Today's Inflation Surge Should Discredit Modern Monetary Theory Forever - Politics Forum.org | PoFo

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#15254743
Today's Inflation Surge Should Discredit Modern Monetary Theory Forever
Mises.org | Connor O'Keeffe | November 7, 2022

It’s been a rough year for advocates of Modern Monetary Theory (MMT). After nearly two years with all the budget deficits and money printing MMTers could have wanted, the doctrine’s popularity seems to have faded now that we’re well passed the honeymoon phase. 2022 has clearly demonstrated that creating a lot of new money and running massive government deficits does, in fact, come at a cost. We should let this theory die before it causes any more destruction.

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MMT is a school of thought born and raised on the internet during a thirty-year period of low price inflation with constant debate over government budgets. Advocates argue that because the U.S. government is a currency issuer, we can drop all the talk about finding money for government programs. All that is needed is the political will to fund things with newly printed money. Suddenly in early 2020, that political will appeared overnight at a scale no one could have imagined even weeks before.

The Federal Government embraced deficit spending to prop up the economy amidst imposed lockdowns and trade restrictions. Now, 31 months later, the National Debt has increased by almost $8 trillion. At the same time, the money supply, as measured by M2, grew by $6 trillion, an increase of nearly 40%. Most critics of the free market would probably classify this historic level of money printing and debt as an unfortunate but necessary response to unprecedented circumstances. But not advocates of MMT. This is what they’ve been wanting all along.

According to MMT, having concerns about the national debt is antiquated and childish. In fact, they argue that the total national debt is nothing more than a record of how many dollars there are in the pockets of private citizens. A higher national debt is not a consequence of MMT; it’s the entire point. The pandemic was, in many ways, MMT’s moment.

Predictably, the historic level of monetary inflation paired with the government-imposed production slowdown has resulted in levels of consumer price inflation not seen in 40 years. The rate appears to have peaked in June 2022, with prices on average 9.1% higher than the year prior. Producer price inflation also peaked in June at 11.3%. Although most MMT advocates had been dismissive of inflation, that’s not something they would have said was impossible. The problem for them is what they think needs to be done about it.

Just as MMT sees the national debt as a measurement of all the dollars the government created and put into people’s pockets, taxes are the tools for the government to take money back out of the economy if inflation gets too high. Setting aside how economically flawed this characterization is, a government following the MMT playbook will run into a political problem at this point in the cycle.

It is relatively easy to convince politicians and everyday people that the government programs they dream about can be funded by creating new money. And the true cost of this method—currency devaluation—is not felt or seen immediately. That adds to the illusion that something can be had for nothing. But taxes are the opposite. Everyone can see the line on their receipt, the amount withheld on payday, and the check they have to send to the IRS each April. The economic pain is felt without any clear, immediate benefit.

During periods of high inflation, there is a general sense amongst everyday people that the same amount of money isn’t cutting it. Sure, the initial cause may be a higher money supply, but any given person will feel like possessing more money is the key to getting by. After all, prices keep going up. They’re not going to react as well to the argument that Uncle Sam should confiscate even more of their dollars. If MMTers thought it was difficult to cultivate the political will to inflate, they clearly haven’t been thinking further down the road.

Interestingly, we’re not hearing much about raising taxes from MMT advocates these days. Or at least, their claims haven’t been amplified by Democrats and progressives as much as earlier arguments to print more money were. Just as they have done with Keynesianism for decades, politicians will grab any economic theory that justifies what they want and drop it when it prescribes something they don’t. And thank goodness for that. The last thing we need is more taxes.

This year has demonstrated that printing vast quantities of money is costly. And that the political will to even stick with MMT breaks down when the going gets tough. That should be enough to completely discredit this ridiculous theory.

SOURCE: https://mises.org/wire/todays-inflation ... ry-forever
#15254746
The problem with MMT is that you need an automatic adjusting tax rate that can increase to suck up the excess money to bring inflation down. No one wants that. Not people, not corporations.
#15254747
Rancid wrote:The problem with MMT is that you need an automatic adjusting tax rate that can increase to suck up the excess money to bring inflation down. No one wants that. Not people, not corporations.

MMT would probably meet the same fate as Keynesianism, and for similar reasons - governments were enthusiastic about the “borrow and spend in bad times” bit, but rather less keen on the “raise taxes and pay down your debts in good times” bit. The last bit would tend to lose them votes, so they just didn’t bother. Lol.
#15254749
Potemkin wrote:MMT would probably meet the same fate as Keynesianism, and for similar reasons - governments were enthusiastic about the “borrow and spend in bad times” bit, but rather less keen on the “raise taxes and pay down your debts in good times” bit. The last bit would tend to lose them votes, so they just didn’t bother. Lol.


MMT is worse in that corporations like consistency. A known tax rate makes it easier for them to plan investments. The variable tax rate would make that much much harder to do.

While MMT actually makes sense as a concept. In practice, it would be disastrous. Worse than what we have/do now!
#15254750
Rancid wrote:MMT is worse in that corporations like consistency. A known tax rate makes it easier for them to plan investments. The variable tax rate would make that much much harder to do.

While MMT actually makes sense as a concept. In practice, it would be disastrous. Worse than what we have/do now!

Keynesianism was perfect on paper, but it collapsed in the 1970s for political reasons. MMT would probably collapse even faster, and for similar reasons. Irrefutable in theory, but disastrous in practice….
#15254757
Rancid wrote:MMT is worse in that corporations like consistency. A known tax rate makes it easier for them to plan investments. The variable tax rate would make that much much harder to do.

While MMT actually makes sense as a concept. In practice, it would be disastrous. Worse than what we have/do now!


Incorrect, and, as usual, the article in the OP is nonsense. You DO NOT need to raise taxes to control inflation. That would only be necessary if the economy was already at full employment (and you want to spend even more money for some reason), which it wasn't during the pandemic and it sure as hell isn't now.

The proper way to deal with inflation is to increase wages, but try getting that shit past congress.

Tl;dr : MMT works just fine, that's why the corpos will stop it at any cost.
#15254766
Saeko wrote:Incorrect, and, as usual, the article in the OP is nonsense. You DO NOT need to raise taxes to control inflation. That would only be necessary if the economy was already at full employment (and you want to spend even more money for some reason), which it wasn't during the pandemic and it sure as hell isn't now.

The proper way to deal with inflation is to increase wages, but try getting that shit past congress.

Tl;dr : MMT works just fine, that's why the corpos will stop it at any cost.

Keynesianism worked just fine too, until it didn’t.
#15254822
BlutoSays wrote:



And the true cost of this method—currency devaluation—is not felt or seen immediately.



'Unfair': EU criticizes Washington over planned subsidies for US-made electric cars | DW Business





there is a general sense amongst everyday people that the same amount of money isn’t cutting it.



I *was* kinda 'neutral' on MMT when the economy -- stock market, really -- was doing well (at the public's expense), *and* I politely tolerated cryptocurrencies (just another asset class), but *now* the inertia / spotlight's shifted and all that shit is now frothy excrescence.

*No one* (except me of course) has mentioned the simple buzzkill reality of *financing* payments every month, *for* that increasing hole of debt. It's a *real thing*, in other words, within capitalism and people's lives, but is a *social convention* as much as capitalism and money are themselves, as well.


Potemkin wrote:
Keynesianism was perfect on paper, but it collapsed in the 1970s for political reasons. MMT would probably collapse even faster, and for similar reasons. Irrefutable in theory, but disastrous in practice….



'War on Poverty', or Vietnam.


---


wat0n wrote:
MMT should have been already debunked by the Truss fiasco.



The UK doesn't have the *luxury* / latitude to leisurely philosophize on national debt as the U.S. does -- SA will readily remind everyone here that the EU (and UK) economies are *self-contained* for the most part, and can't just do the hackneyed 'supply-side / trickle-down' shit when that actually *costs money* to the country (Truss).

The U.S. continues to be geopolitically *privileged*, and the militarized global empire doesn't hurt, either. So 'reserve-currency', and 'constrained' vs. 'unconstrained' (theoretically) national money supplies, U.S. vs. UK, etc.

Also, gotta warn that I'm no longer funny in a bad economy.


= D
#15254842
This is from the 1st page of the linked article.
WHAT IS THE MISES WIRE?
Mises Wire offers contemporary news and opinion through the lens of Austrian economics and libertarian political economy.


less than 5% of the population accept any truth in libertarian political economy and Austrian economic is the smallest school of mainstream economics. I therefore submit that their lens is not popular with the public. Why should most people put ant trust in this article. As an analogy; would you put any trust in an article published by a Marxist?

1] No nation on earth has ever done MMT. This is so because no nation has implemented a national job guarantee program that offered a socially inclusive wage to any adult that wanted a job.
2] The current inflation is being caused by shortages of things to buy (caused by the pandemic, lockdowns, and supply chain breakdowns) and b Corps using their monopoly pricing power to increase their profits (by increasing prices more than necessary to off set increased costs).
3] Mainstream economics is two faced on monopolies. One one hand all MS Econ. theories assume that the market consists of hundreds or thousands of corps selling all products, providing competition; and on the other hand demands that Gov. not use regulations to keep monopolies from being formed or broken up after they do form. The current market is composed of a few monopolies that dominate all sectors of the economy.
4] MS Econ. postulates that in a competitive market, when there is more demand caused by more cash in the economy, corps will not raise prices and will instead make more product. They do this because raising their price will let the other corps sell more because they are charging less, so the 1st corps will sell less. Does it have much to say about what happens in a market dominated by a few monopolies? I don't think so.
5] For what it is worth every single MMTer predicted that the world would see high inflation, and they were right. The MMters just blamed it on shortages and MS Econ. blame it on the increase in the money supply. I don't see much evidence for the MS conclusion except post hoc ergo propter hoc, which isn't really evidence.

More later on tax increases.
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#15254852
ckaihatsu wrote: "*No one* (except me of course) has mentioned the simple buzzkill reality of *financing* payments every month, *for* that increasing hole of debt. It's a *real thing*, in other words, within capitalism and people's lives, but is a *social convention* as much as capitalism and money are themselves, as well."


So, is that hole of debt, private debt or public debt? It seems like you mean the national debt, so public debt. If so, just how are the public debt payments hurting anyone? MMTers see them as adding to the money supply because some human or corps gets them. But, they are just added to the debt by selling a slightly larger bond. Taxes have not been raised to pay them for the last 30 years, in fact taxes have been cut in some of those years.
.
#15254857
I just woke up. Fell asleep on the couch watching what was, for once, good news.

So, I am grumpy.

The clown in the OP was projecting, the Austrian school is less relevant than MMT; but neither are mainstream.

Behind the jargon is class warfare. Way back, starting in the 80s, the WSJ used to brag about winning the class war. The parasites did win, for a while, but the reason was demographics. Same reason they are starting to lose now.

Keynesian thinking never went away, but it did evolve.

regardless of what we do, or don't do, you can't eliminate risk. Krugman admits he was wrong, but what Biden did was smart, economics is sometimes about living to fight another day...
#15254866
ckaihatsu wrote:The UK doesn't have the *luxury* / latitude to leisurely philosophize on national debt as the U.S. does -- SA will readily remind everyone here that the EU (and UK) economies are *self-contained* for the most part, and can't just do the hackneyed 'supply-side / trickle-down' shit when that actually *costs money* to the country (Truss).

The U.S. continues to be geopolitically *privileged*, and the militarized global empire doesn't hurt, either. So 'reserve-currency', and 'constrained' vs. 'unconstrained' (theoretically) national money supplies, U.S. vs. UK, etc.

Also, gotta warn that I'm no longer funny in a bad economy.


= D


A bunch of nonsense. Sounds a lot like the stuff Ron Paul was peddling :lol:
#15254870
Steve_American wrote:
So, is that hole of debt, private debt or public debt? It seems like you mean the national debt, so public debt. If so, just how are the public debt payments hurting anyone? MMTers see them as adding to the money supply because some human or corps gets them. But, they are just added to the debt by selling a slightly larger bond. Taxes have not been raised to pay them for the last 30 years, in fact taxes have been cut in some of those years.
.



Okaaaaaay, and I'm not a nationalist anyway -- or *imperialist*, like yourself.

Such fussing over national / nationalist money-supply and inflation, at some point, just serves to keep people in-the-fishbowl, so to speak. Why are we all spending so much time gawking skywards, at economic-nationalism machinations, trying to forestall / deny economic senility? It happened to Japan in the '90s, and it arguably happened in the U.S. circa 2000, with its now-2-decades-long stagnant, low GDP growth.

Care to weigh in on 'perfect storm' characterizations, as from myself -- ?


late wrote:
regardless of what we do, or don't do, you can't eliminate risk. Krugman admits he was wrong, but what Biden did was smart, economics is sometimes about living to fight another day...



Are you *defending* the Fed's raising of the interest rate -- !
Last edited by ckaihatsu on 10 Nov 2022 15:46, edited 1 time in total.
#15254877
wat0n wrote:
The UK fulfills ALL the conditions MMT bugs have been mentioning as necessary for the theory to be applicable. So why did markets react so poorly to Truss' budget?



---


ckaihatsu wrote:
the EU (and UK) economies are *self-contained* for the most part, and can't just do the hackneyed 'supply-side / trickle-down' shit when that actually *costs money* to the country (Truss).



viewtopic.php?p=15254866#p15254866
#15254885
Saeko wrote:Incorrect, and, as usual, the article in the OP is nonsense. You DO NOT need to raise taxes to control inflation. That would only be necessary if the economy was already at full employment (and you want to spend even more money for some reason), which it wasn't during the pandemic and it sure as hell isn't now.

The proper way to deal with inflation is to increase wages, but try getting that shit past congress.

Tl;dr : MMT works just fine, that's why the corpos will stop it at any cost.


Well, as @Potemkin said. It works until it doesn't which is what you are describing. That doesn't is not usually related to economics themselves. USSR also collapsed to a large degree that it couldn't reform itself for political reasons after running out of men and then women to pack in to cities in the 50s/60s if you look at the economic aspect of USSR.
#15254886
Steve_American wrote:1] No nation on earth has ever done MMT.

MMT is purported to be descriptive, so all advanced economies have "done" it. The euro-zone economies no longer do it.
This is so because no nation has implemented a national job guarantee program that offered a socially inclusive wage to any adult that wanted a job.

The job guarantee is a policy prescription that is quite tangential to how the money supply is created and regulated; it is not a theory of money.
2] The current inflation is being caused by shortages of things to buy (caused by the pandemic, lockdowns, and supply chain breakdowns) and b Corps using their monopoly pricing power to increase their profits (by increasing prices more than necessary to off set increased costs).

Yes, which means the MMT assumption that prices will not respond to an increase in the money supply as long as there is unemployment/spare production capacity is wrong.
4] MS Econ. postulates that in a competitive market, when there is more demand caused by more cash in the economy, corps will not raise prices and will instead make more product. They do this because raising their price will let the other corps sell more because they are charging less, so the 1st corps will sell less. Does it have much to say about what happens in a market dominated by a few monopolies? I don't think so.

As modern finance capitalism is completely dominated by monopoly privilege -- landowner privilege, bankster privilege, IP privilege, etc. -- the MMT assumption of competitive markets does not hold, and newly issued money will go into higher prices. We have seen this proved conclusively since the pandemic began: the money created by QE went first into asset markets, increasing asset prices by hefty double-digit percentages. As the extra money has moved down into product, service and labor markets, its inflationary effect has been attenuated, but it's still there.
5] For what it is worth every single MMTer predicted that the world would see high inflation, and they were right. The MMters just blamed it on shortages and MS Econ. blame it on the increase in the money supply. I don't see much evidence for the MS conclusion except post hoc ergo propter hoc, which isn't really evidence.

There were also shortages in the Great Depression, but prices fell because the money supply contracted. The notion that newly issued money will only go into purchases of idle production capacity is ridiculous.
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