Small business aid bill

There are a couple of concerns about the American government’s small business aid bill (See article on The Huffington Post).

The first concern is that I believe subsidies should be given to consumers rather than producers because subsidies distort prices and they do nothing for those who don’t have the political clout it get them.

Creating money
The second concern is that this bill appears to assume current economic problems can be resolved by creating money. When banks make loans they create money and as the $30 billion will be “high powered money” and subject to a multiplier effect it is expected to result in $300 billion in new lending i.e. to increase the money supply by $300 billion.

Probably what is being called a credit crunch is in part a failure of the banks money creation role. It is also probably a reflection of non-monetary problems such as resource depletion. In either case it not clear that trying to create more money will accomplish much although politically it will be much easier than trying to change the way in which we create money coming to terms with fewer resources.

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