Thank you for your comments. Unfortunately mocking and derision do not take the place of logic and reason. Economics is about the stuff produced, and not about the little green slips of paper. The gold standard is beside the point. If Farmers don't grow food, there is no food. All the money printing in the world won't create food. Likewise with other goods and services. Money creation, in theory, can bend incentives in an economy, but honest economists will admit that money printing is not THE solution. There are lots of modern economists who consider Krugman and his suggested policies ill-advised.

Of course governments can create money. The question is what is the value of that money? Anyone with even the most rudimentary understanding of markets understands that if you create "too much" the money becomes less valuable. This is called inflation. WAY too much is called hyperinflation.

There is a wonderful book by John Kenneth Galbraith called "Money - whence it came, where it went". Galbraith's book details centuries of the sorts of games that Paul Krugman champions to play games with money rather than submitting to the discipline of reality and markets. I wish it were still in print.
http://www.amazon.com/Money-Whence-Came-Where-Went/dp/0735100705

The quote is not from Lenin. The quote is from Keynes.

I encourage my readers to read that Harry Shearer link. It's long, but worth the work. Follow the logic if you can. Note especially the part about how taxation is sort-of optional. Money creation is good enough. I am happy that this economists has no obvious influence in Washington, DC.

John Kenneth Galbraith: http://en.wikipedia.org/wiki/John_Kenneth_Galbraith
For the record, I agree with him in his conclusions only very rarely, but his writing is excellent and entertaining.

Economists are people, too. They get some right, they get some wrong. That goes for all of us. I think Galbraith and Krugman have low batting averages, tho.

So conservative economists are wrong? Mr Krugman's predictions have been sub-marvelous, at best. http://www.nationalreview.com/articles/269428/paul-krugman-prophet-socialism-donald-luskin

The current inflation rate is open to debate, as is the measurement method, which is why the federal reserve futzes with it. With the fed being responsible for controlling inflation, and measuring inflation, and also determining how inflation is measured, one might fear conflict of interest, no? For another view, see: http://www.shadowstats.com/

The third point is to ignore the thrust of my post. The money is not the point. The debt is just money, and is not the point. The point is the food, clothing, cars, houses, etc. etc. Money has value ONLY if people are willing to take it in trade for goods & services. People don't value abundant commodities. (i.e. too much money) All the money in the world being "created" does not grow food or build a house. Only people being productive do that. There is no nonsense in that. There is nonsense in the idea that printing money can cause people to be productive. It is possible that printing money can influence an economy, but also copious evidence that money creation can cause rampant inflation and economic devastation. Note that Keynes quote carefully. He was right about some things.

There is no nonsense here, only the most basic common sense.

Wikipedia on ShadowStats:
http://en.wikipedia.org/wiki/Shadowstats.com

It's important to note that the leading inflation statistics are not produced by the Federal Reserve. The most widely cited index, the consumer price index, is produced by the Bureau of Labor statistics, which is part of the Department of Labor. The Federal Reserve Board doesn't have any authority over the BLS.

I believe the Fed itself uses the "personal consumption expenditures" index for inflation targeting. The PCE is produced by the Bureau of Economic Analysis as part of its efforts to calculate GDP statistics. The BEA is part of the Department of Commerce which, again, is not under the authority of the Federal Reserve. So it would be difficult for the Fed to "futz" with either the CPI or the PCE.

Also, while both of these measures of inflation are subject to criticism, I am not aware of any evidence that they are as far off-base as John Williams claims on ShadowStats. It's hard to know how the figures on that site are calculating since Williams doesn't seem to explain his methodology on the website (at least on the free parts). Do you know where I could find details on how he computes his indexes and why he believes they're superior to the official statistics?

A number like the CPI is not a solid factual number. It is a number that is built on a pile of premises and methodologies. If you don't know the premises and methodologies, you don't know what it means. I don't pretend to know precisely how it is calculated, but it is clear that it can be calculated multiple ways, as you see with the "core" CPI, the "chained" CPI, the "headline" CPI, and the numbers from http://shadowstats.com which claim to be done via the "old way". None of these is "superior" or "inferior". The fact that there are so many measures, and controversy over which is "better" hints that there is uncertainty as to whether any are"correct".

Investors and homeowners can see it themselves in the bills for gasoline, groceries, and other things that have clearly risen in price over the last few years while inflation has been "near zero" according to various officials.

http://forecastsandtrends.com/article.php/841/

I think you might be comparing apples and oranges here. The CPI is produced by a team of expert economists who have put a great deal of thought into the methodological issues of constructing a price index. They collect a vast amount of data and they've worked hard to explain and justify their methodology to the public. You can read about how the index is computed in excruciating detail. The BLS's work has been scrutinized by dozens of independent economists. While many have found fault with various aspects of how the CPI is calculated, my understanding is that their estimates of the error in the CPI tends to be quite small--less than a percentage point.

In contrast, Shadowstats seems to be a black box. John Williams doesn't appear to have opened up his calculations to outside scrutiny. He hasn't released his data to allow independent economists to reproduce or critique his results. That makes me skeptical of his figures, to put it mildly.

The higher price of gasoline is factored into the CPI--the BLS's own data shows the average increase in gas prices over the last decade has been 6.3 percent. The reason the overall CPI hasn't risen that fast is that other components of the index have grown more slowly than the 2.4 percent overall inflation rate the BLS has recorded over the last decade.

Paul Krugman started this by calling Paul Ryan the Flimflam man. I agree that this is not thoughtful. I ask "who is the real Flimflam man?"

Derision and mocking are weapons of the weak.

If you've had the "pleasure" of reading Krugman's angry,nasty columns in the New York Times or seeing his sourpuss on the cable news programs, you would realize that Krugman is full of hate at anyone who disagrees with his pompous opinions.

History is also full of people who mocked those who warned of consequences until those consequences arrived. A sober assessment of our policies and the possible results is prudent. It is best to put on the brakes before you hit the wall, not after the collision.

I don't understand how my main points keep getting lost: The "money" is not the objective. Too much of it just causes inflation. Way too much causes horrible inflation. This is beyond dispute. Ben Bernanke agrees, He thinks that his policies will not be "too much". He may be right. I point out that policies of "infinite" monetary expansion, as implied by Krugman et. al. are more likely to cause awful inflation than real gains. I think serious economists agree. Again, the question is just "how much is too much?" Pressed, I bet even Paul Krugman would agree.

Does Steve disagree? On what basis?

We must not confuse the money - which has no intrinsic value - with the goods and services that do. Policies and provisions that encourage productivity are beneficial. Policies that simply expand the money supply might improve productivity, but have risks, and on net, may not even produce gains.

Monetary expansion produces debt. Debt is a promise to perform in the future. Inflation - even small inflation - has the effect of taking value from those who have saved and giving to those who get the "new" money. Inflating away debt is dishonest. When debt is big enough, inflating it away is so disruptive to an economy as to create chaos and destruction. You don't need studies to see what happened in Germany and Argentina and Zimbabwe.

I do not understand why Steve Modica seems so hostile to these reasonable ideas.

Money is a proxy for goods and services. It represents something real. It is not the real thing. Creating more of the proxy does not build houses or grow food. To the extent that expansionary monetary (or fiscal) policy manipulates incentives to produce, it does so with costs, not all of which are well understood.

I don't understand why this simple concept is so hard.

No. builders do not build houses with bricks of $100 bills, or plant coins to grow crops. Builders build houses and farmers grow crops, and they use money to subdivide the value of what they have to trade so they can exchange their houses and crops and get what they want. Money is a wonderful tool. It is a historic innovation that goes back thousands of years. It is not evil, but it is not what is of value.

Money is not capital. Grain in a silo is capital. A building is capital. New tractors lined up in a yard are capital. Money is a proxy for that capital. Money cannot pull a plow.

I still don't understand the hostility to this very simple concept. Money is a tool. It is not the point. The utility of money depends on people's faith in it. "Too much" of it can reduce or destroy its value, so relying on "money printing" has major potential costs.

It's true that money is a tool, and that too much of it can reduce its value. But it's also true that too little of it can produce economic dislocations. If consumer spending suddenly falls due to a failure to supply enough liquidity, factories sit idle, workers get laid off, and real economic output declines. This isn't just Paul Krugman's theory for what has happened in 2008. it was also Milton Friedman's theory about what happened in the United States in the early 1930s and in Japan in the 1990s.

Whether an economy is suffering from a shortage of liquidity at any particular point in time is a complex technical question. And how to deal with that shortage is even more controversial--Keynesians favor addressing the problem through deficit spending, while monetarists like Friedman preferred to address it via easier monetary policy.

I don't think anyone disputes that too much liquidity can cause inflation and other problems. But the Fed shouldn't be so fearful of inflation that it fails to supply enough money to support a robust recovery. The sluggish recovery and low interest rates of the 2008-10 period may have been a sign that the Fed failed to supply as much money as the market needed during this period.

Donald,

Lack of clarity on your part is not the problem. The other poster's refusal to acknowledge facts and history does not diminish your message which is right on. It's interesting that Steve identifies himself as a Republican and a business owner as that somehow justifies his twisted ideas about monetary policy. Republicans are as much to blame as the Dems when it comes to our worldwide race to the bottom.

History is one of the most accurate bellwethers we have at our disposal. Apparently Steve thinks we should ignore it? A failure to recognize we're simply repeating it is idiocy.

One other thing Steve evidently fails to acknowledge is the private sector is very capable of supplying all the capital needed for expansion without the Fed. However, the private market can't offer 0% interest, so why would it even try to compete with the government?

What bothers me most is my apparent inability to get through with an idea that I would hope is both obvious and non-controversial. That is that "money" is not the point! The money is not what we wear, eat, drive, or live in. The money is a tool that makes economic transactions more efficient. We must not confuse the money with the stuff that it buys. This is my main point, and I would like that to sink in. So far, some natives won't buy it.

Each time I try to do this, the conversation goes straight to macroeconomic policy and the merits of the QE.

The reason might be that my follow up point is so unacceptable to some people. My secondary point is that playing games with the money (inflation, QE, et al) cannot take the place of actual production. This is also an idea that should be pretty easy, but it is too close to the idea that Keynesian economic "stimulus" can't work, which is anathema to anyone who wants to believe that government can solve our economic problems.

Money is a tool, and as with any tool a shortage of it can reduce economic output. If the government had a monopoly on steel production and it failed to produce enough steel, that would hamper growth in industries that require steel as an input. Exactly the same point applies to the money supply. Money can't "take the place of" actual production, but failing to provide enough money to the economy can, under some circumstances, reduce real output.

Almost everyone agrees with this point in principle. Milton Friedman, for example, argued that a shortage of liquidity caused the Great Depression. Whether we suffer from a similar problem today is a complex question about which reasonable people can disagree. But it's an empirical question, not one that can be settled purely on the basis of abstract economic theories.

Exactly. It's a complex question, and money is a commodity, and a necessary tool. As such, it is subject to all the laws that apply to other commodities, other tools. It is sheer hubris to say that the Fed can determine the "right amount" of money any more than a central planner can declare the "right amount" of steel. Likewise, flooding the market with steel might have short term benefits, with longer term costs - most not well understood. Proponents of monetary policy appear to think these questions are settled. They are wrong.