I'm confused.
In our "The pendulum swings to the pit" article, the author ends the piece with a "radical" thought.
I'll quote it:
"One radical way to boost demand and push inflation back up takes its name from a tongue-in-cheek prescription for ending deflation offered by Milton Friedman: drop money from helicopters. In the modern variant this "helicopter money: would consist of governments initiation significant new spending, perhaps on on infrastructure, or cutting taxes, and the central bank buying the bonds used to finance the resulting deficit. If the central bank promises never to get rid of those bonds, then neither the public nor investor need worry about how the money gets repaid"
From my understanding of this quotation, the policy implication is to ask Congress to work in concert with the Federal Reserve to build more bridges/roads in the US. Is this right? If it is, as an econ major.......something feels "off". They're essentially saying, "go build as many things as you want, we'll just print more money".....?....
As my title suggest, this kind of prescription implies that there is no cost associated with certain spending. Oh, can't afford to build the bridges because of your budget, no worries, we'll just print you more money. If this is a legitimate policy solution, why is it not always carried out? Why does the Fed even mess around with the interest rate and QE when they could just tell Congress, "go build stuff, we'll pay for it".
Maybe I am misunderstanding this, but I am definitely confused.
On a final note, this kind of solution gets me thinking to a quote from one of the videos Tommy Joe posted (http://iotapiepsilon.wordpress.com/). It's Hayek talking about spending your way out of our problems, it goes something like this:
"Spendings not free, that's the heart of the matter.
Too much is wasted as Cronys get fatter"
^^^ Go to the 5:00 minute mark to hear the quote
all for now.
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