More conventional wisdom to be undone. Not sure why this one is so hard to crack, since Powell himself said rates won't affect the price of food or fuel. Who beyond old school economists and politicians buy into this? Wall St doesn't like rate hikes. Businesses don't like rate hikes. Yet here we are marching along to the said old tired story.
Per Warren Mosler, "With higher income available to spend, bondholders can thus add to inflationary pressures by spending from those elevated cash flows."
While that's certainly a logical possibility, has Mosler (or anyone else) produced data demonstrating that bondholders do in fact increase spending when interest rates go up? If so, what is their marginal propensity to consume out of interest income?
It seems entirely superstition based. A weak attempt at group psychology: that what matters is if people *believe* inflation will be fixed, so it only matters that you do what they think will work. Actual effects are secondary concerns. Hard headed business people, yep.
FED "Monetary policy"doesn't work because it is abstract, indirect and at least twice removed from the present time economic process. It also doesn't identify the real deepest problem with the economy, namely the monopolistic paradigm for the creation and distribution of money held by the private banks to create 97% of our money ONLY AS DEBT. You want to end inflation? Gift the consumer with a direct discount at the point of retail sale and reciprocally rebate the entirety of that discount back to the merchant giving it to consumers. Just amend the FED's charter to mandate that they do this. When was the last time that a single policy conquered inflation, (and thus shut the mouth of every conservative/libertarian pundit about the inflationary effects of fiscal deficits) doubled everyone's purchasing power and potentially doubled the demand for every enterprise's goods and services...all in one fell swoop! Never is the quick and accurate answer. Paradigm changes move the world and render long term orthodoxies irrelevant. Old orthodoxies and palliative policies won't save us. Only the mental and temporal universe inverting phenomenon of a paradigm change will. The clock is ticking...loudly.
I fear that without serious recommendations to fight inflation, the Democratic Party's Centrists, who run the party after defeating Sanders, will end up like the Dems under Carter: no real solution to counter fiscal austerity and higher interests rates.
Richard Wolff suggests at least publicly discussing the wage and price controls and rationing of WWII, especially the coupon program, and the Nixon 90 day wage and price freeze starting in Aug. of 1971, which did work - until lifted. Perhaps they will get no traction in our anti-statist, "wearing masks to protect life is a liberty infringement" direction...But absent serious alternatives all the Dems can do is hope that the three recent Supreme Court decisions shake out voters who have been missing for all these years.
I tend to think food and gasoline related prices freezes with stiff penalties would help greatly...Biden doesn't have the nerve and Mark Blyth at Brown doesn't think the federal state is able to carry out such duties today (that was his reaction to the Green New Deal) But as Wolff points out, there are energy Public Utility regulators and motor vehicle agencies in every state, as well as weights and measures enforcement (my addition) ...so the skeleton of enforcement and maybe a coupon rationing system is there under federal guidelines. In a pinch, we could draft a couple of hundred thousand of MBAs and give them something patriotic - and useful - to do.
This moment of Knightian uncertainty can only go left if left ideas are broached and supported. Otherwise, and that's the flavor in the air now, it will go like things did 1979-1982: left capitulation in the realm of ideas. Larry Summer's interview at the Kellogg School of Management in May of this year is all labor inflicted causality, and gov't spending. Who does he think signs off on each and every price increase - the local shop stewards - if there are any left?
Speaking of missing left tools, does anyone know of or recall anytime when AFL-CIO pickets from any union or collectively picked any of the major right wing think tanks or famous business lobbying institutions, which Blythe exhaustively lists for us (some of been added since then) as having driven the business counter attack in the 1970's and early 1980's? Thanks.
Carter, Clinton, Obama, Carter...still waiting for card check after all these years..."I'm sorry, the President is busy with urgent matters right now."
Hey Stephanie, you're better off sticking to economics. We are bombarded with false information from all quarters--about Ukraine, the pandemic, and more, not just economics The study you cite is only one and has been criticized for using hydroxychloquine improperly --- maybe even intentionally injuring/killing people to bolster the false narrative that there was no existing treatment to prevent death from covid. The greatest travesty of all the travesties of the pandemic was intentional denial of early treatment that could have prevented tens of thousands of deaths. The fear that policy created drove people to irrational acceptance of the experimental inoculations in a public health policy that went against all known immunological science. https://www.youtube.com/watch?v=A_ZKBn5FT8A
"But what if more profits flow into the business sector than this minimum amount? Firms in many industries will have inordinately high margins. Such margins are incentives to expand. Expansion would require additional employees, but business cannot hire more workers when no one is unemployed. Since the extra-wide margins serve no social purpose, they are excessive."
Such a flawed argument. So, having all employed is where social purpose ends? No benefits in having some firms that are not producing value to go broke, with others taking their workers, at a higher salary?
This scenario by itself is not a situation that should require government action.
Terminally solve inflation and you end the austerians' principle argument in pertetuity, and you also open many doors that resolve other macro-economic problems as I have elucidated here. The 50% Discount/Rebate policy at retail sale ends inflation by implementing beneficial, that's BENEFICIAL price and asset deflation. Just do the math. Some might say, "Well what if pre-retail businesses just raise their prices by high percentages? #1 the intelligent and sovereign thing to do when a commercial or individual agent anti-socially attempts to de-stabilize a universally beneficial paradigm change would be to tax such actions at a high percentage rate (like 100%) for any revenue they make from such actions. #2 if a business raises its prices by say 30%...and even one of their competitors doesn't raise their prices...just how much market share is the anti-social business going to lose to that competitor? #3 even if despite the several regulatory and taxation means of discouraging arbitrary inflationary price rises I recommend in my book, you still end up with 3-4% yoy inflation, then you just index the Discount at retail sale to that rate and no harm no fuss.
The new monetary paradigm of Direct and Reciprocal Monetary Gifting needs to be recognized. Forget about any threats or recriminations by Finance. The new paradigm is beneficial enough for all individuals and all other business models except finance that it isolates them. We are many, they are few. We need to forget about egos and do what is best for the greater good for the greater number. As I have said before all of the leading economic and monetary reforms philosophically align with the new paradigm. Everyone stands on the shoulders of giants, but genuine paradigm changes don't happen very often, and a mega-paradigm change, of which Monetary Gifting is, is one that has individual, continual, universal and temporal universe benefits and also enables beneficial changes in systems, bodies of knowledge and areas of human endeavor not directly related to the primary area of paradigm change. Do the math, do the right thing and most importantly get up off your backside. Converging crises ethically demand effective action.
I look forward to getting your ‘The Lens’ emails. Thanks for making MMT/economics approachable for a recent student like myself. I am looking forward to your next book and hope you will be able to release it soon.
Bad Medicine: Yes! It makes no sense to me to make it harder for businesses to get loans to fix supply issues. The analogy of our economic body being sick is a good one that seems understandable. Giving poison in hopes of killing the disease before killing the patient seems like a crude, desperate, and a last hope effort.
Our economic body caught covid along with our population. We also seem to have several chronic conditions including: political gridlock, climate change, ongoing wars, labor shortage, vast income inequality, strategic industry offshore, and market monopolization. Medicine has been able to develop better diagnostics and more agile and targeted treatments. I hope some form of MMT can do the same for the economy.
Better economic diagnostics and tools seem needed. It seems we can’t agree on the cause of the economic malady before us. Perhaps, if more people get the view through the lens of MMT our problems will become clearer. I hear the complaint that all we have are crude tools to fix the problem of inflation. My father told me “It is a poor workman that blames his tools. A professional workman gets the right tool for the job”. I hope economists can find better, more agile and targeted treatment tools to fix problems without wrecking the entire economy.
I agree with you that fiscal tools are needed along with monetary policy. Perhaps the Fed or something like it should be able to adjust taxes within a range countercyclically against inflation. They could adjust personal and corporate taxes within a range (say + or - 4% or so) around a neutral base tax rate set by congress. Sectors involved in core cost of living and politically strategic sectors could get commensurate tax relief for increases in production output. The general taxes would go up in an inflationary cycle and down in a deflationary one. Business would be rewarded for targeting increased production of scarce items. Personal taxes would go up until inflation comes down to its target. Low income people could get a monthly subsidy to cover the expense. This has the possibility of getting people to work together to control inflation.
More conventional wisdom to be undone. Not sure why this one is so hard to crack, since Powell himself said rates won't affect the price of food or fuel. Who beyond old school economists and politicians buy into this? Wall St doesn't like rate hikes. Businesses don't like rate hikes. Yet here we are marching along to the said old tired story.
Brant
Per Warren Mosler, "With higher income available to spend, bondholders can thus add to inflationary pressures by spending from those elevated cash flows."
While that's certainly a logical possibility, has Mosler (or anyone else) produced data demonstrating that bondholders do in fact increase spending when interest rates go up? If so, what is their marginal propensity to consume out of interest income?
It seems entirely superstition based. A weak attempt at group psychology: that what matters is if people *believe* inflation will be fixed, so it only matters that you do what they think will work. Actual effects are secondary concerns. Hard headed business people, yep.
FED "Monetary policy"doesn't work because it is abstract, indirect and at least twice removed from the present time economic process. It also doesn't identify the real deepest problem with the economy, namely the monopolistic paradigm for the creation and distribution of money held by the private banks to create 97% of our money ONLY AS DEBT. You want to end inflation? Gift the consumer with a direct discount at the point of retail sale and reciprocally rebate the entirety of that discount back to the merchant giving it to consumers. Just amend the FED's charter to mandate that they do this. When was the last time that a single policy conquered inflation, (and thus shut the mouth of every conservative/libertarian pundit about the inflationary effects of fiscal deficits) doubled everyone's purchasing power and potentially doubled the demand for every enterprise's goods and services...all in one fell swoop! Never is the quick and accurate answer. Paradigm changes move the world and render long term orthodoxies irrelevant. Old orthodoxies and palliative policies won't save us. Only the mental and temporal universe inverting phenomenon of a paradigm change will. The clock is ticking...loudly.
I fear that without serious recommendations to fight inflation, the Democratic Party's Centrists, who run the party after defeating Sanders, will end up like the Dems under Carter: no real solution to counter fiscal austerity and higher interests rates.
Richard Wolff suggests at least publicly discussing the wage and price controls and rationing of WWII, especially the coupon program, and the Nixon 90 day wage and price freeze starting in Aug. of 1971, which did work - until lifted. Perhaps they will get no traction in our anti-statist, "wearing masks to protect life is a liberty infringement" direction...But absent serious alternatives all the Dems can do is hope that the three recent Supreme Court decisions shake out voters who have been missing for all these years.
I tend to think food and gasoline related prices freezes with stiff penalties would help greatly...Biden doesn't have the nerve and Mark Blyth at Brown doesn't think the federal state is able to carry out such duties today (that was his reaction to the Green New Deal) But as Wolff points out, there are energy Public Utility regulators and motor vehicle agencies in every state, as well as weights and measures enforcement (my addition) ...so the skeleton of enforcement and maybe a coupon rationing system is there under federal guidelines. In a pinch, we could draft a couple of hundred thousand of MBAs and give them something patriotic - and useful - to do.
This moment of Knightian uncertainty can only go left if left ideas are broached and supported. Otherwise, and that's the flavor in the air now, it will go like things did 1979-1982: left capitulation in the realm of ideas. Larry Summer's interview at the Kellogg School of Management in May of this year is all labor inflicted causality, and gov't spending. Who does he think signs off on each and every price increase - the local shop stewards - if there are any left?
Speaking of missing left tools, does anyone know of or recall anytime when AFL-CIO pickets from any union or collectively picked any of the major right wing think tanks or famous business lobbying institutions, which Blythe exhaustively lists for us (some of been added since then) as having driven the business counter attack in the 1970's and early 1980's? Thanks.
Carter, Clinton, Obama, Carter...still waiting for card check after all these years..."I'm sorry, the President is busy with urgent matters right now."
Hey Stephanie, you're better off sticking to economics. We are bombarded with false information from all quarters--about Ukraine, the pandemic, and more, not just economics The study you cite is only one and has been criticized for using hydroxychloquine improperly --- maybe even intentionally injuring/killing people to bolster the false narrative that there was no existing treatment to prevent death from covid. The greatest travesty of all the travesties of the pandemic was intentional denial of early treatment that could have prevented tens of thousands of deaths. The fear that policy created drove people to irrational acceptance of the experimental inoculations in a public health policy that went against all known immunological science. https://www.youtube.com/watch?v=A_ZKBn5FT8A
"But what if more profits flow into the business sector than this minimum amount? Firms in many industries will have inordinately high margins. Such margins are incentives to expand. Expansion would require additional employees, but business cannot hire more workers when no one is unemployed. Since the extra-wide margins serve no social purpose, they are excessive."
Such a flawed argument. So, having all employed is where social purpose ends? No benefits in having some firms that are not producing value to go broke, with others taking their workers, at a higher salary?
This scenario by itself is not a situation that should require government action.
Terminally solve inflation and you end the austerians' principle argument in pertetuity, and you also open many doors that resolve other macro-economic problems as I have elucidated here. The 50% Discount/Rebate policy at retail sale ends inflation by implementing beneficial, that's BENEFICIAL price and asset deflation. Just do the math. Some might say, "Well what if pre-retail businesses just raise their prices by high percentages? #1 the intelligent and sovereign thing to do when a commercial or individual agent anti-socially attempts to de-stabilize a universally beneficial paradigm change would be to tax such actions at a high percentage rate (like 100%) for any revenue they make from such actions. #2 if a business raises its prices by say 30%...and even one of their competitors doesn't raise their prices...just how much market share is the anti-social business going to lose to that competitor? #3 even if despite the several regulatory and taxation means of discouraging arbitrary inflationary price rises I recommend in my book, you still end up with 3-4% yoy inflation, then you just index the Discount at retail sale to that rate and no harm no fuss.
The new monetary paradigm of Direct and Reciprocal Monetary Gifting needs to be recognized. Forget about any threats or recriminations by Finance. The new paradigm is beneficial enough for all individuals and all other business models except finance that it isolates them. We are many, they are few. We need to forget about egos and do what is best for the greater good for the greater number. As I have said before all of the leading economic and monetary reforms philosophically align with the new paradigm. Everyone stands on the shoulders of giants, but genuine paradigm changes don't happen very often, and a mega-paradigm change, of which Monetary Gifting is, is one that has individual, continual, universal and temporal universe benefits and also enables beneficial changes in systems, bodies of knowledge and areas of human endeavor not directly related to the primary area of paradigm change. Do the math, do the right thing and most importantly get up off your backside. Converging crises ethically demand effective action.
I look forward to getting your ‘The Lens’ emails. Thanks for making MMT/economics approachable for a recent student like myself. I am looking forward to your next book and hope you will be able to release it soon.
Bad Medicine: Yes! It makes no sense to me to make it harder for businesses to get loans to fix supply issues. The analogy of our economic body being sick is a good one that seems understandable. Giving poison in hopes of killing the disease before killing the patient seems like a crude, desperate, and a last hope effort.
Our economic body caught covid along with our population. We also seem to have several chronic conditions including: political gridlock, climate change, ongoing wars, labor shortage, vast income inequality, strategic industry offshore, and market monopolization. Medicine has been able to develop better diagnostics and more agile and targeted treatments. I hope some form of MMT can do the same for the economy.
Better economic diagnostics and tools seem needed. It seems we can’t agree on the cause of the economic malady before us. Perhaps, if more people get the view through the lens of MMT our problems will become clearer. I hear the complaint that all we have are crude tools to fix the problem of inflation. My father told me “It is a poor workman that blames his tools. A professional workman gets the right tool for the job”. I hope economists can find better, more agile and targeted treatment tools to fix problems without wrecking the entire economy.
I agree with you that fiscal tools are needed along with monetary policy. Perhaps the Fed or something like it should be able to adjust taxes within a range countercyclically against inflation. They could adjust personal and corporate taxes within a range (say + or - 4% or so) around a neutral base tax rate set by congress. Sectors involved in core cost of living and politically strategic sectors could get commensurate tax relief for increases in production output. The general taxes would go up in an inflationary cycle and down in a deflationary one. Business would be rewarded for targeting increased production of scarce items. Personal taxes would go up until inflation comes down to its target. Low income people could get a monthly subsidy to cover the expense. This has the possibility of getting people to work together to control inflation.