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A Thought Experiment On Spending, Monetary Expansion, Output, Employment, and Gold

By Matthew Yglesias on May 16, 2011 at 8:31 am

"A Thought Experiment On Spending, Monetary Expansion, Output, Employment, and Gold"

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Here’s one idea:

With the United States poised to slam into its debt limit Monday, conservative economists are eyeballing all that gold in Fort Knox. There’s about 147 million ounces of gold parked in the legendary vault. Gold is selling at nearly $1,500 an ounce. That’s many billions of dollars in bullion.

“It’s just sort of sitting there,” said Ron Utt, a senior fellow at the Heritage Foundation. “Given the high price it is now, and the tremendous debt problem we now have, by all means, sell at the peak.”

Here’s another idea. A thought experiment. What if Barack Obama secretly spirited gold bars out of Fort Knox and started giving them to people? What would you do if Obama gave you a gold bar? Well if he gave me a gold bar, I’d sell it. And I’d save some of the money I get, and I’d use some of the money on increasing my purchases of goods and services. And I bet you’d do the same. Sure, some idiosyncratic people might just keep their bar under their bed. Others might sell their bar and save 100 percent of the money they get from the sale. But on average, people who got gold bars would increase their purchases of goods and services. And with more goods and services being purchased, firms would expand operations—giving existing employees more hours and hiring new ones—to meet this increased demand. That would raise workers’ incomes, leading to further increases in demand for goods and services and even more economic activity.

Right?

So if handing out gold bars to random people can boost growth through the channel of getting people to increase their demand for goods and services, then what about handing out money to people?

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