Thread by @michaelxpettis

This kind of economics is faith-based rather than logical. According to the Ayn Rand Institute, newly-created government money can only cause egg prices to rise: “Take eggs as the symbol. You can spend the newly created money to buy a dozen eggs, but...

newideal.aynrand.org/to-take-or-not…

...the government is not adding to the egg supply, only to the supply of dollars.”

This simply isn’t true. Consider the obvious case in which egg farmers are unable to sell all the eggs their hens lay because high levels of unemployment make it impossible for consumers to...

...buy them. Without sufficient demand, farmers have to destroy eggs or stop producing them. In that case, giving money to consumers to buy eggs increases both the demand for and supply of eggs, and so leaves everyone better off.

This isn’t to say that expanding the...

...money supply always leads to more eggs, but it does suggest – reasonably enough – that there are conditions under which expanding the money supply can lead to more eggs and other conditions under which it only leads to higher prices for eggs. Rather than oppose or support...

...monetary expansion as a matter of principle, it makes far more sense to consider the conditions under which monetary expansion leads either to inflation or to greater supply, and then to support or oppose on that basis. If demand has collapsed, bringing supply down with...

...it, boosting demand can boost supply. If it is the supply side that is constraining demand, boosting demand can only be inflationary. When unemployment has soared because of something like Covid-19, the problem isn’t that we can’t produce enough stuff to satisfy demand. The...

...problem is that we can't afford to consume what we produce.

Economics shouldn't be a principled, or faith-based, or part of the culture wars. It should be wholly pragmatic, as American economics famously used to be. If it isn't, it is a waste of time.