1) Because people don't understand the economy. They are stuck to economic thinking based on a gold-standard/gold-convertible currency. That was a restrictive, arguably primitive monetary system where the output of a nation was restricted by the physical supply of a precious metal. We saw what happened where there were supply disruptions (unnatural disruptions, but there could easily have been natural disruptions as well) of that precious metal in the Great Depression. Because of this misunderstanding, many people, politicians, and even economists misdirect their focus and energies on fearing and criticizing policy when viewed from this perspective (deficit fears, borrowing fears, etc).Quote:
Originally Posted by Vasteel
2) Because people, even if they do understand the economy, may want to impose their ideology on how a society should live (i.e. German austerity, Ron Paul, etc.) even if the operational reality does not require that lifestyle for a prosperous economy. In many cases, that ideology actually presents an economic disaster (as we'll see in Europe).
3) Moral hazard issues. Economic decisions boil down to picking winners and losers to varying degrees. Polticians have to stay in power as well, requiring them to make the most amount of people happy, not necessarily the most productive people, or those that would result in the best allocation of resources.
Note that this doesn't only relate to the US economy, but any economy that issues its own currency. The US has an additional benefit in the fact that all of its obligations are denominated in the same currency it issues. But a country like Japan would be a close comparison. People often misunderstand the nature of Japan's debt. When they say Japan's debt is not an issue because it's all funded from domestic (i.e. Japanese citizen) lending, they really mean to say it's not an issue because that debt is denominated in Yen.
Hyperinflation can certainly happen but it is more difficult than given credit for. For example, govenment spending should increase aggregate demand, which should increase employment. The fact that employment increases means that taxes increase just from the fact that you now have an increased base of income tax from more of the population being employed. This is an automatic stabilizer in the form of higher overall tax collections. Also, increased employment results in increased output. Inflation is too much money chasing too few goods. But you are producing more goods, not fewer. Also, government spending can be scaled down in rising employment environments. This puts less money in an economy.
We've proven during times of war that we can achieve close to full employment. This is generally why people subconsciously associate a war with pulling economies out of recessions, when really it is the spending and aggregate demand for output of goods and services that creates that employment.
The issuer of the currency has a monopoly on that currency and is the price setter. The demand for that currency initially stems from the currency being the only accepted means to extinguish tax liability. But the issuer itself sets the price, whether it realizes it or not.Quote:
Also, at what point does the 'surrogate' value of the currency actually reach equilibrium with hard resources, and is there an equation that models this?
