Friday, August 14, 2009

Giving Money to Poor People

In theory, the $175MM given to New Yorkers ($200 per child) will alleviate malnutrition, perhaps pay for shoes, school supplies, a crock pot. In practice, videogames:
Wegmans and Tops report that ATMs in their stores ran out of cash on Tuesday, the day the money was deposited to food stamp accounts. The county reports that employees at the Wal-Mart store on Hudson Avenue called the Department of Human Services to say they thought welfare fraud was going on because there was a run on high-end electronics.


Anonymous said...

ok falken, you're old and wise (compared to me).
let's leave the malnutrition aside and riddle me this or i go insane:

assume a bank makes a 100k mortgage loan.
assume they foreclose and take a 50k loss. money (credit) was destroyed.

the fed steps in and tops it off through whatever program. they leave it there for the foreseeable future, until velocity picks up.

now assume they also take it back as soon as inflation picks up.

who pays for the misallocation of resources? to my mind it's as if nothing bad happened. is that it? the modern monetary policy is the free lunch and nobody told me?

Plamen said...

Anon, the solution is very simple... The situation is somewhat similar to stealing a penny from everyone's wallet, checking account, etc., until they notice. Well, it can work for a while, but only because of asymmetric information. Make it not a penny, but $100, and people would notice instantly.

Similarly, in your example, imagine the Fed did this not for one home, but for 10 million homes. $500 bln hits the economy.

In other words, inflation picks up instantly, so this thought experiment should last only a brief instant. It can only last longer than that because the Fed cannot track inflation adequately - precisely and in a timely manner. Thus, everyone who uses $US pays, through a mix of inflation and weaker currency.

Anonymous said...

presumably they are buying video games because they feel that is the best use of the money? Who are we to know better?

But What do I Know? said...

How did I miss this story? Why wasn't this the headline in every blog the next day? Soon everyone will have a debit card which the government can reload at will--why $200, why not $2000 or $20,000. I especially loved the "Thank God for Obama" quote--as if the money came from him.

IMHO, this is the real "printing press" that commentators obsess over. Once the majority sees that it can vote itself money the system is done for.

Got gold?