By Karl Smith
Chris Hayes joined the ranks of the good and the great this weekend by pushing one my favorite ideas. How, MSNBC host Melissa Harris-Perry asked, are we to combat poverty? Chris gave the appropriate response: just give people money.
I’ve spent over half my life championing this idea, so off the cuff it's hard to know which angle to address first. I suppose, however, that just about everyone will have at least one question, “where do we get the money from?” That is the easiest part. We just print it.
No seriously. We just print it.
The problem with printing money is that it leads to inflation. This, however, is not a problem we have. One of our broadest measures of inflation, the Personal Consumption Deflator, is low and declining.
Right now it's headed downwards toward zero, though that is largely on the back of declines in gasoline prices, which can’t be expected to continue. Nonetheless, despite the Federal Reserve's monumental efforts at money printing since 2009, inflation has rarely been above the Federal Reserve’s stated goal of 2% a year.
There are seemingly countless frameworks available to explain this phenomenon, but perhaps the easiest is this. Look at the percentage of national income going to wages.
Even as the country gets richer, labor gets a shrinking share to spend. Which in turn means fewer sales for most retailers. Which means less pricing power. Which means declining inflation as well as a weak jobs market. That’s a gross oversimplification but I think it will make intuitive sense and is not completely inaccurate from a macroeconomic perspective.
To counteract this, the government can print money and give it to people. Those people will then go to the store and spend the money, which will lead to higher sales. Higher sales will slow the fall in inflation, but will also provide an incentive to hire more workers, which itself will lessen the need for massive government transfers of income.