Sitting on $17 billion

The state of Minnesota overtaxed us by $17 billion in the last biennium and is sitting on the surplus. The funds should be returned on a pro rata basis to those of us who were compelled to fork over the dough, but that’s not what state Democrats have in mind, even when they couch their proposals in the language of “rebates.” That much I can tell you.

The Star Tribune has now taken the work of two reporters and 1100 words to create the impression that harm might be done by reimbursing taxpayers. You can’t be too careful. I think it’s safe to say that Kavita Kumar and Jessie Van Berkel pose the most stupid question in the paper today: “Could Minnesota’s proposed rebate checks fuel even higher inflation?”

Kumar and Van Berkel are not entirely to blame for the cluelessness of the story. They find a raft of experts to lend some support to the notion embedded in the question, even if the support is not exactly plausible.

Kumar and Van Berkel appear unaware of the possibility that inflation is a monetary phenomenon. The Nobel Prize-winning economist Milton Friedman famously put it this way:

There is one and only one basic cause of inflation: too high a rate of growth in the quantity of money—too much money chasing the available supply of goods and services. These days, that cause is produced in Washington, proximately, by the Federal Reserve System, which determines what happens to the quantity of money; ultimately, by the political and other pressures impinging on the System, of which the most important are the pressures to create money in order to pay for exploding Federal spending and in order to promote the goal of “full employment.” All other alleged causes of inflation—trade union intransigence, greedy business corporations, spend-thrift consumers, bad crops, harsh winters, OPEC [Organization of Petroleum Exporting Countries] cartels and so on—are either consequences of inflation, or excuses by Washington, or sources of temporary blips of inflation.

Whatever adjustments are necessary to the quantity theory of money, they are probably not called for in our current bout of inflation. This thought creeps in to the concluding paragraphs of Kumar and Van Berkel’s story:

V.V. Chari, an economics professor at the University of Minnesota, said if there is an inflationary impact from state rebate checks, it is likely to be quite small, especially because states must have balanced budgets and cannot issue new debt like the federal government can.

“At the end of the day, inflation is something that must, as a quantitative matter, lay squarely at the feet of the Fed,” he said.

In other words, as Emily Litella would put it: Never mind! But Kumar and Van Berkel do not pursue the thought.

Now let me raise a question that Kumar and Van Berkel forego. What do you suppose happens to the $17 billion sitting in the state treasury if it is not returned to taxpayers? Perhaps it should be sent up in smoke, just to be on the safe side.