- 07 May 2018 09:35
#14912257
I am just a layman. I like MMT much more than other economic theories. What follows is not based on specific things I read by MMT economists. It is my theory [using MMT as a base] of what happened in the 1970s.
1] Because of the deficits being run to pay for the Vietnam War and for "butter" in America, economists were afraid that inflation would start soon.
2] For whatever reason, OPEC decided to raise oil prices a lot in 1973. And, they were able to make their decision stand. So, oil prices went up.
3] Oil was included in the price of everything. Either as plastic, chemicals, packaging, or transportation from mine to industry and industry to stores.
4] This meant that businessmen had to increase the price of what they sold to cover the increases in their costs that resulted from the new higher price of oil.
5] Economists saw the rise in general prices and assumed it was an example of 'too much money chasing too few goods'. Rather, than resulting from a rise in the price of just 1 key resource that the US economy used for almost everything.
6] The Governors of the Fed. Res. Bank decided that they needed to fight the inflation they saw. So, they raised interest rates. This had zero effect toward reducing inflation because all the businessmen had to recoup their costs to stay in business. They could not reduce their prices and make a profit.
7] OPEC raised the price of their oil again because of the inflation they saw.
8] American businessmen now had to raise prices again both because of the rising price of oil and their new higher interest costs.
9] The Fed Re. Bank raised their interest rate more, then and more, all the way up to about 16%.
10] The high interest rates made new investment unattractive. This reduced GDP growth. GDP growth was also reduced because of the dollars flowing out of the economy and into the bank accounts of OPEC nations.
11] The result was Stagflation. I.e., a stagnant economy [a recession?] and very high interest rates. The stagnant economy led to high unemployment and this increased GOV. spending.
12] The people didn't understand why all this was happening, and neither did the economists or policy makers. Maybe some few isolated individuals did, but nobody agreed with them. {Watch here, nobody will believe this explanation, even now.}
13] So, the people rejected Pres. Carter and elected Pres. Reagan. He went on a borrow and spend binge. The National Debt went from about $1T to $4T in 8 years.
14] Note that --- all the Presidents in the 34 years from the end of WWII until 1981 [when Reagan took office] had borrowed [including the borrowing during WWII] just $1T in total. Reagan borrowed $3T in just 8 years.
15] This amount of deficit spending, got the economy moving again. An MMTer might say "it was just what the doctor ordered." Just like everyone says that it took WWII to end the Great Depression. I.e., the vast deficit spending on WWII [inculuding in 1940 and 1941 while the UK fought alone] overcame the problems that were keeping the US economy from getting back to full employment and ending the Depression. [An MMTer might say that FDR needed to have increased his deficit spending enough to do it before the war started. Certainly, $3T of deficit spending would have been enough way back in the 30s.
16] Of course, Pres. Reagan was not an MMTer and he didn't do it on purpose; but it does seem like *enough* deficit spending can get an economy out of Stagflation; it can, because *it did*. And in the 80s, it doesn't seem to have caused much inflation either, IIRC.
So, all the current talk about how the tax cuts will cause $1.9T more deficit spending over the next few years are missing the point.
. . The US economy is again in stagflation, BUT without the inflation or the high interest rates. Maybe *enough* deficit spending is now "what the doctor ordered" to get it moving again. Of course, MMTers would say that giving $$ to the rich is the worst way to stimulate the economy.
[{ However OTOH, economic growth of 2% to 3% is killing the ecology of the world and will kill civilization in about 50 years. So, is it a good thing? (I *know*, almost nobody believes this, yet.)
. . Maybe Americans should have a reduced standard of living to save the world,
BUT this should or *must* apply to all Americans, specifically the top 1% and the top 0.1%. The fact that it doesn't is a big reason that the 99% will want to see the economy grow again.
. . The cliff is vizable through the fog now, but only if you want to see it. Therefore, America and the whole world will step on the gas and accelerate right over the cliff. De-Nile is a tragic thing.}]
1] Because of the deficits being run to pay for the Vietnam War and for "butter" in America, economists were afraid that inflation would start soon.
2] For whatever reason, OPEC decided to raise oil prices a lot in 1973. And, they were able to make their decision stand. So, oil prices went up.
3] Oil was included in the price of everything. Either as plastic, chemicals, packaging, or transportation from mine to industry and industry to stores.
4] This meant that businessmen had to increase the price of what they sold to cover the increases in their costs that resulted from the new higher price of oil.
5] Economists saw the rise in general prices and assumed it was an example of 'too much money chasing too few goods'. Rather, than resulting from a rise in the price of just 1 key resource that the US economy used for almost everything.
6] The Governors of the Fed. Res. Bank decided that they needed to fight the inflation they saw. So, they raised interest rates. This had zero effect toward reducing inflation because all the businessmen had to recoup their costs to stay in business. They could not reduce their prices and make a profit.
7] OPEC raised the price of their oil again because of the inflation they saw.
8] American businessmen now had to raise prices again both because of the rising price of oil and their new higher interest costs.
9] The Fed Re. Bank raised their interest rate more, then and more, all the way up to about 16%.
10] The high interest rates made new investment unattractive. This reduced GDP growth. GDP growth was also reduced because of the dollars flowing out of the economy and into the bank accounts of OPEC nations.
11] The result was Stagflation. I.e., a stagnant economy [a recession?] and very high interest rates. The stagnant economy led to high unemployment and this increased GOV. spending.
12] The people didn't understand why all this was happening, and neither did the economists or policy makers. Maybe some few isolated individuals did, but nobody agreed with them. {Watch here, nobody will believe this explanation, even now.}
13] So, the people rejected Pres. Carter and elected Pres. Reagan. He went on a borrow and spend binge. The National Debt went from about $1T to $4T in 8 years.
14] Note that --- all the Presidents in the 34 years from the end of WWII until 1981 [when Reagan took office] had borrowed [including the borrowing during WWII] just $1T in total. Reagan borrowed $3T in just 8 years.
15] This amount of deficit spending, got the economy moving again. An MMTer might say "it was just what the doctor ordered." Just like everyone says that it took WWII to end the Great Depression. I.e., the vast deficit spending on WWII [inculuding in 1940 and 1941 while the UK fought alone] overcame the problems that were keeping the US economy from getting back to full employment and ending the Depression. [An MMTer might say that FDR needed to have increased his deficit spending enough to do it before the war started. Certainly, $3T of deficit spending would have been enough way back in the 30s.
16] Of course, Pres. Reagan was not an MMTer and he didn't do it on purpose; but it does seem like *enough* deficit spending can get an economy out of Stagflation; it can, because *it did*. And in the 80s, it doesn't seem to have caused much inflation either, IIRC.
So, all the current talk about how the tax cuts will cause $1.9T more deficit spending over the next few years are missing the point.
. . The US economy is again in stagflation, BUT without the inflation or the high interest rates. Maybe *enough* deficit spending is now "what the doctor ordered" to get it moving again. Of course, MMTers would say that giving $$ to the rich is the worst way to stimulate the economy.
[{ However OTOH, economic growth of 2% to 3% is killing the ecology of the world and will kill civilization in about 50 years. So, is it a good thing? (I *know*, almost nobody believes this, yet.)
. . Maybe Americans should have a reduced standard of living to save the world,
BUT this should or *must* apply to all Americans, specifically the top 1% and the top 0.1%. The fact that it doesn't is a big reason that the 99% will want to see the economy grow again.
. . The cliff is vizable through the fog now, but only if you want to see it. Therefore, America and the whole world will step on the gas and accelerate right over the cliff. De-Nile is a tragic thing.}]
- By Unthinking Majority
- By ingliz
- By Puffer Fish
- By wat0n