked out on the back of a fag packet or by peering into a pint of plain in the saloon bar. Maybe I had better leave it all to the experts. I just need to chose a bunch of experts to run with.

PS: exercise for the reader: explain on not more than one side of paper what difference it makes to all of the foregoing if the useful projects are in fact useless. Like the old army exercise of having one lot of defaulters dig holes and then having another lot fill them up again. Or perhaps the same lot.

Reference 1: http://www.psmv2.blogspot.co.uk/2015/09/theres-hope-yet.html.