When the gov't paid people NOT TO WORK in order to curb the pandemic spread, of course we were going to have too much money chasing too few goods (that were no longer being produced). So the gov't was faced with basically 2 choices: 1) allow demand to drive prices up and thereby take away the windfall it had just provided to working class people (you'll hear well-to-do folks complain about inflation these days, but they're doing it at cocktail parties) or 2) impose WW II-style price controls and rationing that would force the entire society to share the burden equally until supply chain issues could be resolved. The gov't chose to screw the working class.
The stimulus money, given out a year and a half ago, was on the average $2400. Do you really think that amount of money during a pandemic and a lockdown, is now fueling inflation? That's be a stretch, at the very least.
You're right, if we were only talking about the stimulus. But the truly weird thing about the relief plan (I'm NOT saying it was a mistake!) is that the gov't was actually paying people NOT to work. So folks had more money to spend and at the same time were producing fewer goods. Add to this another weird pandemic item: people stopped going to bars, restaurants, theaters, concerts, sporting events, etc., which gave them even MORE money to spend on goods. In other words, the "services" part of the economy dried up for a while. That's a recipe for inflation of "goods." I concede that price controls can be a bureaucratic nightmare--but compared to what? The current inflation rate that is scaring the shit out of people?
In my opinion, our current inflation is not fueled by the usual "too much money chasing too few products". There are plenty of products; just think of Amazon, for example. You can buy Anything you want, without risking Covid. In my view, this 2022 inflation is caused by breaks in the supply chains. Ports are clogged, and sometimes container ships waiting for months for foreign goods to be unloaded. And it's caused by people quitting crappy jobs. Truck drivers, who move product across this country, have become aware of the exploitative, unethical methods used by their 'bosses' and have left their jobs in favor of local jobs that give them more family time. This nation needs a Federal Job Guarantee, that will keep wage-earners in their communities, and keep families strong and united. The fear of FJG is scaring the shit out of biz owners, who have been paying poverty wages for work under inhumane conditions. Some of them have seen that writing on the wall, and are voluntarily paying more. However, a Federal Job Guarantee would abolish inflation. Paid for by the Federal Government. Designed and managed by each community. Please read The Deficit Myth, by Dr Sephanie Kelton, and also The Case for a Job Guarantee, by Dr Pavlina R. Tcherneva. And please look into learning Modern Monetary Theory.
You make excellent points. But I've heard chip shortage stories of people paying $20K over MSRP for a new car, and others selling their used cars for more than they paid for it when it was new. BTW, I'm from Connecticut. We have 7 members in our Congressional delegation. Shortly after "The Deficit Myth" was published, I sent a copy to all 7 of them.
I have noted some news items about the impact of climate-induced weather events on the Canadian supply of oil, shipping, trucking, chickens, cattle, vegetables and fruit. I have not followed closely the futures markets for these products but if their availability is being affected negatively, that will cause shortages and likely boost prices without any nominal increase in demand because sellers are able to command higher prices from the more prosperous or middle-class consumers just as the market speculators will bid up their prices.
As you say, inflation is a complex systemic problem with many feedback loops. I also believe that the COVID pandemic has introduced some other costs to retailers for masks, and sanitizing activities that are likely minor factors. In my country, nursing staff are working double shifts meaning overtime rates because of absent colleagues. The price of fossil fuels is affected dramatically by several factors and whereas last summer I was paying less than $1.15 per litre, now I am paying $1.34-6 per litre and as high as $1.46 per litre in Toronto last week.
The notion mentioned in the post by Wally Grigo about too much money chasing too few goods holds water ONLY if the savings rate is starting to decline. Do we have such data? The data that I have seen is that in my country the savings rate has soared to over 30% from around 3%. His idea to have prices take it away would be revealed if savings rates decline. Well-to-do folks complain about inflation NOT because of prices of goods but because of lower returns on investments such as loans and mortgages. As one of those, I notice it at the gas pump but take little notice in the grocery store.
My memory may not be allowing for accurate numbers but the concepts remain valid.
I'm old enough to remember when Richard Nixon (of all people!) imposed wage and price controls. When he removed them, John Kenneth Galbraith observed in a NYTimes op-ed (it's what "guest essays" were called back in the day) that he did so "for the remarkable reason that they worked."
I am old enough to remember too but they did NOT work in Canada. They were really wage controls here and I thought that was true in the US too. When they moved in Canada to using interest rates, I compared that strategy to throwing gasoline on a fire to put it out. It may work but the quantity of gasoline has to be huge so that no O2 can feed the fire.
I concur with your assessment Stephanie and understand the complexities involved. So many don’t and rely on those supposedly in the know to prioritize the US population writ large and take actions aligned with that top priority. Unfortunately, the divisions that have always existed in the US persist and impacted negatively thus created greater complexities. “Paying people to not work” remains contrary thinking against population priority and understanding imposed limitations a pandemic has on the globalized world. MMT came into my strategic considerations and closed huge gaps in my analysis to reveal the endemic issues holding our country back…us. Keep up the great work Stephanie.
If you were in the wheelhouse, what levers would you wish to have and which would you move and why? You state that even MMT does not provide clear answers. If we strip away the persiflage of your column, it's not clear how you would respond to your own uncertainty.
To Peter Santa Ana and Tom Abeles, I have no idea if what you're trying to say is cogent, but I'd suggest that you write in plain English so I--or anyone else--can make that assessment.
Why use analogies, diagrams. charts, and equations, when a simple explanation would do a better job?
Taking away the "monetary stimulus" is not going to make corporations with monopolies raise supply when raising prices is easier and more profitable.
Then you can talk about the just-in-time manufacturing process which is very efficient and profitable, but very sensitive to disruptions like dying workers and pandemic fighting lock downs.
I bet that ending rent ,mortgage, and student debt moratoria could stop inflation in its tracks if you weren't going to worry about all the newly homeless that will be wandering the streets.
Matt Stoller wrote a piece on December 29, 2021 in which he estimates that up to 60% of the current inflation (6.8% for 2021) is caused by monopolies/oligopolies raising prices far beyond their increased costs. They have pricing power and they are using it to massively increase their margins. He uses an interesting methodology that makes sense to me, but I would have difficulty describing it as well as he does. For those interested you can find it here:
To the extent that he is correct, neither fiscal nor monetary policy can address this problem. It's going to take re-regulation and a much more robust anti-trust effort by the government. Lina Kahn at the FTC and John(?) Kanter at the DOJ anti-trust division are starting to work on this. Even Congress (amazingly) is getting in on the act by proposing re-regulation of the shipping industry.
First off, whose inflation? Because there is never just ONE inflation. Second, the overnight rate is a blunt instrument -- we need a return to credit guidance (different rates for different sectors of the economy) and industrial policy.
All of this is, of course, anathema to neoliberalism, so our "betters" will prefer current arrangements where they throw people out of work to prevent the kind of inflation that they don't like.
I find a bit of irony in the fact that non competitive price control is already being imposed on goods and services (quelle surprise, monopoly cartels).
It is with skeptical hope that OUR regulatory state finds some funding to go along with actual regulators.
Maybe L. Khan and the 3 new cognitive diverse Fed Governors is a longtime needed start. The Chicago School, dealing off the bottom of the neoliberal deck, is a -I know you're right but we like our opinion better- going on for 5 decades. Just look around a bit and think critically about our world. Able to infer any externalities? Whew
Ms Kelton: In your book you discuss a federal jobs guarantee.
It would seem to me that if inflation is "too much money chasing too few goods" and part of that "too much money" is so-called full employment, then perhaps giving the Fed that dual mandate is a root cause problem?
Everytime we have a cyclical economic issue with rising then falling unemployment we are lowering and raising consumer spending up and down as well .
Maybe the correct thing is for the Fed to ONLY concentrate on monetary policy (i.e. inflation) and the Federal Govt be the one tasked with maintaining full employment. Surely consistent employment levels will maintain a steadier demand side effect.
When the gov't paid people NOT TO WORK in order to curb the pandemic spread, of course we were going to have too much money chasing too few goods (that were no longer being produced). So the gov't was faced with basically 2 choices: 1) allow demand to drive prices up and thereby take away the windfall it had just provided to working class people (you'll hear well-to-do folks complain about inflation these days, but they're doing it at cocktail parties) or 2) impose WW II-style price controls and rationing that would force the entire society to share the burden equally until supply chain issues could be resolved. The gov't chose to screw the working class.
there are more than those two choices!
OK. What are they?
The stimulus money, given out a year and a half ago, was on the average $2400. Do you really think that amount of money during a pandemic and a lockdown, is now fueling inflation? That's be a stretch, at the very least.
You're right, if we were only talking about the stimulus. But the truly weird thing about the relief plan (I'm NOT saying it was a mistake!) is that the gov't was actually paying people NOT to work. So folks had more money to spend and at the same time were producing fewer goods. Add to this another weird pandemic item: people stopped going to bars, restaurants, theaters, concerts, sporting events, etc., which gave them even MORE money to spend on goods. In other words, the "services" part of the economy dried up for a while. That's a recipe for inflation of "goods." I concede that price controls can be a bureaucratic nightmare--but compared to what? The current inflation rate that is scaring the shit out of people?
In my opinion, our current inflation is not fueled by the usual "too much money chasing too few products". There are plenty of products; just think of Amazon, for example. You can buy Anything you want, without risking Covid. In my view, this 2022 inflation is caused by breaks in the supply chains. Ports are clogged, and sometimes container ships waiting for months for foreign goods to be unloaded. And it's caused by people quitting crappy jobs. Truck drivers, who move product across this country, have become aware of the exploitative, unethical methods used by their 'bosses' and have left their jobs in favor of local jobs that give them more family time. This nation needs a Federal Job Guarantee, that will keep wage-earners in their communities, and keep families strong and united. The fear of FJG is scaring the shit out of biz owners, who have been paying poverty wages for work under inhumane conditions. Some of them have seen that writing on the wall, and are voluntarily paying more. However, a Federal Job Guarantee would abolish inflation. Paid for by the Federal Government. Designed and managed by each community. Please read The Deficit Myth, by Dr Sephanie Kelton, and also The Case for a Job Guarantee, by Dr Pavlina R. Tcherneva. And please look into learning Modern Monetary Theory.
You make excellent points. But I've heard chip shortage stories of people paying $20K over MSRP for a new car, and others selling their used cars for more than they paid for it when it was new. BTW, I'm from Connecticut. We have 7 members in our Congressional delegation. Shortly after "The Deficit Myth" was published, I sent a copy to all 7 of them.
Thanks. I lack your PhD but share your skepticism.
I have noted some news items about the impact of climate-induced weather events on the Canadian supply of oil, shipping, trucking, chickens, cattle, vegetables and fruit. I have not followed closely the futures markets for these products but if their availability is being affected negatively, that will cause shortages and likely boost prices without any nominal increase in demand because sellers are able to command higher prices from the more prosperous or middle-class consumers just as the market speculators will bid up their prices.
As you say, inflation is a complex systemic problem with many feedback loops. I also believe that the COVID pandemic has introduced some other costs to retailers for masks, and sanitizing activities that are likely minor factors. In my country, nursing staff are working double shifts meaning overtime rates because of absent colleagues. The price of fossil fuels is affected dramatically by several factors and whereas last summer I was paying less than $1.15 per litre, now I am paying $1.34-6 per litre and as high as $1.46 per litre in Toronto last week.
The notion mentioned in the post by Wally Grigo about too much money chasing too few goods holds water ONLY if the savings rate is starting to decline. Do we have such data? The data that I have seen is that in my country the savings rate has soared to over 30% from around 3%. His idea to have prices take it away would be revealed if savings rates decline. Well-to-do folks complain about inflation NOT because of prices of goods but because of lower returns on investments such as loans and mortgages. As one of those, I notice it at the gas pump but take little notice in the grocery store.
My memory may not be allowing for accurate numbers but the concepts remain valid.
I'm old enough to remember when Richard Nixon (of all people!) imposed wage and price controls. When he removed them, John Kenneth Galbraith observed in a NYTimes op-ed (it's what "guest essays" were called back in the day) that he did so "for the remarkable reason that they worked."
I am old enough to remember too but they did NOT work in Canada. They were really wage controls here and I thought that was true in the US too. When they moved in Canada to using interest rates, I compared that strategy to throwing gasoline on a fire to put it out. It may work but the quantity of gasoline has to be huge so that no O2 can feed the fire.
I concur with your assessment Stephanie and understand the complexities involved. So many don’t and rely on those supposedly in the know to prioritize the US population writ large and take actions aligned with that top priority. Unfortunately, the divisions that have always existed in the US persist and impacted negatively thus created greater complexities. “Paying people to not work” remains contrary thinking against population priority and understanding imposed limitations a pandemic has on the globalized world. MMT came into my strategic considerations and closed huge gaps in my analysis to reveal the endemic issues holding our country back…us. Keep up the great work Stephanie.
If you were in the wheelhouse, what levers would you wish to have and which would you move and why? You state that even MMT does not provide clear answers. If we strip away the persiflage of your column, it's not clear how you would respond to your own uncertainty.
To Peter Santa Ana and Tom Abeles, I have no idea if what you're trying to say is cogent, but I'd suggest that you write in plain English so I--or anyone else--can make that assessment.
Why use analogies, diagrams. charts, and equations, when a simple explanation would do a better job?
Taking away the "monetary stimulus" is not going to make corporations with monopolies raise supply when raising prices is easier and more profitable.
Then you can talk about the just-in-time manufacturing process which is very efficient and profitable, but very sensitive to disruptions like dying workers and pandemic fighting lock downs.
I bet that ending rent ,mortgage, and student debt moratoria could stop inflation in its tracks if you weren't going to worry about all the newly homeless that will be wandering the streets.
Matt Stoller wrote a piece on December 29, 2021 in which he estimates that up to 60% of the current inflation (6.8% for 2021) is caused by monopolies/oligopolies raising prices far beyond their increased costs. They have pricing power and they are using it to massively increase their margins. He uses an interesting methodology that makes sense to me, but I would have difficulty describing it as well as he does. For those interested you can find it here:
https://mattstoller.substack.com/p/corporate-profits-drive-60-of-inflation
To the extent that he is correct, neither fiscal nor monetary policy can address this problem. It's going to take re-regulation and a much more robust anti-trust effort by the government. Lina Kahn at the FTC and John(?) Kanter at the DOJ anti-trust division are starting to work on this. Even Congress (amazingly) is getting in on the act by proposing re-regulation of the shipping industry.
James K G :)
First off, whose inflation? Because there is never just ONE inflation. Second, the overnight rate is a blunt instrument -- we need a return to credit guidance (different rates for different sectors of the economy) and industrial policy.
All of this is, of course, anathema to neoliberalism, so our "betters" will prefer current arrangements where they throw people out of work to prevent the kind of inflation that they don't like.
I find a bit of irony in the fact that non competitive price control is already being imposed on goods and services (quelle surprise, monopoly cartels).
It is with skeptical hope that OUR regulatory state finds some funding to go along with actual regulators.
Maybe L. Khan and the 3 new cognitive diverse Fed Governors is a longtime needed start. The Chicago School, dealing off the bottom of the neoliberal deck, is a -I know you're right but we like our opinion better- going on for 5 decades. Just look around a bit and think critically about our world. Able to infer any externalities? Whew
Ms Kelton: In your book you discuss a federal jobs guarantee.
It would seem to me that if inflation is "too much money chasing too few goods" and part of that "too much money" is so-called full employment, then perhaps giving the Fed that dual mandate is a root cause problem?
Everytime we have a cyclical economic issue with rising then falling unemployment we are lowering and raising consumer spending up and down as well .
Maybe the correct thing is for the Fed to ONLY concentrate on monetary policy (i.e. inflation) and the Federal Govt be the one tasked with maintaining full employment. Surely consistent employment levels will maintain a steadier demand side effect.