| Doesn't new money creation have the same effect as directly taking cash from the economy? After all, it does cheapen all available money. How, then, can he say that these costs are deferred? Time-delay effect. In theory if everyone knows how much new money is being pumped into the economy (and exactly when it arrives, etc.) then the adjustment to reduced value of money happens instantly and you haven't accomplished much. If instead the new money is injected stealthily into the economy (or at least: knowledge about it doesn't spread everywhere instantaneously) then the cost (in inflation) will be deferred (until "everyone figures it out" / prices re-adjust). Thus in the short-term private sector spending would be mostly unaffected (b/c people have about the same nominal amounts of money as before and prices are still at about their previous nominal amounts) and over the longer term the inflationary effect kicks in and you pay for it. In Keynes's time it would be pretty likely you could stealthily inject money and also it would be pretty likely that readjustment to the increased money supply would happen slowly; no internet, for one, and generally nowhere near as tightly integrated an economy as we have today. That's not as clear today (information moves faster), but on the other hand information still takes time to work its way through the economy. |