MMT: overcoming the political divide.

This is one of several aspects of current monetary arrangements that need to change.

Yes. There are both benefits and costs to the US; and the points made by Dan Harkey below are certainly not a good reason to maintain the US dollar as the WRC; in a peaceful world, all countries will need to be able to manage sustainable prosperous development.

Both good and necessary.

Note my underlined in Harkey's quote above

Harkey is just another know-nothing, orthodox monetarist; the sovereign currency-issuing US government can never be forced to "cut up its unlimited credit card", provided:
1. it never borrows in a foreign currency,
2. it maintains the nation's productive capacity.

See Stephanie Kelton: "The Deficit Myth".

 

Those who are against MMTers are always asserting their fear of MMTers attitude about 'deficits are a myth' ( which is not a fact, it is attitude ) is what make them 'scary'.

MMTers counter this by saying 'no, we are not scary, just because we don't see deficits as a problem, there is no reason you can't trust us not to let things get out of hand'.

Thing is, those who do not have that attitude let things get out of hand, so how can we trust anyone who does have that attitude to not let things get out of hand?

Moreover,

Trivializing, belittling, dehumanizing your opponent is not a merity worthy argument. I could just was easily dehumanize Kelton by calling her a fringe economist.

See, the one idea which will disallow MMT from ever gaining traction is the attitude that 'deficits are a myth', which brings us back to Keynes quote of Abba Lerner,

His argument is impeccable. But heaven help anyone who tries to put it across (to) the plain man at this stage of evolution of our ideas.

 

The mainstream argument that government deficits are bad IS a myth.
That is fact; nothing to do with "attitude".
The sovereign currency-issuing government can always deal with its deficits - can never "run out of money" - unlike you and I who must repay our debts by the due date.

Yes...but in a post gold-standard era, we can now more easily begin to understand the nature of fiat currencies; economic understanding has evolved considerably since Keynes' 1943 comment.

So now the task is to teach people that money is a merely a tool of government sovereignty (as well as a convenient means of exchange within the nation using that currency) which can be created ex nihilo by government.... unlike REAL resources which cannot be created ex nihilo, and whose development (by labor) is the source of real wealth.

...and that money creation which is confined to private banks operating in wholly free markets (as in the current Western economic system) is totally inadequate - indeed IS responsible for entrenched poverty, war, and a possible looming global ecological collapse (if the AGW theory is correct).

 

It depends how they are financed. If they are financed by borrowing, they are bad because the result is to transfer purchasing power to those who have so much spare cash lying around that they can't think of anything better to do with it.

True: deficits are not bad because the nation's government could run out of money, but only to the extent that it has to give the owners of its debt instruments a claim on society's production and assets in return for temporary use of money that it could just as -- indeed more -- easily have issued itself.

A privilege market is not a free market.

Private commercial banks' privilege of money issuance is not the only privilege contributing to those results, and not even the most important one.

 

Let's get something straight.

Deficits are real, and MMTers just don't think it's a problem because we got printing presses.

Nothing has changed really, it's just a difference of attitudes.

Yes, it IS an attitude. You say it's not a problem because 'we can't run out money'.

Why do you say that, you say it because we got printing presses?

Are you ****ing crazy?

The fact that the US 'cannot run out of money' IS NOT THE POINT, AND IT IS IRRELEVANT TO THE POINT. Germany didn't run out of money when it took a barrel of cash to buy a loaf of bread and they were printing deutschemarks with billion dollar denominations. See what I mean? It's an irrelevant point. (and yes, I know we aren't going to experience hyperinflation, I used an extreme example to illustrate, dramatically, the irrelevance of your point).

You run those presses (and digital currency doesn't 'change anything) too hard too long and you tax those who cannot hedge, and enrich those who can as well as the printing press operators. This happens because currency is devalued when that happens, and since wages at the bottom do not keep up, and hedge investments ( like real estate ) accelerate ahead, it's a de facto transfer of wealth from the poor to the rich. You don't create value out of thin air, and when you create fiat currency, you are merely relocating resources from one sector to the other.

MMTers say, 'trust' us. Well, I have hard enough trusting politicians who fear deficits, so those who do not fear are scary as hell.

 

Deficits are real, but accumulated debt can be cancelled at any time, provided the nation's productive capacity remains intact.

Plain, simple fact.

Btw, central banks don't actually "print money" these days, they just change (electronically) the digits in bank accounts.

Your following remarks about the Weimar republic indicate you haven't understood anything about MMT.

Look again at the bolded and underlined words in my opening sentence above.

If you read history you will find the French confiscated much of Germany's factory capacity, as reparations after WW1, meaning money printed and spent by the German government exceeded the (reduced) productive capacity of the nation, hence the hyperinflation.

More misunderstanding of fiat currencies. Provided total spending doesn't exceed the nation's real physical output, then money created ex nihilo - whether in private banks or in the 'government's own bank' (central bank) - will not be inflationary. That's just plain, simple fact.

Creating money ex nihilo is not equivalent to creating 'value' ex nihilo, ie value which is a measure of the nation's real physical output of goods and services. Understand the difference between money and real output now?

It's not a matter of trust, it's a matter of proper management of the economy. Treasury (non-elected public servants) can always advise the elected treasurer of the real limits to spending, ie, the real productive capacity of the nation

Step one: guaranteed real, full, above-poverty employment; demoralizing welfare not require.

Because if the resources and labor exist (and they do), the nation can develop them on behalf of the nation's prosperity, regardless of debt or deficits per se.

link below to a clear and concise article by professor John Harvey.

MMT: Sense Or Nonsense? (forbes.com)

 

And therein is the crux of the issue.

As long as.....but which will NOT be 'as long as' IF.............................

the printing presses run far ahead of productivity, and the odds increase exponentially if massive deficits ( owing to the fearless attitude of MMTers advising Bernie Sanders) are financed by fiat currency.

Like i said, I have hard enough time trusting those who fear deficits, and you want me to trust those who do not fear it?

See, with massive deficits, without borrowing, and the only means to finance that deficit is to print money, digitally or otherwise, swelling the money supply far in excess of productivity ( it's not that productivity has to be maintained, if there is overrun on the fiat side, it will result in too much money chasing too few goods. We have been doing that since the turn of the century, slowly, but surely. ).

You can't cancel the national debt in one fell swoop by printing money. YOu print all the money required to cure the national debt, and you will kill the dollar. the GDP would have to magically grow by several orders of magnitude, to level out the inevitable money chasing goods.

Filed in the 'distinction without a difference' file. I've stated, printed or digital, a number of times. Makes no difference.

Apparently you didn't read the part where I stated that my point wasn't about what hyperinflation. All hyperinflation is is extreme inflation. I just used hyperinflation to dramatically illustrate a point, I wasn't saying fiat currency will automatically, or even lead to hyperinflation. But, Inflation is one singular thing. A swelling money supply faster than productivity rising where too much money chases too few goods. With 2% inflation that is what is happening, just slightly. With hyperinflation, it's the same thing, but much much worse. I'm not going to the causes of each, and they are different circumstances, but the underlying principle, 'money chasing goods', is always the same at any inflationary degree. Where it's NOT inflation is supply and demand price fluctuation. Slow inflation is still inflation. Now, the trick is to match the money supply with productivity, which is difficult to do, since doing a QE make take six months, or a few years, depending on where the money goes, if it actually reaches the bidding economy ( the every day world of goods and services ) or if it is parked somewhere where it doesn't.

I never said it was. In fact, I said it wasn't, but more than that, it can't be done. That's what I said.
A government can print money, either spend it itself or give it to others to spend, and both will receive value in goods and services created by those who sold them the goods and services when they spend it, but given that the government didn't labor for that money, others will labor for that value. It is paid by the gradual devaluing of the dollar. Those who pay it are those who cannot hedge, those who incomes do not keep up with or ahead of inflation, and the beneficiaries are the government who creates the fiat currency, and those who can hedge against inflation.

Creating fiat currency faster than productivity results in too much money chasing too few goods, inflation.

the government does this, but slowly. Prices have tripled since the 90s. This is due to deficit spending forcing the government print money faster than America's productivity to keep up with it.

But it is a matter of trust, which is why they call those jobs ''positions of public trust', The treasury, the judiciary, the executive branch, etc.

The electorate trusts them to manage the economy properly.

Author Harvey states:

Two points: 1) it is only inflationary when it is continued beyond full employment (see #13) and 2) printing money cannot cause inflation. Spending money can, but printing it cannot. And don’t forget that the private sector can create money, too.

This is just semantics.

"Printing money" is a metaphor for swelling the money supply faster than productivity.
So, when we say 'government prints money' that it's introduced into the money supply where it is spent is assumed.

Or whoever creates it, it doesn't matter . A swelling money supply faster than productivity results in too much money chasing too few goods (assuming the currency, digital or otherwise, gets off the pallets, out of the banks, and into the economy).

Inflation.

I'm all for job guarantees as long as the production of those jobs fills a bona fide need. Make work isn't 'the answer.

Here:

https://www.forbes.com/sites/johntharvey/2011/05/30/what-actually-causes-inflation/?

He's wrong. Market forces cause prices to fluctuate, but that's healthy price fluctuation owing to market forces, but it's the government via fiat currency swelling the money supply faster than productivity where there is still price fluctuation, but the overall trend increases.

Where neoliberals, libertarians, and "Milton Friedman" laissez faire economists are wrong is on policy. On policy for a nation I'm a liberal.

Where they are right is on the cause of inflation.

In the short run, increases in the money supply lead to increases in output, but in the long run increases in the money supply just cause inflation. This is why politicians tend to inflate, it gets things really going, makes them popular, but someone has to pay the piper, down the road. Taking methamphetamine will make you feel really good. Do it once or twice, you'll get away without pennance for the freebie, but keep on taking it, and your body will pay the price. Same goes for heroin. Chet Baker, the famous jazz trumpeter, at the age of 57, he looked like a man over the age of 80. He was a junkie all of his life. You don't get all those good feelings drugs give you, i.e., something for nothing, someone or something (his body in this case ) must pay the piper. This is Chet at 57. This is true for fiat currency, which, when overdone, is a very much like a narcotic. You don't get something for nothing, it's not just economics, it's frickin' physics. If you are alone on an island, if you get off your butt and hunt for food, or find it in trees, etc., you will starve. Someone can give it to you, but then that someone paid for it. If they borrowed the money, they will pay for it when they pay it back. Someone has to pay, thats physics.

 

Let's be clear: government CAN create money ex nihilo, limited to spending on whatever is available for purchase, without creating inflation.

"Others".... who are fortunate enough to have above-poverty employment, in producing the nation's output/wealth.
Unfortunately, the private sector - made up of competitive, profit-seekers - doesn't/can't concern itself with REAL full employment. If it did, we wouldn't be having this debate.

Note: the above-poverty, Job Guarantee wage of MMT - the minimum wage in the economy, will guarantee that incomes will keep up with inflation, by definition. But let's read on.

Correct.

Prices may have tripled since the 90s, but not due to deficit spending.

Deficits occur when government takes back LESS in taxes than it spends. In fact deficits are more likely to be associated with improvements in productivity, through more spending on education, health care (and improved health of employees), infrastructure etc.

OK...we trust the (non-elected) treasury officials, who are there because of their academic know how, to give the correct advice to the relevant elected politicians. [Of course I want those treasury officials to understand MMT....]

The last sentence there is the significant point he is making. ie, TOTAL public and private sector spending must not exceed the nation's productive capacity ("beyond full employment"). Currently, money can only be created in private sector banks, Harvey is merely pointing out that creating money also in the public sector (via treasury and reserve bank) OF ITSELF need not be inflationary. His "printing money" is just dealing with the mainstream framing that "printing money' - when the government does it - is inflationary, But money "printed" in private banks can also be inflationary; the important thing is how much money will be created in each sector, which is a political choice.

Addressed above. You have misunderstood Harvey's point about mainstream ideology and framing re "printing money".

Caring for people/the environment, as part of a Job Guarantee program., certainly fills a bona fide need. And if the private sector demands these people back into private sector employment, then volunteers will be needed to fill the breech, again ...

Thanks for the link, I will read it in due course.

For my part I distinguish between mere price fluctuations caused by supply and demand issues, and price changes related to productivity increases. MMT insists on productive capacity increases greater than consumption via "swelling money supply".

...unless the nation's productive capacity also increases.

Meanwhile you are looking in the wrong place, to discover how to increase the nation's productive capacity...because you believe Friedman has correctly explained the causes and the remedies, of inflation. He is wrong on both counts. Stagflation in the 70s was caused by supply-inflation imported from Arabia during the oil embargo, and loss of manufacturing competitiveness to emerging, low-wage, post-war Asia.
Friedman's supply-side economics failed because he mis-read these global phenomenon, and hence his formulation to cut wages in the US - to create jobs and keep prices low, was a losing proposition, which is why relatively high un/underemployment has existed since Friedman became accepted by the mainstream.

Politicians are only following the current mainstream neoliberal economic orthodoxy. It's this economic orthodoxy which IS the problem.

 

And when has the government done that?

Never. Inflation, has cummalitively risen, since 1900, 3,014.07%. Now, at an average of 2.88% per year, that might seem acceptable (noting that I, as stated below, accept it as necessary, but with one qualification, see below). But, inflation has to be paid by someone, printing money, ex nihilo ( a fancy term meaning 'fiat' something a government can do legally, but if you are I did it, we'd be hunted by the FBI) taxes the bottom for the benefit of the top, including the government who is the source. If I counterfeited money, and spent it, it probably wouldn't create inflation. But I would still go to jail. Why? Because it's theft. It might not seem like it, I gave someone money, and they got counterfeit dollars. Now, if the counterfeit job were perfect, no one would have ever found out. But, it would have been no less of a crime. It would still be theft.

If you took a spoonful of black ink, and dropped it into the lake behind the hoover damn, it wouldn't turn black.

But that same spoonful of black ink into a gallon of water, and the gallon of water will turn black.

The point is, though printing small amounts of money, doesn't 'seem to affect anything' it actually does.

If you steal one dollar from one million people, making you millionaire for which did not labor and provided to society nothing for that million dollars, are you any less of a criminal that if you stole one million dollars from one person?

That is precisely what 2.88% per year is. It is de facto taxation without representation.

You missed the point. By 'somebody pays' I mean something is taken from someone without their consent, and that something is their labor taken without compensation for that labor'. Printing money beyond the economy''s capacity to keep up with results in inflation, which is a de facto taxation without consent, it is legal theft. it is taxation for which there is no legislation granting the tax. The tax is paid by those who cannot hedge, i.e, the poor. If you have $50 in the bank, and, due to inflation, next year it can only purchase $40 worth of goods what it would have purchased $50 the year prior, someone took $10 from your, which you paid in your labor, without your consent. If you were unable to hedge your assets ( money in real estate, or assets that keep up with inflation ) you are paying for that fiat money printing, cummulatively, as time goes by.

It can't protect value erosion of assets (for non accruing assets), of savings, etc. Only those who can hedge will be protected, and those who cannot, will pay. It's physics, fiat currency issuing has to be paid by someone And that someone are those who cannot hedge. Also, minimum wage hike always lag behind.

There is no way around it, you can't get something for nothing, It's impossible. It is PHYSICALLY IMPOSSIBLE.

Even it its' one dollar from a million people ( hint: that's a metaphor ) and no one hardly feels it.

But that is the mechanism which ultimately (being the operative word) results in the scenario where more currency is introduced into the bidding ( spending ) economy than productivity can keep up with it. This has been occurring at the 2.88% rate since 1900.

I will accept the notion that it is acceptable in the sense that such is unavoidable because getting it on a even keel is too difficult and we need to push the economy..

But, since that is a de facto tax on those who cannot hedge, the poor, it is my belief and recommendation that those who pay for that inflation, i.e., those who are unable to hedge, must be compensated for that involuntary (de facto) tax.

Both you and Harvey assert that 'printing money' pe se, doesn't result inflation.

My answer to that was the ink in water example, above. It does, but it does gently. Where I disagree with MMTers is they think yo u can get something for nothing --- That you can print money and not rob someone's labor. There is no way around physics, someone's labor is going to be robbed, but it will be in the 'one dollar from a million people' sense, it will be gentle. I see the 2.88% yearly inflation as a necessary evil. I support compensating those whom it taxes, i.e., those who cannot hedge.

As long as the jobs do, in fact, fulfill a legitimate societal need, I'm okay with it.

Well, if they believe massive and excessive deficits are nothing to worry about, I'm reluctant to trust them in the treasury department.

The causes. Remedies aren't needed as inflation hasn't, overall, been severe. What I'm saying is that someone pays for the 2.88% inflation, it is paid by those who cannot hedge, and it is my proposal that they should rightfully and justly be compensated.

Those factors affected prices, but they are not what inflation is, in the ultimate, truest sense. I don't agree with Friedman's policies, let's get that straight.

Neoliberal ideas ultimately achieve the opposite of what is promised owing to economic naivete, more than anything else.
But, Friedman was correct on the 'why' of inflation, a point with which you agreed above. Inflation is, and always will be, a monetary phenomenon. Where he was wrong is making policies on a monetary basis, as if the 'free market' and 'free to choose' transactionalism will always agree with the greater good. No, because the free market controls the media, and they can dupe people into believing Satan was their pal, really. If they can dupe you into buying crap you don't really need, then your 'free to choose' (see his book) transactionalism isn't coming from a wholesome true place.

I concur, as stated above.

 

The Man Who Financed the Civil War - The New York Times (nytimes.com)

"On July 17, 1861, Congress passed the first of Chase’s proposals. It enabled the Treasury to borrow as much as $250 million for the war effort by issuing bonds and notes. Chase hoped to sell these not just to the usual Wall Street banks but to a wide range of investors, including small-business owners and families. Ordinary Americans could show their support for the war by buying their government’s paper. There were bonds that matured in 20 years, interest-bearing Treasury notes payable in three years and notes that bore no interest but were payable on demand. These “Demand Notes” could be exchanged for coin at any time at one of the Treasury’s branches around the country. They came in small denominations like five, 10 and 20, which meant they could circulate as money.
This seemingly innocuous bit of legislation in fact heralded a radical shift. By issuing government debt in the form of notes small enough in value to be traded for goods and services, Chase had created a primitive kind of federal paper currency."

Lincoln of course had to start funding the military immediately (in 1861)...with money created ex nihilo, even if he promised to pay the bond holders in the future.

Now - today - we need government to take the next step, to deal with pandemic-ravaged economies, ie, by issuing non-interest bearing debt TO ITSELF, since in a lock-down there will be no 'excess demand' on the nation's POTENTIAL productive capacity, during the lock-down.

[Meanwhile, poor Biden, he's having a hell of a time getting a covid-rescue bill through the Senate...]

In other words, the cost of enabling unemployed (non-essential) workers to purchase food, housing and essential utilities eg internet , can be carried by the central bank, with debt created ex nihilo... and later cancelled with NO negative effects on the real post-pandemic economy.

The flaw in your argument is that if you (or I, and everyone else) try to counterfeit and spend money, it has the potential to cause inflation (as Harvey said, and which you misconstrued); whereas the government HAS THE POTENTIAL to control inflation, because government can maintain, or manage an increase in, the nation's productivity.

That's not inflation, it's stealth.

Note: inflation benefits borrowers, because the value of the outstanding debt reduces in real terms over time.
Conversely, inflation reduces the value of a fixed amount of savings, over time. So your statement is not clear cut re the effects of 2.88% inflation on different groups.

Addressed above, ie, inflation has different effects on savers and borrowers, separate from reward for labor.

Note my bolded, which is pure MMT...meaning the remainder of your paragraph is irrelevant.

Only those who can hedge will be protected, and those who cannot, will pay. It's physics, fiat currency issuing has to be paid by someone And that someone are those who cannot hedge. Also, minimum wage hike always lag behind.
There is no way around it, you can't get something for nothing, It's impossible. It is PHYSICALLY IMPOSSIBLE.
Even it its' one dollar from a million people ( hint: that's a metaphor ) and no one hardly feels it.[/QUOTE]

Fiat currency (issued ex nihilo by government) is "paid for" by the the labor of the nation's citizens. The problem is your acceptance of the inadequate ideology that neoliberal private sector free markets are the SOLE arbiter of reward in the labor market.

But the public sector must also have a role in determining reward for labor, if we are to implement an above-poverty Job Guarantee, the ONLY way to eradicate poverty.

Addressed previously. The 2.88% has nothing to do with productivity gains resulting from technological advance.

Addressed above: there is no 'involuntary taxation' in a JG system, since the JG wage is the minimum above poverty wage in the economy, paid for by the currency-issuing government Like I said you are failing to conceive of the necessary role for the public sector in also determining the value (reward) for labor

....PROVIDED the nation's productivity is intact and preferably always increasing (hence the value of R&D, both publicly and privately funded

Frankly irrelevant in a productive economy with above poverty full employment

That's because you think money is a real, scarce resource like other real scare resources.

In fact what we require of treasury officials is a clear understanding of the nation's current and potential productive capacity, and abilities (and potential abilities) of the labor force.

Certainly we don't need free market ideologues, who by definition are not concerned with those matters, but with outcomes achievable in free markets even if the nation's productive capacity is underutilized, eg, in periodic recessions associated with free market business cycles.

OK. You are happy to tinker with the current system. Friedman's reverse income tax comes to mind.

Friedman's starting point is control of inflation: MMT's is implementation of real above poverty full employment, without harmful inflation.

Now as to what inflation is "in the ultimate truest sense" and how to manage it, that is the important issue central to MMT.

I wouldn't say Friedman was naive, but he was certainly wrong, because unemployment post the 70's has been invariably higher than in the post war "Keynesian" years 1946-9060's.

Yes, but he and I mean different things by "monetary phenomenon". MMT always refers to the intrinsic value of resources, goods and services; Friedman is referring to the monetary 'value' of resources, goods and services.

Spot the difference?

Completely agree.

So..... how to implement REAL above-poverty, full employment?

[btw, I haven't read Harvey on inflation, yet maybe he can shed some more light on the matter].

 

You can't look at money creation and effect of inflation in truncated time segments. Since 1900, inflation has grown at the averaged rate of 2.88%. So, that proves my point. Inflation happens slowly, starting by putting more money than goods in the bidding economy, and propagating outward from there.

If five people are bidding on a vase, and none has more than $10, the bid for the base will not be higher than $10.

If I went and gave each of the bidders and extra $40, then the bid for the base will rise, depending on who wants it the most, but it won't rise higher than $50.

If I loan them the money, that will affect the prices temporarily, but paying loans back takes money back out of the bidding economy, prices fall and the trend is still flat. The Trend rises only with fiat currency that isn't taken out of circulation. So, if the tax less than they spend, as you say, it will result in inflation, ASSUMING the goverment destroys currency when they recieve it. That's what MMTers say. is it true? I don't now, sounds radical. I can't imagine the gov getting rid of money ( not talking about replacing worn bills ). so, Got evidence,mr MMTer? .

Well, on that point, it wasn't about inflation, it was about thievery.

No, it's not a flaw in my argument, because a government can lose control of inflation, productivity, etc. Whether it does, or doesnt, really doesn't change my point. I accept that a counterfeit whose work product is perfect will not be able to shrink the money supply to offset his inflationary currency whereas a wise nation will, but often the don't, or do it inadequately.

Of course the rewards and punishments are more complex than I expressed. The most salient facts are that inflation benefits those who can hedge, including the creators of inflation, and punishes those who cannot. There are other beneficiaries, of course.

No, it's a monetarists' position. I don't know if the rest of the paragraph is irrelevant, but it's true, nevertheless.

If I purchased a house in 1961, at $15k, and today it's worth $800k, I've benefited from inflation. I hedged. That means I didn't pay for the products and services the government received by printing fiat currency and spending it. it means that
Anyone who didn't hedge in a similar fashion paid for it. My point stands.

Government can only put a dent in poverty, because the ultimate cause is poverty of mind and heart, environmental factors, notwithstanding.

You have to change attitudes, right along with social programs, and the changing of attitudes will be the objective, in party, of some of those programs. But, people, when the rubber hits the road, must take initiative, and changing attitudes is the key, in my view.

2.88% inflation simply means money chasing goods at that pace, and that happens when fiat currency is ahead of productivity, by whatever means it occurs.

You don't get something for nothing. Someone has to pay for inflation, and I will bet you they didn't consent to it.

Well, it's fallen behind fiat currency at the averaged rate of 2.88% per year, now hasn't it?

Doesn't change the fact that inflation is paid for by those who cannot hedge, either in lagging wages and/or, non accruing asset devaluation, whether there is full employment are not. Are you saying inflation is impossible with full employment?
It might slow it, but if congress spends like a drunken sailor with a bottomless credit card, inflation will still occur.

I think nothing of the sort I've been stating all along my concern of fiat currency issued far in excess of productivity.
How in hell could I take that position if I believe currency was a 'scarce resource". that doesn't even make sense, based on what I've expressed,thus far.

Naw, he was arguing against the classic 'demand pull' and 'cost push' concepts of inflation, by stating inflation is swelling the money supply ( assuming it circulates in the bidding economy) faster than productivity can keep up with it. He is saying that that is the ONLY reason for inflation. Harry Browne, the famous investment advisor ( RIP ) wrote book in 1972, 'How To Profit The Coming Devaluation" ( noting that Nixon devalued the dollar soon after that book was published ) devoted an entire chapter on the cause of inflation, and it is basically the monetarist view. He was way before Milton Friedman became famous. That book is primarily where I learned about inflation. Now, for Harry's policies ( neoliberal), which concur with Friedman's, I disagree.

If you are saying that the only way to implement above poverty full employment is a government taking up the slack, i.e., a guaranteed gov job?

 

The above is from your post #857.

Now after reading Harvey's article on inflation, from the link you supplied in that post, ie

What Actually Causes Inflation (and who gains from it) (forbes.com)

and also Harvey's previous explanation of why an increase in the money supply does not CAUSE inflation but is associated with it (linked in Harvey's article). shown here:

Money Growth Does Not Cause Inflation! (forbes.com)

I can categorically refute your simple assertion that: "He's wrong".

In the 2nd link we learn that MV = Py where M is money supply, V is velocity of money, P is average price of goods and services, y is total supply of goods and services.

Now Harvey explains there are indeed two schools of thought regarding how to define the complex operations of these variables; but Harvey convincingly shows that the standard view expressed by you above is wrong.

You say:

Correct, so no need to worry about those price fluctuations. You then say:

NO IT IS NOT THE GOVERNMENT DOING THIS, as Harvey explains (from the 2nd link above:

"To make matters worse, the financial sector can create and destroy money without direct action by the central bank. Every time a loan is made, the supply of money increases. The bank is creating money out of thin air, with only a fraction of the total necessary to have already been in the vault as reserves. And when loans are repaid or there are defaults, the supply of money contracts. Hence, the private sector has a great deal of control over M".

Harvey also writes (from the first link)

Inflation is simply a rise in the average price of goods and services in the macroeconomy. Which particular goods and services depends on the measure we are examining. Consumer price inflation is the one usually in the news, and it takes a weighted average of various items purchased by the typical household (the list being determined by survey and then updated periodically).

He then goes on to examine 4 causes (of many) of inflation.

Anyway, you prefer to stick with Friedman's obsolete analysis of inflation, dating back to the stagflation era of the 70's.

Harvey is writing these two articles in 2011 well after the start after the GFC, observing central bank policies like QE ....an attempt by government to rescue the private and stave off another Great Depression....

So your choice. Let's see what Biden can do.

In the meantime, MMT is catching on, even if in an oblique fashion: here are two retrogrades on the BBC discovering that household debt is not like government debt, for god's sake..)

 

Yes, this is really the heart of the matter.

 

Look, I agree an increase in the money supply (even if productivity does not change) does not necessarily cause inflation. But you still don't get something for nothing.
That still doesn't mean you can give away money without, ultimately, causing an inflationary effect.

And an inflationary effect is not necessarily going to result in overall inflation, if there is also a deflationary effect, like after a bubble bursts and the economy is entering into recession. I still think it's best to let some of that deflation happen, so prices can go down and not change as much relative to decreasing incomes.

So saying "we didn't see inflation after this" is not necessarily proving it would not cause inflation.

 

That is the same point I made, given that inflation has averaged 2.88% which, over 120 years, amounts to over 3000% cummulative.
So it does, in the long run. Some one has to pay for that inflation, and it is those who do not own assets that increase in value with inflation, i.e., it is paid for by those who cannot hedge, or less able to hedge, which is the poor. So, inflation is the slow transfer of wealth from the poor to the rich. So, to help the poor, we must help them be able to hedge (help them own property), and compensate them for the decrease in the value of non accruing assets, such as savings. wages that did not keep up, etc. Stopping the 2.88% inflation rate is probably not realistic. We can help those who it hurts, and tax those who benefit from it to help pay for it.

 

1. MMT doesn't say "you get something for nothing".

In ANY economy, regardless of ideological 'stripe', you only get something after laboring to produce it.

One way to understand this in non-monetary terms, is to consider a barter economy; production occurs without use of money at all. [Interesting to consider how "inflation" would occur in such an economy; probably war...to decide who has the ultimate claim on the produced goods/services].

As to how an economy's production (created by labor) is distributed, that is a political choice, which is why MMTers say unemployment is a political choice. If we agree on the Right and Responsibility of all working-age citizens to contribute and receive above-poverty reward as part of the process of creating the nation's wealth....wealth which might include eg, the maintenance of public parks and gardens, alongside private sector, competitive, personal profit-driven production of market goods and services, then ANY involuntary unemployment is impermissible.

2. MMT doesn't "give money away".

MMT guarantees full above-poverty employment, and then manages the money supply - in both the public and private sectors - as necessary to maintain price stability.

Hence the NAIBER, in a MMT full employment <public + private> economy, to replace the NAIRU of exclusively private sector market economies. (google those acronyms if you want to learn).

Stop putting the cart before the horse.

First, make sure "all hands are on deck", thereby maximizing the nation's sustainable prosperity, and then second, deal with maintaining price stability as required (whether in the public or private sectors).

Hint: free markets ALONE cannot achieve it; meaning price stability in the public + private macro-economy CAN be managed by design, rather than left to market forces alone.

 

Doesn't matter.

What does matter is guaranteed above poverty full employment, and maintenance of purchasing power by the median wage, over time.

It is amazing why the electorate continually votes against redistributive tax increases. MMT bypasses that problem, and deals with price stability in the MACRO-economy as required.

 

Inflation is paid for by those who cannot hedge.
It does matter, because there is no way around that fact.

That alone won't guarantee inflation will be halted.
Anyway...
If someone is given a 'guaranteed government job', and their productivity is incompetent because they are lazy. What then?

I need to know the answer to that question before I can respond. because, if your answer is, 'they still keep the job', then your proposal is basically raising the entitlement of welfare above the poverty level. I'm okay with that, but it will cost.
Conservatives will argue that we must keep it low to give people and incentive to get off of welfare. What do you say to that?

How?

 

Okay, can you describe how your theory would work in a hypothetical barter economy without money?

That might help some of us better see what's going on.

 

Are you saying MMT really is all about redistribution, but does so in a way people are less likely to complain about, because it's harder to see?

 

No. MMT is about a socially acceptable allocation of goods and services, via an above poverty Job Guarantee.
Spot the difference?

 

Harvey: "inflation is an increase in prices in the MACRO-economy".

So what....let's continue:

Gladly.

What is "productivity"? Def: " rate of output per unit of input", input being supplied by labor.

But just as the terms in the identity MV = Py can be interpreted in different ways, the 'value' of output varies according to occupation, as well as the effort of the individual laborer.

The important thing to realize is a community can - after providing the essential output necessary for the nation's sustainable economic development and prosperity - choose to decide to place more value on socially directed activity, than purely profit-driven activity. Especially as advancing technology feeds into increasing productivity.

So...what of your formulation: "their productivity is incompetent because they are lazy".

Can you see that eg, assisting the elderly to stay in their own homes, or tending public parks/gardens, IS useful work desired by the community that does not rely on the type of 'productivity' measure that will be significant in profit driven free markets?

Addressed above; and as to "cost", the issue is really boils down to how the electorate decides to allocate (and for what purpose) the nation's available resources inc. labor.

The need for welfare doesn't arise in a Job Guarantee economy (except in a very limited form, to deal with some disabilities).

Welfare is the ultimate indication of a dysfunctional economy, if we accept that the basic requirement of an economy is to employ everyone, to maximize the nation's sustainable prosperity. Welfare - "sit-down money" - is not compatible with that goal. .

By authorizing the reserve bank and treasury to create and spend money (as well as in private banks) - according to community choice, not solely the market's choice - required to achieve the above goal.

Now MV = Py but:

Money Growth Does Not Cause Inflation! (forbes.com)

" perhaps the real nail in the coffin of the “money growth==>inflation” view is this: the phenomenon that Milton Friedman identifies as key to the whole process, i.e., the excess of the money supply over money demand, cannot happen in real life."

Warning: it's a long article...

 

Note: I merely intended to consider how would "inflation" (ie excess demand for available goods/production) manifest itself in a barter economy? Obviously inter-tribal war would be one way to settle the excess demand issue, in the barter economy.

Whereas in orthodox monetary economies, the excess demand issue within a state is settled via involuntary unemployment and poverty.

[Meanwhile, classical economics posits full employment at market clearing prices (when demand will equal supply)].

 

She's a rather engaging public speaker:

(link)

Prof Stephanie Kelton - The Deficit Myth - 2020 Harcourt Lecture - 15 Jan 2020 - Bing video

 

You're conflating the issue. When he talks about productivity in the context of inflation, he's talking about productivity in a free market.
This depends on exactly which of your schemes you are talking about, since you've seemed to lump a snowball of different things into this "MMT" idea.

When talking about inflation, only the productivity that people voluntarily pay cash for counts.