There’s Something About Money

In terms of the ideological origins of monetary confusion, I think Paul Krugman’s got it right. If you think redistribution of wealth and income is wrong, it’s easier to support that idea if you believe public policy has no role to play in stabilizing the economy. And you can really only believe that by confusing yourself about how monetary policy works.

But there’s still an issue of why these topics are so confused on the mass level. And I think the answer here is largely linguistic. Krugman’s column about the Capitol Hill Baby Sitting Co-Op is one of the best popular explanations of monetary policy ever written precisely because there’s no “money” involved in it. It’s just co-op scrip. Which helps because the language around money is very confusing. People say things like “Mark Zuckerberg has $9 billion” when what they mean is that Mark Zuckerberg has an equity stake in Facebook that’s worth $9 billion. Which is to say that normally when we’re talking about “money,” we’re talking about the accounting value of real assets. But monetary policy is much more about shortages of the medium of exchange. People say things like “the money has to come from somewhere,” which makes very little sense if you think about it literally. Real resources have to come from somewhere. And in a deep recession, real resources are left idling over the country. But to mobilize the real resources may take more money. Print up some dollar bills and start handing them to unemployed people to go do things, and real output will rise. The dollars come from the U.S. Mint, which is the only place they can come from. Or imagine if all the ATM machines and credit and debit card swipers in the state of California stopped working. All the workers, skills, shops, offices, equipment, skills, etc. would still be there, but output would collapse as people started hoarding the existing supply of currency.