Re: So Inflation Happens When?

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Posted by warren mosler (72.161.109.198) on 23:47:07 11/18/07

In Reply to: So Inflation Happens When? posted by vipul

: I read soft currency economics yesterday and I'm still trying to understand it.

very good!

:
: Why doesn't government deficit spending lead to inflation? Is it because that spending is being used to mobilize excess capacity and the production that results is deflationary?

think of it this way to get started:

govt spending is inflationary

taxing is deflationary

deficit spending is net inflationary (all else equal which it usually isn't) if the deficit exceeds non govt 'savings desires.'

:
: And does that mean inflation will only happen when spending does not result in production of something?

While govt spending at market prices does drive up prices ultimately it can be deflationary if in fact it is 'investment' of the right sort.

for example, deficit spending to build the panama canal was deflationary as shipping costs went down.

deficit spending to blow it up would be inflationary as shipping costs would go up.

:
: Thanks for taking my question.

thanks for your interest.

:

Follow Ups:

Re: So Inflation Happens When? - James Baird 08:42:42 11/19/07 (3)
- Re: So Inflation Happens When? - warren mosler 17:05:06 11/20/07 (2)
  - Re: So Inflation Happens When? - James Baird 09:05:14 11/29/07 (1)
    - Re: So Inflation Happens When? - Warren Mosler 21:02:40 11/29/07 (0)

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Subject:	Re: So Inflation Happens When?
Comments:	: : I read soft currency economics yesterday and I'm still trying to understand it. : : very good! : : : : : Why doesn't government deficit spending lead to inflation? Is it because that spending is being used to mobilize excess capacity and the production that results is deflationary? : : think of it this way to get started: : : govt spending is inflationary : : taxing is deflationary : : deficit spending is net inflationary (all else equal which it usually isn't) if the deficit exceeds non govt 'savings desires.' : : : : : And does that mean inflation will only happen when spending does not result in production of something? : : While govt spending at market prices does drive up prices ultimately it can be deflationary if in fact it is 'investment' of the right sort. : : for example, deficit spending to build the panama canal was deflationary as shipping costs went down. : : deficit spending to blow it up would be inflationary as shipping costs would go up. : : : : : : Thanks for taking my question. : : thanks for your interest. : : :
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