In "The Deficit Myth" you stated that the government borrowing "limit" was roughly defined by the amount that causes inflation not the amount in relation to GDP. Now that inflation is a concern, it's interesting that MMT seems to be saying that the only Fed tool for cooling inflation--raising interest rates--may actually induce a countervailing stimulative "tailwind". Let's suppose this tailwind is strong enough (which I doubt, but this is a thought experiment): what then? If the Fed can't cool off inflation when it happens by raising interest rates, we should avoid the deficits in the first place? Does this mean "The Deficit Myth" isn't a myth after all?
Portlander writes: "If the Fed can't cool off inflation when it happens by raising interest rates, [does that mean] we should avoid the deficits in the first place?"
No, it means that the case for relying on monetary policy administered by the Federal Reserve is very weak. The U.S. has been relying on Fed manipulation of interest rates as the country's primary macroeconomic tool since the Volcker shock in 1979. Galbraith's comments suggest that while that policy may have been effective then, it would not have been effective at other historical moments such as the immediate postwar period and the present.
Moreover, the way you phrase your question suggests that you believe that there is a direct relation between [federal] deficit [spending] and inflation. The U.S. budget has been in deficit much more often than not over the past 90 years, but periods of significant inflation have mainly been associated with external, supply-side factors (oil price increases; supply-chain problems) or with wartime periods.
Note that the Modern Monetary Theory academics also recommend a federally funded and locally administered Job Guarantee program as a primary inflation fighting tool.
A JG acts as a price anchor for the price of labour and thus limits inflation from that source, as well as being a guaranteed employer of last resort for anyone who wants to work but can't find suitable work in the jobs market.
May I suggest reading the Wikipedia article on NAIBER (non-accelerating inflation buffer employment ratio) which is a far superior and humane alternative to the currently utilised NAIRU (non-accelerating inflation rate of unemployment).
The MMT academics also often recommend regulatory limits on bank lending for speculation which apart from moderating speculative boom and bust market cycles can act to reduce inflation from that source.
Governments and parliaments can often also help to reduce inflation that may arise from supply constraints through legislative action, for example when OPEC attempts to cut supply to raise oil prices excessively then the US government could release oil from the US strategic petroleum reserve.
There are no myths in MMT, just lots of viable solutions to inflation, full employment, adequate government services and a thriving economy that benefits all.
Big fiscal works, austerity and massive unemployment don't. Indeed luckily for us, with programs such as the IRA, Chips, infrastructure bill and the crazy regressive stimulus via the fed rate hikes we've held off a recession. It also helped that supply chain pressures improved and a huge drop in gas prices as well. Disinflation is happening even on the core side despite nagging rent and shelter costs. There is no wage price spiral and even real wages are up. The less we pay attention to the likes of summers and furman the better off the economy will be.
I suspect Larry Summers and similar economists cannot really be that misinformed or incompetent but instead must be acting on behalf of certain vested interests. Guns for hire?
Larry summers is the guy who said that we needed one year of 10% unemployment to bring down inflation. This is also the same guy who said Jerome Powell deserves credit for bringing down inflation. Its pure nonsense on both fronts. Its unfortunate too many turn to him on the economy.
The collusion of the Fed with the economic elite tools like those mentioned at Harvard to return the work class into slaves and property renters is obvious to anyone who has any since of economic history. We have situation where current main driver of inflation is housing rents and Fed is making it harder for people to purchase homes. Let's be clear, the current homeless problem in the US is due to the last 50 years of neoliberalism domination of economic policy in the US. Jerome Powell would have been replaced if the Dems would have nominated Sanders. Powell is no friend to the American, in his testimony on inflation to Congress his exchange with Richard Shelby he praised Paul Volcker. He assured Shelby the Fed was prepared to "do whatever it takes!" It was cristal clear the two were referring to getting uppity workers under control, not inflation.
Thanks for updating us on the current inflation status!
Yes, it's just like what we already knew, was a supply problem, not demand problem. The problem is, capital wants higher levels of unemployed workers because their easier to exploit.
In "The Deficit Myth" you stated that the government borrowing "limit" was roughly defined by the amount that causes inflation not the amount in relation to GDP. Now that inflation is a concern, it's interesting that MMT seems to be saying that the only Fed tool for cooling inflation--raising interest rates--may actually induce a countervailing stimulative "tailwind". Let's suppose this tailwind is strong enough (which I doubt, but this is a thought experiment): what then? If the Fed can't cool off inflation when it happens by raising interest rates, we should avoid the deficits in the first place? Does this mean "The Deficit Myth" isn't a myth after all?
Portlander writes: "If the Fed can't cool off inflation when it happens by raising interest rates, [does that mean] we should avoid the deficits in the first place?"
No, it means that the case for relying on monetary policy administered by the Federal Reserve is very weak. The U.S. has been relying on Fed manipulation of interest rates as the country's primary macroeconomic tool since the Volcker shock in 1979. Galbraith's comments suggest that while that policy may have been effective then, it would not have been effective at other historical moments such as the immediate postwar period and the present.
Moreover, the way you phrase your question suggests that you believe that there is a direct relation between [federal] deficit [spending] and inflation. The U.S. budget has been in deficit much more often than not over the past 90 years, but periods of significant inflation have mainly been associated with external, supply-side factors (oil price increases; supply-chain problems) or with wartime periods.
Note that the Modern Monetary Theory academics also recommend a federally funded and locally administered Job Guarantee program as a primary inflation fighting tool.
A JG acts as a price anchor for the price of labour and thus limits inflation from that source, as well as being a guaranteed employer of last resort for anyone who wants to work but can't find suitable work in the jobs market.
May I suggest reading the Wikipedia article on NAIBER (non-accelerating inflation buffer employment ratio) which is a far superior and humane alternative to the currently utilised NAIRU (non-accelerating inflation rate of unemployment).
https://en.wikipedia.org/wiki/NAIBER
https://en.wikipedia.org/wiki/NAIRU
The MMT academics also often recommend regulatory limits on bank lending for speculation which apart from moderating speculative boom and bust market cycles can act to reduce inflation from that source.
Governments and parliaments can often also help to reduce inflation that may arise from supply constraints through legislative action, for example when OPEC attempts to cut supply to raise oil prices excessively then the US government could release oil from the US strategic petroleum reserve.
There are no myths in MMT, just lots of viable solutions to inflation, full employment, adequate government services and a thriving economy that benefits all.
The impacts of President Biden’s fiscal successes should soon be accelerating into view.
Big fiscal works, austerity and massive unemployment don't. Indeed luckily for us, with programs such as the IRA, Chips, infrastructure bill and the crazy regressive stimulus via the fed rate hikes we've held off a recession. It also helped that supply chain pressures improved and a huge drop in gas prices as well. Disinflation is happening even on the core side despite nagging rent and shelter costs. There is no wage price spiral and even real wages are up. The less we pay attention to the likes of summers and furman the better off the economy will be.
Well said (or written) Michael.
I suspect Larry Summers and similar economists cannot really be that misinformed or incompetent but instead must be acting on behalf of certain vested interests. Guns for hire?
Or I could be completely wrong?
Larry summers is the guy who said that we needed one year of 10% unemployment to bring down inflation. This is also the same guy who said Jerome Powell deserves credit for bringing down inflation. Its pure nonsense on both fronts. Its unfortunate too many turn to him on the economy.
I have a dream - as someone once said.
Stephanie would make a great president. Being a Congressional representative for a few terms may be a suitable initial step on that journey? 🙂
Start with treasury Secretary.
The collusion of the Fed with the economic elite tools like those mentioned at Harvard to return the work class into slaves and property renters is obvious to anyone who has any since of economic history. We have situation where current main driver of inflation is housing rents and Fed is making it harder for people to purchase homes. Let's be clear, the current homeless problem in the US is due to the last 50 years of neoliberalism domination of economic policy in the US. Jerome Powell would have been replaced if the Dems would have nominated Sanders. Powell is no friend to the American, in his testimony on inflation to Congress his exchange with Richard Shelby he praised Paul Volcker. He assured Shelby the Fed was prepared to "do whatever it takes!" It was cristal clear the two were referring to getting uppity workers under control, not inflation.
Thanks for updating us on the current inflation status!
Yes, it's just like what we already knew, was a supply problem, not demand problem. The problem is, capital wants higher levels of unemployed workers because their easier to exploit.
It's time for an August update.