I hope you’re enjoying the weekend. We’re wrapping up a home-improvement project (bathroom remodel) and assembling a basketball hoop. And by “we,” I mean contractors, spouse and kids. I did walk the dog at noon, so I’m doing my part. Looking ahead, I’m going to write more about inflation this week. I’ve seen a few questions about whether we should be cutting spending or raising taxes to bring down inflation, and I want to address this explicitly.
"..whether we should be cutting spending or raising taxes to bring down inflation..." When did inflation get such a bad name? It surely beats the alternative. Imagine if we had DEFLATION. Why would anyone buy a new car, for example, if they thought its cost would go DOWN by $1,000 next month? Production would grind to a halt and the economy would implode. Moderate inflation doesn't scare most economists. It's deflation that gives them the heebie-geebies.
And what would be the point of raising taxes? If you raise it on the rich, it would reduce their political power. But it won't do anything to reduce inflation, since the wealthy already have purchased all the necessities of life that the rest of us buy on a daily basis. And tax the un-wealthy? Why on earth would you want to take away money from the very people you just gave financial support to in order to ride out the pandemic?
And, of course, we need to consider if this recent rise in prices is really inflation, per se, or simply a one time--albeit painful--blip to the pandemic.
What we need are short term PRICE controls (not wage controls) with the gov't reimbursing companies for any provable losses they might suffer. The gov't should order the price of gasoline and bacon, for example, to be returned to their pre-covid costs, and then make up the difference to these vendors. This could go on for 6 months or a year until the economy and supply chains stabilize. It is astonishing that no one has suggested this. All it takes is money. It might add a couple hundred billion to the deficit, but who cares? And by that I mean, the deficit hawks need to explain why that would be such a bad thing.
Dr Kelton Loved your book. Would like to discuss with you pursuing a PHD in MMT...I am 64 retired from commercial real estate NYC MBA 81 Emory Univ Fin Acct Quant Methods 98 Exec MBA Cert in Value Investing Columbia Univ...
Re-reading "The Deficit Myth" in preparation for a study group focused on it, I wondered to what extent the concepts developed there up through its mid-2020 publication would help us understand the inflationary pressures the U.S. and other countries are currently experiencing.
MMT argues that while the government of a monetarily sovereign countries is never financially constrained in their policy choices, it is constrained by the real productive resources (labor, raw materials, machinery, technological know-how) available for purchase in its own currency. During the past fifty years, the U.S. has been monetarily sovereign but its utilization of its real resources has been well below capacity. Consequently, if during that period of time U.S. budget policy had been 'MMT-informed', expansionary fiscal policies could have been pursued with little fear of hitting inflation.
The COVID-19 crisis has been marked by:
* Initial sharp contraction (only partly government-mandated) in the utilization of real resources.
* Very sharp initial contraction in employment and (perhaps more significant) decline in labor force participation -- the latter suggesting contraction in real productives resources, not just in capacity utilization).
* Large pandemic-induced shifts in consumer spending between services and goods -- shifts which the prevailing pattern of utilization of productive resources has been not been able to accommodate.
Hence, for the first time in the period during which MMT has been developing, the U.S. is being constrained by limits on its real resources in certain sectors. Until the pandemic, we would only have expected to hit those resource constraints during an economy-wide, wartime-like mobilization to respond to climate change. So we're facing the question of budgeting for real resources much more sooner than we had expected.
I’m actually reading The Deficit Myth now, I bought it last week. I’m looking forward you reading both the book and your Substack. I’m a fan of your work.
I just today listened to your chat with Micheal Moore on his Podcast - Rumble. I wish there were more people in public life with the same grip on the facts as you both. I could hear the exasperation in his voice which I’m sure is shared by not only yourself but the listeners there and subscribers here too. I honestly think there is now only one thing which *might* stand a chance of making the powers that be see sense, if only a modicum, and that is people power. A huge opportunity was missed last year during and after the George Floydd/BLM nationwide protests. There was no follow up demands. Nobody to negotiate for real, tangible, policy changes. No leadership. So politicians could get away with paying lip service : taking the knee in photo ops etc. Then what? Zilch, that’s what. There must be a leader, or leaders, to step up now and call the people onto the streets. The so-called “progressives” of the “Squad” have shown themselves to be incapable of doing this, too fond of their careers it seems. So much for “bring the ruckass”.
If thousands, not hundreds like the Sunrise Kids, camped outside Manchin’s boat, or the Capitol, more would join. If they can’t make it they could do the same at their own State Capitols. The politicians need to be reminded who is their boss and it’s not the donors or lobbyists.
"..whether we should be cutting spending or raising taxes to bring down inflation..." When did inflation get such a bad name? It surely beats the alternative. Imagine if we had DEFLATION. Why would anyone buy a new car, for example, if they thought its cost would go DOWN by $1,000 next month? Production would grind to a halt and the economy would implode. Moderate inflation doesn't scare most economists. It's deflation that gives them the heebie-geebies.
And what would be the point of raising taxes? If you raise it on the rich, it would reduce their political power. But it won't do anything to reduce inflation, since the wealthy already have purchased all the necessities of life that the rest of us buy on a daily basis. And tax the un-wealthy? Why on earth would you want to take away money from the very people you just gave financial support to in order to ride out the pandemic?
And, of course, we need to consider if this recent rise in prices is really inflation, per se, or simply a one time--albeit painful--blip to the pandemic.
What we need are short term PRICE controls (not wage controls) with the gov't reimbursing companies for any provable losses they might suffer. The gov't should order the price of gasoline and bacon, for example, to be returned to their pre-covid costs, and then make up the difference to these vendors. This could go on for 6 months or a year until the economy and supply chains stabilize. It is astonishing that no one has suggested this. All it takes is money. It might add a couple hundred billion to the deficit, but who cares? And by that I mean, the deficit hawks need to explain why that would be such a bad thing.
Dr Kelton Loved your book. Would like to discuss with you pursuing a PHD in MMT...I am 64 retired from commercial real estate NYC MBA 81 Emory Univ Fin Acct Quant Methods 98 Exec MBA Cert in Value Investing Columbia Univ...
Re-reading "The Deficit Myth" in preparation for a study group focused on it, I wondered to what extent the concepts developed there up through its mid-2020 publication would help us understand the inflationary pressures the U.S. and other countries are currently experiencing.
MMT argues that while the government of a monetarily sovereign countries is never financially constrained in their policy choices, it is constrained by the real productive resources (labor, raw materials, machinery, technological know-how) available for purchase in its own currency. During the past fifty years, the U.S. has been monetarily sovereign but its utilization of its real resources has been well below capacity. Consequently, if during that period of time U.S. budget policy had been 'MMT-informed', expansionary fiscal policies could have been pursued with little fear of hitting inflation.
The COVID-19 crisis has been marked by:
* Initial sharp contraction (only partly government-mandated) in the utilization of real resources.
* Very sharp initial contraction in employment and (perhaps more significant) decline in labor force participation -- the latter suggesting contraction in real productives resources, not just in capacity utilization).
* Large pandemic-induced shifts in consumer spending between services and goods -- shifts which the prevailing pattern of utilization of productive resources has been not been able to accommodate.
Hence, for the first time in the period during which MMT has been developing, the U.S. is being constrained by limits on its real resources in certain sectors. Until the pandemic, we would only have expected to hit those resource constraints during an economy-wide, wartime-like mobilization to respond to climate change. So we're facing the question of budgeting for real resources much more sooner than we had expected.
Hi, new subscriber here,
I’m actually reading The Deficit Myth now, I bought it last week. I’m looking forward you reading both the book and your Substack. I’m a fan of your work.
J.
I just today listened to your chat with Micheal Moore on his Podcast - Rumble. I wish there were more people in public life with the same grip on the facts as you both. I could hear the exasperation in his voice which I’m sure is shared by not only yourself but the listeners there and subscribers here too. I honestly think there is now only one thing which *might* stand a chance of making the powers that be see sense, if only a modicum, and that is people power. A huge opportunity was missed last year during and after the George Floydd/BLM nationwide protests. There was no follow up demands. Nobody to negotiate for real, tangible, policy changes. No leadership. So politicians could get away with paying lip service : taking the knee in photo ops etc. Then what? Zilch, that’s what. There must be a leader, or leaders, to step up now and call the people onto the streets. The so-called “progressives” of the “Squad” have shown themselves to be incapable of doing this, too fond of their careers it seems. So much for “bring the ruckass”.
If thousands, not hundreds like the Sunrise Kids, camped outside Manchin’s boat, or the Capitol, more would join. If they can’t make it they could do the same at their own State Capitols. The politicians need to be reminded who is their boss and it’s not the donors or lobbyists.
Power concedes nothing without demands.
J.
While you are at Lowe’s, ask the manager if they are still selling the cancer causing Roundup.