This category provides commentary on the release of inflation data by national statistical agencies and discussions about hyperinflation

Exploring the essence of MMT – the Job Guarantee – Part 2

This is Part 2 of an irregular series I am writing on some of the complexities of Modern Monetary Theory (MMT) that are often overlooked by those who rely on reading airport-style books or Op Eds on the topic. In – Exploring the essence of MMT – Part 1 (March 29, 2022) – I dealt with some conceptual issues about values and theory. Today, I am considering the way to think about the – Job Guarantee – within the MMT framework. The Job Guarantee is at the centre of MMT because it contains an insight that is missing from the mainstream economics – the concept of spending on a price rule. This insight leads to the conclusion that the price level is determined by what the monopoly issuer of the fiat currency – the government is prepared to pay for goods and services. This, in turn, means that the Job Guarantee goes well beyond being a job creation program and constitutes within MMT a comprehensive macroeconomic stability framework – where the so-called trade-off between inflation and unemployment (Phillips Curve) is eliminated. However, while in the real world, complexity enters the scene and we need to be aware of the nuances so that we do not fall into the trap of thinking of the Job Guarantee as an inflation killer.

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Apparently, MMT says there are no inflationary threats – which planet?

It’s Wednesday and we have the music feature to enjoy following some other news snippets. Here is an argument: Modern Monetary Theory (MMT) tells us that when there are fiscal deficits there is no problem with inflation. At present, inflation has been rising and there are deficits left over from the pandemic. Therefore “Tick off a loss for the modern monetary theorists amid rising inflation” because “Under MMT, the risk of inflation is considered minimal as governments that fully control their fiat currencies are believed to be able to control price levels”. Okay? So I think I better just terminate this blog today, say sorry for being so stupid, and start writing Op Eds demanding interest rates rise and governments cut their fiscal deficits immediately. But I won’t. Why? Because I am not stupid enough to mount that argument in the first place like some, who have the audacity to write financial columns that only demonstrate their ignorance. Good. Let’s have some music.

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We have an experiment under way as the Bank of Japan holds its cool

Yesterday’s fiscal statement analysis replaced my usual Wednesday news and music blog post, so that appears today. I have hardly any time today anyway as the commitments associated with that statement are queuing up. So, today I want to reflect on the sanity in Japan and the ECB before some Duke. So we now have an experiment underway again. Most central banks are buckling under the pressure the financial markets are putting on them to raise interest rates. But the Bank of Japan, and to a lesser extent the ECB are not. We will see how that plays out. I think the Bank of Japan has its finger on the pulse and the other central banks are going down the wrong path.

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The current inflation still looks to be a transitory phenomenon

Inflation data continues to come in from various nations indicating an ongoing escalation in prices dominated by energy and cars (in the US), housing and transport (UK), housing and transport (Australia) and so on. The major question I always ask is this: What would you expect to happen after a major global pandemic that has lasted more than 2 years and is still not resolved and which has closed factories, ports, transport networks, made workers sick so they cannot work, choked shipping, kept people at home while governments have to varying extents maintained their income, shifted spending to home maintenance etc away from haircuts, and the rest of it. And then, add an uncompetitive cartel that manipulates supply to gouge profits (OPEC). And on top of all that have some bushfires and floods around the place. And to even top all of that have a character who thinks he is a Tsar invading a neighbour and creating havoc and destruction. What else would you expect? Oh, its all down to QE and fiscal deficits, I hear them say. Modern Monetary Theory (MMT) again – now we know those ideas are defunct. We told you so! And repeat. Interest rates have to rise. Repeat. At least the ECB seems to understand the situation more than most, which is something.

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Advanced countries should invest in fair trade ventures (without ownership claims)

According to the International Coffee Organization (ICO), the price of coffee has risen for 17 consecutive months and the sector is being hit with sequential shocks, the latest being the Ukrainian conflict, which is having impacts on both the demand and supply sides. I was talking with a friend over the weekend just gone and they were complaining that a cup of coffee had risen to $A7 or thereabouts, which was really squeezing people’s incomes. As a disclaimer, I have never had a cup of coffee in my life – just the aroma is enough to turn my stomach. But I was thinking about coffee over the last few weeks for another reason. I am currently doing some research on Timor Leste in anticipation of a change in the Presidency. The first round of the elections were held last weekend and it looks like Ramos-Horta will win the second round run-off in April. One of the things I am working on is a plan to diversify the nation’s exports as the inevitable decline in oil revenue starts to impact. I am also in developing models of fair trade that allow for sustainable agriculture (that is, not cash crop mania that wrecks subsistence farming and ends in farmers being locked up in international debt) but also allow the nation to diversify their export portfolio. Fairness and sustainability are good ideals to have. There is an opportunity here for a nation such as Australia to reform its ways and break out of the dog-eat-dog ‘free trade’ mantra and actually start doing some good in our region. That is what this blog post is about.

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Cash machine capitalism – it is getting uglier by the day

The current period is really exposing what is wrong with the world order based on Capitalism. Those in the know have always understood that the system is not designed to advance human prosperity generally. At times in history, it has required the general improvement in material living standards to accomplish its aims – which are different from that improvement. So, it has tolerated a more equitable distribution of income and access to consumption purchasing power. But while the masses became complacement as they polished their big (oversized) SUVs, which sit in their driveways next to their big (oversized) motor boat and out the front of their big (oversized) house that is ill-designed for a carbon-neutral future, the bosses have been beavering away working out how to continue to meet their aims independent of us.

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Inflation is not exploding out of control and interest rate rises will not help

It is hard work being an economist. Especially when about 90 per cent of what one reads each day is fiction masquerading as truth. That wouldn’t be so bad because fiction is good when it is in the right place. But in this context, the fiction that comes out from economists and their lackeys in the financial media causes massive damage to innocent citizens who lose their jobs, have their pay aspirations stifled, enter poverty, lose their homes and commit suicide out of sheer hopelessness with the situations that are forced upon them. When you dig into some of the media coverage you realise that it is really just a self-serving promotion for speculators in financial and share markets and has very little foundation in a deeper understanding of economics. This so-called Op Ed piece in The Age (March 14, 2022) – No-win situation: The Fed is paying the price for dragging its feet – is representative of the nonsense that parades as economic commentary. It reflects a sad state of affairs.

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We are not going back to the 1970s

With Russia now invading Ukraine and adding to the already highly disrupted supply chains linking products and nations, and the price fixers in OPEC and OPEC+ having a picnic on the uncertainty, inflationary pressures will continue to rise for the time being. Many commentators keep falling into the trap of saying that history is repeating itself – meaning that it is the 1970s over again. I maintain my position that this is not akin to what was going on in the 1970s although there are similarities – energy price rises accompanying war, etc. And if we make the same mistakes that were made in the 1970s now, then not only will the inflation persist but millions of workers will lose their jobs and their incomes.

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Vast majority of NZ economists seem to support MMT

Yesterday, I published a full analysis of the national account release in Australia, so today I am pretending it is my Wednesday ‘news’ blog with the music segment that seems to be popular. The news is all floods in Australia, death and destruction in the Ukraine and big talk (about 2 or more decades too late) from the Western governments. I note that the German government has confiscated a luxury yacht owned by some Russian ‘oligarch’ (don’t you just love their terminology) while stacks of other oligarch yachts are heading or are in the Maldives to avoid such a fate. Stupid question: if these oligarchs are so bad and their fortunes ill-gotten why have we waited so long to do something? Today we talk briefly about the resolve of the RBA to resist the gambling addiction of speculators in the financial markets. We also consider a discovery I made last week that top New Zealand economists seem to support Modern Monetary Theory (MMT), and then if that isn’t enough – some music.

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The IMF shows us that the central bank monetary financing taboo has no substance

Recently (February 22, 2022), I received the latest E-mail update from the IMF blog advertising their new post – Should Monetary Finance Remain Taboo? – which obviously attracted my attention. One of the most deeply entrenched taboos in economics relates to central banks directly facilitating government spending without any other monetary operation. In an important sense, the characterisation of ‘monetary financing’ by the mainstream economists is erroneous and leads to all sorts of fictions that undermine sensible and responsible economic policy making. But, we can work through those fictions to discuss what the IMF is talking about. Importantly, they find that this taboo, which has been broken during the pandemic in many countries (although Japan has been leading the way for decades) does not lead to enduring inflation or a rise in inflationary expectations. Another major plank of mainstream macroeconomics gone. That is something to celebrate.

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