A large part of life is expectations: managing them, dealing with them, having them...or not. This is what American macroeconomist Robert J. Barro, prof at Harvard, really wanted people to know in the late 1970s and beyond.
Barro put forth the idea that measuring the effect of “money growth” on the economy as a factor on its own...is a mistake. Money growth means the expansion of the money supply, where the central bank pumps more dollar bills into the system, oftentimes in the form of buying bonds from banks, giving them a cash infusion. Barro argued that, if everyone anticipated money growth, prices would go up accordingly in a one-to-one ratio. In other words: pumping more money into the economy when everyone expects it just leads to inflation, and not much else. Bummer.
Unanticipated money growth, on the other hand, is another story. When nobody knows it’s coming, businesses don’t raise prices in anticipation of the expansion of the money supply. Sure, they’ll notice eventually, but this effect will be lagged. That gives the economy a chance to actually use that infusion of money before it disappears into inflation.
That’s a big deal, because it can affect things like unemployment and GDP. Of course, a lot of other factors affect unemployment and GDP, but still. Barro’s got a point, with empirical data to back up his theories.
To Barro, context is key. Whether or not people know about impending monetary policy will greatly determine the actual effect of that monetary policy. Once-Fed-Chair Al Greenspan was famous for “Greenspeak," which is where he would ramble and not really answer questions about his monetary policy plans. Al wasn’t cray. He did this on purpose, because he didn’t want everyone anticipating his movements, which might render his movements useless.
Notably, Fed Chairs since haven’t been Greenspeaking. For the most part, they announce what’s happening. But who knows...maybe that’s a part of their plan, too: making people behave a certain way by merely announcing something, even before that something is actually implemented...like changes in interest rates.
Related or Semi-related Video
Finance: What is Money Laundering?2 Views
Finance allah shmoop what is money laundering Whoa whoa whoa
This guy needs to be taxed and legitimized And after
taxing he gets out of the wash and has shrunk
to a ten dollar bill But at least he can
go out in public now Ok Ok So that's not
sort of money laundering The government's worried about money laundering
means trying to hide money you make illegally by setting
up fake businesses running the money through those businesses as
if while they're actually legitimate riel things real sales happen
And then to continue the money laundering story you show
some profits on those businesses for which yes you then
get taxed But then the money is quote legitimized unquote
in the eyes of the government so that you can
freely spend it on clothes and jewelry And you know
maserati's that go one eighty five The idea is that
you create fake companies when you launder money fake accounts
fake customers So it looks like the money is coming
from a legal normal business when it's really coming from
shady deals like a drug dealing and stuff like that
for better or worse the movie theater business was a
key tool in laundering money for the mob in the
early twentieth century and that a movie could be licensed
from a studio for a fixed fee of say a
hundred bucks a night and then magically even though the
movie was eight years old and in black and white
that movie theater sold out three shows a night every
night for a month generating tens of thousands of dollars
in revenues which would then launder bootlegging alcohol e kind
of money back into the normal system so that the
theater owner could pay for you know private school and
orthodontia and all that stuff for his kids and leave
a substantial tip for their surprisingly well dressed garbage collector
And if you've seen breaking bad while you know that
walter white mastered money laundering that carwash magically had huh
Hundreds of cars go through it every day even though
in reality it only had a few dozen but the
government wasn't counting cars It had no idea how bigger
little the carwash was and frankly it well didn't really
care as long as it was able to tax the
money coming in from walter's high octane blue meth so
the lesson Money laundering is bad Walter white isn't a
good role model and always remember to separate your lights 00:02:25.775 --> [endTime] and darks when washing a load
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