Early in his EconTalk interview with Douglas Irwin, Russ Roberts says:
But I just want to pose the question: Suppose they didn’t come back. Suppose foreigners sold us cars and all kinds of things, and we sent them dollars. Americans sent them dollars. And the foreigners really liked the way the dollars looked, so they put them up on their wall as wallpaper, and never bought American goods and services or invested in American assets. Would that be bad for America? I mean, we’re stimulating their economy, but they’re not stimulating ours. That’s so unfair.
Irwin answers:
Well, in some sense what we’re doing is printing up worthless pieces of paper; they’re giving us goods in exchange for them; and then there’s no liability associated with that. They don’t have to make a claim on our assets or our goods as a result of that; they’ll just keep it down there.
In fact, actually there are a lot of dollars circulating in the world, so that’s true to some extent. In Latin American countries–you go to Argentina, dollars sort of circulate because they don’t trust the domestic currency. And, elsewhere around the world. So, there’s a big stock of dollars out there in the world. But, compared to the yearly flows, I think it’s not huge. But, once again, it’s not necessarily a problem if they never redeem those dollars as a claim on U.S. assets or goods or services.
That’s a good answer, but a little off. The pieces of paper are not close to being worthless. They’re worth a lot. That’s why other people accept them.
I think that what Doug meant to say is not that they’re worthless but that they’re almost costless to produce.
The cost of to the U.S. government of printing a $100 bill is about 10 cents. When we Americans spend a Benjamin, we Americans get $100 worth of stuff. And actually, the worth is higher than $100; we get some consumer surplus or else we wouldn’t bother spending.
To people who worry that then those Benjamins won’t circulate in this economy, I say something similar to what Jay Leno said in an ad for Doritos: “Go ahead and keep them; we’ll make
