Will Stimulus Spending Create Inflation? New Study Shows Reality

This is crazy.  It turns out that non military spending actually does not create inflation in nations.  In fact non military spending tends to retard inflation.  Military (and one can assume wasted spending like the world's war debt forced on Germany in the Versailles treaty).

Excerpt analysis by  Casey B. Mulligan at the New York Times in "Inflation and Government Spending " shows that the actual amount of debt from Obama's stimulus plan is comparably low anyway.

The Bush and Obama administrations have added, and continue to add, much to the United States’ national debt. Both Republicans and Democrats spend too much of taxpayers’ money, but excessive government spending does not mean that inflation will necessarily — or even probably — follow.

The Treaty of Versailles gave Germany debts that amounted to years of the nation’s gross domestic product, whereas 2008-9 bailout mania has so far given us debt that amounts to “only” several months’ G.D.P. Moreover, thanks to the emergence of payroll taxation and income tax withholding, the capacity of governments to tax its citizens without resorting to inflation is much greater than it was before World War II. Neither inflation nor war will be needed to settle the debts that Presidents Bush and Obama are giving us.

Last year the Federal Reserve Board’s Song Han and I published a study of 80 countries where we looked at the correlation between inflation and government spending. We found inflation to be similar (or even somewhat less) in countries whose governments spend more for nonmilitary purposes as compared to countries whose governments spent less.

Our study found significant positive correlations between inflation and government spending only in cases when military spending grew — as it does during wartime. But the government spending growth we have seen in 2008 and 2009 comes from the nonmilitary part of the budget.

tags: inflation  stimulus plan  obama administration  war spending  bush administration  national debt  

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