Deficit spending will drive up inflation
Tunku Varadarajan, 2/18/22, (fellow at the American Enterprise Institute and at Columbia University’s Center on Capitalism and Society), The Wall Street Journal, “How Government Spending Fuels Inflation,” https://www.wsj.com/articles/government-spending-fuels-inflation-covid-relief-pandemic-debt-federal-reserve-stimulus-powell-biden-stagflation-11645202057, mm
“The Fiscal Theory of the Price Level” is the title of Mr. Cochrane’s next book, to be published in the fall. It’s a challenge to monetarism, the theory of controlling money as the chief method of stabilizing the economy. The new theory holds that when the overall amount of government debt is more than people expect the government to repay, we see inflation. The price of everything goes up, and the value of the dollar declines. How does this work? “The U.S. government has $20 trillion of debt outstanding,” Mr. Cochrane says. “That means, over the long run, people must expect taxes to exceed spending by $20 trillion to repay the debt.” But if they think the government will be able to pay back only $10 trillion in today’s money, “people will try to get rid of their government debt fast, before it is worth less. They try to sell it in order to buy other things,” driving up the price of everything else. “That keeps going until all prices have doubled—until the $20 trillion promise is only worth $10 trillion at today’s prices.”