Gold Mining and Buried Money

26 Aug

Here’s a quite funny post by Paul Krugman. Funny, because it quotes a quite funny paragraph written by Keynes.

In summary, if you don’t have time to read the whole post :

  • The government could boost the economy by burying money in the ground, and auctioning off tenders to dig it up.
  • It would be better, of course, if the government boosted the economy by spending on infrastructure and other actually useful things.
  • Unfortunately, it’s sometimes politically difficult for a government to actually do good things.
  • The option of burying money remains on the table, however. In fact, that’s exactly what the gold mining industry is like.

Keynes was writing during the time when gold actually was money, so the last point is not quite accurate any more.

Also, the first point only applies when the economy is going poorly, and the reserve bank can’t lower interest rates any more. Something like this was true when Keynes was writing, and it’s true in most of the developed world now. It was also true in Australia in 2008-2009, but the government instituted a massive stimulus program – building parks and playgrounds, giving people cash to spend, especially people who tend to spend more than save, and giving tax incentives to encourage business to spend. Now our unemployment is 5%, and (half) the economy is booming along like an out-of-control train. We’re the “envy of the developed world”.

I hope the government doesn’t forget the economic lessons here.



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