The statement about Carnival Cruise Lines makes some reasonable points, but also has some issues. It’s true that allowing a major company like Carnival to fail would likely have significant ripple effects on related businesses and employees. Carnival employs over 120,000 people and works with thousands of travel agencies, food suppliers, shipbuilders and other supporting businesses that could be impacted by Carnival’s failure (Carnival Annual Report, 2021). However, providing government loans or bailouts to specific companies can set concerning precedents and lead to moral hazard if it encourages excessive risk-taking, as we saw to some extent with bank bailouts during the 2008 financial crisis (Stern & Feldman, 2004). There are merits to both sides of this issue that need to be carefully weighed. As Minsky argues, there may be a case for government intervention during extreme situations to maintain system stability (Minsky, 1986), but others like Friedman warn of the distortions bailouts create (Friedman & Schwartz, 1963).
Increasing the money supply can lower unemployment in some economic conditions, according to Keynesian theory, by stimulating aggregate demand (Keynes, 1936). However, the relationship is not guaranteed or simple. Other factors like business and consumer confidence also affect unemployment (Farmer, 2012). Excessive money expansion risks high inflation (Friedman, 1968). The effect depends on economic slack and velocity of money in the AD/AS model (Mankiw, 2015).
Inflation does devalue money over time by reducing purchasing power. However, moderate inflation can encourage spending and investment instead of hoarding money (Tobin, 1965). Deflation also has risks of stunting spending (Krugman, 2014). The optimal inflation rate balances these tradeoffs and risks, estimated by some economists to be 2-3% (Bernanke et al., 1999). Inflation is not universally “bad” – its impacts depend on the rate and economic context.
Fiat money has advantages of flexibility, whereas commodity money’s value fluctuates with the commodity (Gupta, 2014). Fiat money can be more easily controlled and adjusted by central banks using monetary policy tools (McLeay et al., 2014). But fiat money relies on government stability and lacks intrinsic value beyond government declaration (Rothbard, 2008). Both have tradeoffs.
Classical economists emphasize allowing markets to naturally correct themselves during business cycles (Smith, 1776), while Keynesians advocate for government intervention to moderate recessions and unemployment (Keynes, 1936). For example, Keynesians may favor stimulus spending, while Classical economists oppose such interference (Hayek, 1989). Different policies flow from each school’s fundamental view of self-correcting markets versus the need to actively stabilize the economy.
