In a past interview you said, “…let's start by recognizing that inflation, as you say, is a dynamic process, it is a continuous increase in the price level, it's not a one off. It's a complex phenomenon, there isn’t economist on Earth who can write down for you a model of inflation that will apply in all times across, space and time, nobody can do it.” While in this piece you say, “… the financial costs aren’t the binding constraint. Inflation is.”
If inflation is the binding constraint within the MMT framework and modeling inflation over time can’t be done, then how would you calculate in advance the spending limits? Could you write a piece that goes into explaining how the theory could be actually implemented in a calculated predictable way? Or is that not possible?
The "theory" doesnt need to be implemented, it helps as a lens (as per the name of the substack) to explain how the monetary system actually works, when a fiat currency is in use. However your question about inflation is still a good one, and it is very clear that even now, the CBO has no clue about the impact on important factors such as inflation, when bills are currently proposed. If bills were judged against inflation, do you think the CBO would get better at modelling the impact on inflation?
Also - if inflation were considered the binding constraint perhaps institutional expertise would be built up to help understand inflation more. All those CBO people scoring based on debt and deficits could be repurposed to scoring based on the impact on inflation instead.
Because we talk about debts and deficits instead of inflation, there is no real attempt to measure productive capacity industry by industry to determine whether a particular spending proposal would increase or decrease inflation. If we change the lens through which we view spending/taxes, we would start actually developing that capability.
Don't get me wrong, all of the heterodox reform research of Mosler, Keen, Hudson etc. is well and good, but the deepest part of the problem has not been addressed and that is discovering the single new paradigm concept and finding an efficacious way to integrate it into the economy that actually changes the nature of its entire pattern. The present paradigm for the creation and distribution of money is Debt Only. The new paradigm is Direct and Reciprocal Monetary Gifting and the most efficacious way to implement the new paradigm is with a 50% discount to consumers at retail sale every penny of which is rebated back to the merchant giving it to consumers by the FED or another monetary authority. This resolves the problems of individual monetary scarcity, systemic austerity and any possibility of inflation, and enables many more political and economic possibilities because it integrates interests and agendas on the left and the right. Again, this in no way belittles current heterodox research but rather affirms their conclusions and simply makes their stated goals a reality.
Totally inadequate response. Instead of wasting time trying to say that the inflation people see isn't what they think, you should have spent all your time explaining what is the cause of the inflation that they do see. As I see it, the supply chain that we have that depends on "just in time delivery" may be efficient under normal circumstances, but it is very fragile in the face of the unexpected. The disruption to the supply chain from the pandemic is now showing up even as we are making feeble attempts to restart the economy. We need to take steps to fix the supply chain situation. I have seen a report that the backup at the ports of entry is just the tip of the iceberg. We don't have the warehouse space to even store the goods if they went through the ports with no backup. These are problems that need solving, but they may be outside your area of expertise.
For years I have been warning MMT proponents to stop dismissing inflation just because there has not been any inflation up to now. Instead MMT should have discussed why there was no inflation before, and what would have to change to see inflation rise. Up until know there has not been enough consumer demand to raise consumer prices. The oligarchs, who have been receiving trillions of dollars that the Fed has pumped in, aren't the ones who buy consumer good. The oligarchs take excess money and put it into the stock market, which has been rising. (Stock market price inflation).. Now that consumers have started receiving a little money from the government/Fed, they are trying to buy more, but the supply chain is in a big mess. The disrupted supply chain wasn't so much of an issue as long as the consumers couldn't afford to buy things. You could also point out that when workers couldn't go to work they couldn't produce the supply of goods that was needed. The external supply from China was also being disrupted.
This resort to economic reports from "experts", is not going to convince the many people who have become skeptical of all experts lately (and with good reason). Explain things in understandable ways without resorting to playing the credentials game.
MMT has always said the all the historical hyper-inflations have resulted from supply disruptions. This is what is going on, so MMT has always had an explanation. Now is the time to bring it up. Also explain that MMT is not able to predict unexpected supply disruptions. But MMT proponents should have been looking out for their occurrence when they happen. MMT should have been able to predict this inflation as soon as they saw the huge supply disruption caused by the pandemic.
Steve Greenberg She had 6 minutes to respond to multiple complex questions. She did mention supply chain and re-opening issues as a cause. Fareed also said he wants to have her back to continue the discussion. Might be more helpful to contact Fareed directly via his Twitter thread or his GPS show to ask him to discuss how we can fix our supply chain issues. Also this is not something new, at least not for me as I have heard it mentioned multiple times before that we need to fix our supply chain issues to ensure we’re ready for the next economic and health crisis.
Best way to end supply chain issues (and reduce their expensive and high carbon footprint) is to re-industrialize America by implementing a 50% discount/rebate policy at retail sale. Why? Because if you reduce price, double potential purchasing power/potential demand and resolve inflation with that single policy...why import the vast amount of goods when you can very profitably make them yourself??? The benefits of this policy are so good even export platforms like China, Germany and Japan could cut their exports tremendously and yet still have stable profitable economies. Ah, paradigm changes, always universally beneficial.
She only had 6 minutes, and she chose to waste some of them by talking about a Fed study that never explained why the deficit was not the cause of inflation. If she knew her time was limited, why didn't she go for the best argument insttead of wasting time on the Fed study. We have to hold the MMT experts accountable for their failure when they have them. Stephanie is not perfect, and neither is Warren Mosler.
She could have eliminated any mention of the Fed study and spent more time explaining the supply chain issues. She didn't mention "just in time", and she did not mention how supply chain disruptions have always been part of the explanation of MMT. She didn't admit that MMT proponents should have been warning us of supply chain issues when they started to see supply chain disruptions. From their own theory, they could have foreseen the issue if inflation from supply chain disruptions, but instead they said, "Inflation, what inflation, there is no inflation". When MMT proponents needlessly throw away their credibility, it hurts the whole cause.
Instead of making excuses for them doing anything less than their best, we need to speak up with constructive criticism. Maybe I needed to be more diplomatic, but Stephanie has to be told how she can do a better job. I have been warning these people for years that their dismissal of inflation would come back to bite them. They didn't listen, and now I get to say "I told you so."
Steve Grumbine banished me from his site because he couldn't recognize constructive criticism. He was always in denial.
This may not be in Stephanie Kelton's area of expertise. However, it is good for all of us to know.
Why the US Supply Chain Crisis Is Intractable and Will Get Worse
Your response was not constructive criticism; it was destructive criticism. Big difference. Is your goal to attack or communicate? If you want to get a message across, how you communicate is just as important as what you are saying.
How should I have communicated my concerns? I don't think you understand the magnitude of the problem. The current level of inflation could discredit MMT completely. Will "The Deficit Myth" stay as popular as it was now that people can use inflation to discredit it? When I see a train wreck about to happen, should I make sure not to hurt any feelings when I try to warn of a dire emergency? I suppose, I should be concerned with getting people to listen to the warning. So, I seriously ask how should I state my concerns so that people won't get upset?
That's a good article. The "gig" economy comes to trucking and long shoring. But again, while reductionistic analysis is obviously important an informed wholistic/paradigmatic perspective is what is necessary if you really want to get immediate and continuing change.
Private Finance and its monopolistic paradigm of Debt Only for the creation and distribution of money IS THE DEEPEST problem we face. It keeps all of the other problems of neo-liberal economics in suspension. Finding and bringing conscious focus on the correct concept of the new paradigm with a policy that benefits all economic agents commercial and individual (a 50% discount/rebate policy at retail sale) and expresses the new paradigm itself (Direct and Reciprocal Monetary Gifting) and communicating that to the masses in order to herd both sides of the political apparatus toward implementing it IS THE PATH, IS THE WAY TO UNITE ALL OF THE ALIGNED REFORMS like MMT, Keen's Minsky's Financial Instability Hypothesis, Hudson's Financial Parasitism and Brown's Public Banking.
Be interesting to learn how much is actually due to real logistical disruption cause as opposed to how much is due to disruption by market/management manipulation.
Media are always slow to look past what they are told, and I certainly wouldn't stake any reasons voiced by wallstreet.
Hyperinflations are very rare and occur only after a series of prior disastrous circumstances like losing a war, having your productive facilities turned into rubble, being punished by the winner with onerous debts, thus making money printing a politically palatable action in an attempt to pay off such debts, and finally a private banking system leveraging up currency speculators who short the currency...and that is what makes the inflation go hyper. We don't have to worry about hyperinflation, but we do have to worry about high inflation (basically a single digit percentage) which has many causes the most basic of which is that there really is no effective means of stopping it. Currently austerity is used to attempt to stop it, but that of course doesn't work and brings on economic recession. The highest year on year rate of inflation the US has had in the last 100 years or so was a result of waging war in southeast Asia for a decade combined with the Arab oil embargo which increased the most important commodity, namely petroleum, by 400%...and then we only had 14% inflation. Now if we implemented my 50% discount/rebate policy at retail sale that would mean that despite the 14% inflation you'd still have (miraculously so far as orthodox economic theory is concerned) BENEFICIAL price and asset DEFLATION.
Reforms are good, genuine paradigm changes are waaaay better. For instance, combine the 50% discount/rebate policy with a $1000.mo. universal dividend for everyone 18 and older and you'd not only have benefical deflation you'd also implement $24k/yr. guarnteed potential purchasing power for every adult in the nation. So what would be the need then for the payroll taxes individuals and enterprise pay for welfare, unemployment insurance and even social security??? And of course if you got a job, on your first day you'd get a 100% raise in the purchasing power of your wage.
What is required is a movement that communicates these (and other) incredibly beneficial policies to the masses. Never mind trying to change the minds of economic authorities and increasingly idiot pols. Create a mass movement that (indignantly) herds both sides of the political apparatus toward relative abundance for all.
Remember that the Arab oil embargo was a result of inflation as much as it was a cause. With inflation of the USA currency running at a high rate the OPEC countries decided not to take a fixed, low price for their oil. They started demanding a price for their oil that rose with inflation. The embargo was a tactic for getting the prices up to where they needed to be because of the existing inflation.
There may be a grain of truth to that, but it strikes me as more like the South saying that the Civil War was about state's rights rather than about slavery. I mean 14% inflation and a 400% increase in the price of petroleum (which was also a contributary factor in the 14% inflation rate) doesn't look like a primary factor to me.
My post said it was both a cause and a result of inflation. For OPEC saying they wanted to be adequately paid for their oil, is about as straightforward as you can get. I can't see how that ia a cover for some other motive. I don't see how it is anything like what the South said in your analogy.
Stephanie, can you see how we would never have inflation if we implemented a 50% discount/rebate policy at retail sale? And if that were so what would logically prevent us from being able to have huge fiscal deficits for infrastructure and to fight climate change?
Probably 90% of our economic problems are kept in suspension by the current monopolistic monetary paradigm of Debt Only. Retail sale is the terminal ending point of the economic/actually productive process and so by definition is also the terminal and total cost and pricing point as well (except idiotically for Finance which in itself exposes the fact that private for profit money creation is a wholly exterior parasite on the actual legitimate economy). If you implement a 50% discount/rebate policy at retail sale consumers will only pay half of the current retail price, but because the monetary authority of the FED or some other body is mandated to rebate the merchant all of the discount they gave to the consumer, retailers will get their full price. This policy would utterly eliminate any possibility of inflation, double everyone's earned income purchasing power (in other words if you make $30k/yr you could now purchase $60k worth of goods and services). Pair the 50% discount/rebate policy with a $1000/mo. universal dividend for everyone 18 and older and every adfult is guaranteed $2000/mo. worth of purchasing power for life. So what does that mean? It means that the payroll taxes that every working person and every enterprise pay for welfare, unemployment insurance and social security become redundant and could be eliminated. That means the net pay of every worker is increased by 10-12% all of which purchasing power is also doubled by the 50% discount policy. Businesses like it because they can pocket those tax savings as profit so the effects of these policies economically and politically integrate the interests of traditionally opposing constituencies. Exactly what we need in this time of of increasing political, economic and social disintegration. Lots of other benefits would also be enabled by these paradigm changing policies.
Stephanie, As a professional economist I totally agree with your analysis. I do have a suggestion about your presentation in this interview. Within the time constraints I would suggest that you focus less time on restating the common wisdom that deficits are bad and spend more time showing why this is false.
In a past interview you said, “…let's start by recognizing that inflation, as you say, is a dynamic process, it is a continuous increase in the price level, it's not a one off. It's a complex phenomenon, there isn’t economist on Earth who can write down for you a model of inflation that will apply in all times across, space and time, nobody can do it.” While in this piece you say, “… the financial costs aren’t the binding constraint. Inflation is.”
If inflation is the binding constraint within the MMT framework and modeling inflation over time can’t be done, then how would you calculate in advance the spending limits? Could you write a piece that goes into explaining how the theory could be actually implemented in a calculated predictable way? Or is that not possible?
The "theory" doesnt need to be implemented, it helps as a lens (as per the name of the substack) to explain how the monetary system actually works, when a fiat currency is in use. However your question about inflation is still a good one, and it is very clear that even now, the CBO has no clue about the impact on important factors such as inflation, when bills are currently proposed. If bills were judged against inflation, do you think the CBO would get better at modelling the impact on inflation?
Also - if inflation were considered the binding constraint perhaps institutional expertise would be built up to help understand inflation more. All those CBO people scoring based on debt and deficits could be repurposed to scoring based on the impact on inflation instead.
Because we talk about debts and deficits instead of inflation, there is no real attempt to measure productive capacity industry by industry to determine whether a particular spending proposal would increase or decrease inflation. If we change the lens through which we view spending/taxes, we would start actually developing that capability.
Don't get me wrong, all of the heterodox reform research of Mosler, Keen, Hudson etc. is well and good, but the deepest part of the problem has not been addressed and that is discovering the single new paradigm concept and finding an efficacious way to integrate it into the economy that actually changes the nature of its entire pattern. The present paradigm for the creation and distribution of money is Debt Only. The new paradigm is Direct and Reciprocal Monetary Gifting and the most efficacious way to implement the new paradigm is with a 50% discount to consumers at retail sale every penny of which is rebated back to the merchant giving it to consumers by the FED or another monetary authority. This resolves the problems of individual monetary scarcity, systemic austerity and any possibility of inflation, and enables many more political and economic possibilities because it integrates interests and agendas on the left and the right. Again, this in no way belittles current heterodox research but rather affirms their conclusions and simply makes their stated goals a reality.
Totally inadequate response. Instead of wasting time trying to say that the inflation people see isn't what they think, you should have spent all your time explaining what is the cause of the inflation that they do see. As I see it, the supply chain that we have that depends on "just in time delivery" may be efficient under normal circumstances, but it is very fragile in the face of the unexpected. The disruption to the supply chain from the pandemic is now showing up even as we are making feeble attempts to restart the economy. We need to take steps to fix the supply chain situation. I have seen a report that the backup at the ports of entry is just the tip of the iceberg. We don't have the warehouse space to even store the goods if they went through the ports with no backup. These are problems that need solving, but they may be outside your area of expertise.
For years I have been warning MMT proponents to stop dismissing inflation just because there has not been any inflation up to now. Instead MMT should have discussed why there was no inflation before, and what would have to change to see inflation rise. Up until know there has not been enough consumer demand to raise consumer prices. The oligarchs, who have been receiving trillions of dollars that the Fed has pumped in, aren't the ones who buy consumer good. The oligarchs take excess money and put it into the stock market, which has been rising. (Stock market price inflation).. Now that consumers have started receiving a little money from the government/Fed, they are trying to buy more, but the supply chain is in a big mess. The disrupted supply chain wasn't so much of an issue as long as the consumers couldn't afford to buy things. You could also point out that when workers couldn't go to work they couldn't produce the supply of goods that was needed. The external supply from China was also being disrupted.
This resort to economic reports from "experts", is not going to convince the many people who have become skeptical of all experts lately (and with good reason). Explain things in understandable ways without resorting to playing the credentials game.
MMT has always said the all the historical hyper-inflations have resulted from supply disruptions. This is what is going on, so MMT has always had an explanation. Now is the time to bring it up. Also explain that MMT is not able to predict unexpected supply disruptions. But MMT proponents should have been looking out for their occurrence when they happen. MMT should have been able to predict this inflation as soon as they saw the huge supply disruption caused by the pandemic.
Steve Greenberg She had 6 minutes to respond to multiple complex questions. She did mention supply chain and re-opening issues as a cause. Fareed also said he wants to have her back to continue the discussion. Might be more helpful to contact Fareed directly via his Twitter thread or his GPS show to ask him to discuss how we can fix our supply chain issues. Also this is not something new, at least not for me as I have heard it mentioned multiple times before that we need to fix our supply chain issues to ensure we’re ready for the next economic and health crisis.
Best way to end supply chain issues (and reduce their expensive and high carbon footprint) is to re-industrialize America by implementing a 50% discount/rebate policy at retail sale. Why? Because if you reduce price, double potential purchasing power/potential demand and resolve inflation with that single policy...why import the vast amount of goods when you can very profitably make them yourself??? The benefits of this policy are so good even export platforms like China, Germany and Japan could cut their exports tremendously and yet still have stable profitable economies. Ah, paradigm changes, always universally beneficial.
She only had 6 minutes, and she chose to waste some of them by talking about a Fed study that never explained why the deficit was not the cause of inflation. If she knew her time was limited, why didn't she go for the best argument insttead of wasting time on the Fed study. We have to hold the MMT experts accountable for their failure when they have them. Stephanie is not perfect, and neither is Warren Mosler.
She could have eliminated any mention of the Fed study and spent more time explaining the supply chain issues. She didn't mention "just in time", and she did not mention how supply chain disruptions have always been part of the explanation of MMT. She didn't admit that MMT proponents should have been warning us of supply chain issues when they started to see supply chain disruptions. From their own theory, they could have foreseen the issue if inflation from supply chain disruptions, but instead they said, "Inflation, what inflation, there is no inflation". When MMT proponents needlessly throw away their credibility, it hurts the whole cause.
Instead of making excuses for them doing anything less than their best, we need to speak up with constructive criticism. Maybe I needed to be more diplomatic, but Stephanie has to be told how she can do a better job. I have been warning these people for years that their dismissal of inflation would come back to bite them. They didn't listen, and now I get to say "I told you so."
Steve Grumbine banished me from his site because he couldn't recognize constructive criticism. He was always in denial.
This may not be in Stephanie Kelton's area of expertise. However, it is good for all of us to know.
Why the US Supply Chain Crisis Is Intractable and Will Get Worse
https://www.nakedcapitalism.com/2021/11/why-the-us-supply-chain-crisis-is-intractable-and-will-get-worse.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+nakedcapitalism+%28naked+capitalism%29
Your response was not constructive criticism; it was destructive criticism. Big difference. Is your goal to attack or communicate? If you want to get a message across, how you communicate is just as important as what you are saying.
How should I have communicated my concerns? I don't think you understand the magnitude of the problem. The current level of inflation could discredit MMT completely. Will "The Deficit Myth" stay as popular as it was now that people can use inflation to discredit it? When I see a train wreck about to happen, should I make sure not to hurt any feelings when I try to warn of a dire emergency? I suppose, I should be concerned with getting people to listen to the warning. So, I seriously ask how should I state my concerns so that people won't get upset?
That's a good article. The "gig" economy comes to trucking and long shoring. But again, while reductionistic analysis is obviously important an informed wholistic/paradigmatic perspective is what is necessary if you really want to get immediate and continuing change.
Private Finance and its monopolistic paradigm of Debt Only for the creation and distribution of money IS THE DEEPEST problem we face. It keeps all of the other problems of neo-liberal economics in suspension. Finding and bringing conscious focus on the correct concept of the new paradigm with a policy that benefits all economic agents commercial and individual (a 50% discount/rebate policy at retail sale) and expresses the new paradigm itself (Direct and Reciprocal Monetary Gifting) and communicating that to the masses in order to herd both sides of the political apparatus toward implementing it IS THE PATH, IS THE WAY TO UNITE ALL OF THE ALIGNED REFORMS like MMT, Keen's Minsky's Financial Instability Hypothesis, Hudson's Financial Parasitism and Brown's Public Banking.
Be interesting to learn how much is actually due to real logistical disruption cause as opposed to how much is due to disruption by market/management manipulation.
Media are always slow to look past what they are told, and I certainly wouldn't stake any reasons voiced by wallstreet.
Hyperinflations are very rare and occur only after a series of prior disastrous circumstances like losing a war, having your productive facilities turned into rubble, being punished by the winner with onerous debts, thus making money printing a politically palatable action in an attempt to pay off such debts, and finally a private banking system leveraging up currency speculators who short the currency...and that is what makes the inflation go hyper. We don't have to worry about hyperinflation, but we do have to worry about high inflation (basically a single digit percentage) which has many causes the most basic of which is that there really is no effective means of stopping it. Currently austerity is used to attempt to stop it, but that of course doesn't work and brings on economic recession. The highest year on year rate of inflation the US has had in the last 100 years or so was a result of waging war in southeast Asia for a decade combined with the Arab oil embargo which increased the most important commodity, namely petroleum, by 400%...and then we only had 14% inflation. Now if we implemented my 50% discount/rebate policy at retail sale that would mean that despite the 14% inflation you'd still have (miraculously so far as orthodox economic theory is concerned) BENEFICIAL price and asset DEFLATION.
Reforms are good, genuine paradigm changes are waaaay better. For instance, combine the 50% discount/rebate policy with a $1000.mo. universal dividend for everyone 18 and older and you'd not only have benefical deflation you'd also implement $24k/yr. guarnteed potential purchasing power for every adult in the nation. So what would be the need then for the payroll taxes individuals and enterprise pay for welfare, unemployment insurance and even social security??? And of course if you got a job, on your first day you'd get a 100% raise in the purchasing power of your wage.
What is required is a movement that communicates these (and other) incredibly beneficial policies to the masses. Never mind trying to change the minds of economic authorities and increasingly idiot pols. Create a mass movement that (indignantly) herds both sides of the political apparatus toward relative abundance for all.
Remember that the Arab oil embargo was a result of inflation as much as it was a cause. With inflation of the USA currency running at a high rate the OPEC countries decided not to take a fixed, low price for their oil. They started demanding a price for their oil that rose with inflation. The embargo was a tactic for getting the prices up to where they needed to be because of the existing inflation.
There may be a grain of truth to that, but it strikes me as more like the South saying that the Civil War was about state's rights rather than about slavery. I mean 14% inflation and a 400% increase in the price of petroleum (which was also a contributary factor in the 14% inflation rate) doesn't look like a primary factor to me.
My post said it was both a cause and a result of inflation. For OPEC saying they wanted to be adequately paid for their oil, is about as straightforward as you can get. I can't see how that ia a cover for some other motive. I don't see how it is anything like what the South said in your analogy.
More of an unintended consequence of the event than cause. A consequence that went mostly into the pockets of OPEC's American counterparts.
Stephanie, can you see how we would never have inflation if we implemented a 50% discount/rebate policy at retail sale? And if that were so what would logically prevent us from being able to have huge fiscal deficits for infrastructure and to fight climate change?
Probably 90% of our economic problems are kept in suspension by the current monopolistic monetary paradigm of Debt Only. Retail sale is the terminal ending point of the economic/actually productive process and so by definition is also the terminal and total cost and pricing point as well (except idiotically for Finance which in itself exposes the fact that private for profit money creation is a wholly exterior parasite on the actual legitimate economy). If you implement a 50% discount/rebate policy at retail sale consumers will only pay half of the current retail price, but because the monetary authority of the FED or some other body is mandated to rebate the merchant all of the discount they gave to the consumer, retailers will get their full price. This policy would utterly eliminate any possibility of inflation, double everyone's earned income purchasing power (in other words if you make $30k/yr you could now purchase $60k worth of goods and services). Pair the 50% discount/rebate policy with a $1000/mo. universal dividend for everyone 18 and older and every adfult is guaranteed $2000/mo. worth of purchasing power for life. So what does that mean? It means that the payroll taxes that every working person and every enterprise pay for welfare, unemployment insurance and social security become redundant and could be eliminated. That means the net pay of every worker is increased by 10-12% all of which purchasing power is also doubled by the 50% discount policy. Businesses like it because they can pocket those tax savings as profit so the effects of these policies economically and politically integrate the interests of traditionally opposing constituencies. Exactly what we need in this time of of increasing political, economic and social disintegration. Lots of other benefits would also be enabled by these paradigm changing policies.
Stephanie, As a professional economist I totally agree with your analysis. I do have a suggestion about your presentation in this interview. Within the time constraints I would suggest that you focus less time on restating the common wisdom that deficits are bad and spend more time showing why this is false.
Marvin Feldman, Ph.D.