Roundabout Keynesian, part 3

Greg Mankiw cites a phenomenon that I've mentioned before, that fear of future inflation might inspire people to spend today. He talks about it in much more practicable economic and historical terms than I did -- and here I thought I was on to something clever.

The thinking goes like this: it seems clear that the flood of created-from-thin-air dollars currently going into the economy must mean, at some point, those dollars will be worth a lot less. We've doubled the number of dollars but they are chasing the same amount of things.

So a forward-looking person will realize that the value of a dollar is at a high point right now. The dollars in your bank account will buy a lot less in 5 or 10 years. So if you convert those dollars into something more likely to hold its value, you are better off.

And that's stimulative. But it's not the same as improving the country's economic well-being. It's basically a threat by government that your money will be seized if don't spend it. And money spent involuntarily can't be empirically said to create new wealth.

Wealth is defined -- to me -- by voluntary exchange. A person that spends money for a good or service believes that they are better off as a result. Economic benefit is defined by citizens, subjectively, and that's a good thing.

When the government says "you're better off", it's very different than you saying "I'm better off". Which is more persuasive, to you?

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