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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Myopic meanness – Australia’s ODA cuts to its neighbours in the Pacific

Neoliberal governments and their supporters have a habit of spruiking gee whiz solutions to the world’s problems, where gee whiz means make it easier for corporations to make profits and harder for workers to get pay rises, claiming that the destiny of individuals is in their own hands (denying systemic failures), and reducing regulations that ensure equity is enhanced. Australia added another dimension to that list (which is not exhaustive) – being mean spirited when it comes to the less well-off nations in the world. The problem with this approach is that it does not live up to promise – it certainly enriches those who are already well-off – but when the rest of us realise something is wrong, the horse has already bolted and picking up the pieces becomes more ‘costly’ than before. In the last few weeks, our government has been bellowing again about China. China is a threat, China is a crook, China is this, China is that. The trigger point this time is the revelation that China’s external strategy has come to the Solomon Islands and the anti-China paranoid gang within the Australian government has a problem. The Solomon Islands are less than 1,700 kms from our mainland and the fear that China will establish a military base there is sending shivers up the spines (euphemism) of our conservative government. Perhaps if we had have been more generous to this region, the Chinese would not have so easily been able to invest there.

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US employment continues to grow but still 1.6 million jobs short of pre-pandemic levels

Last Friday (April 1, 2022), the US Bureau of Labor Statistics (BLS) released their latest labour market data – Employment Situation Summary – March 2022 – which reported a total payroll employment rise of only 431,000 jobs. Fortunately, employment growth was strong enough to drive the unemployment rate down by 0.2 points to 3.6 per cent. But there is still room for the unemployment rate to fall even further. The US labour market is still 1,579 thousand jobs short from where it was at the end of March 2020, which helps to explain why there are no wage pressures emerging. Real wages continued to decline. Any analyst who is claiming the US economy is close to full employment hasn’t looked at the data.

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The Weekend Quiz – April 2-3, 2022 – answers and discussion

Here are the answers with discussion for this Weekend’s Quiz. The information provided should help you work out why you missed a question or three! If you haven’t already done the Quiz from yesterday then have a go at it before you read the answers. I hope this helps you develop an understanding of Modern Monetary Theory (MMT) and its application to macroeconomic thinking. Comments as usual welcome, especially if I have made an error.

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The Weekend Quiz – April 2-3, 2022

Welcome to The Weekend Quiz. The quiz tests whether you have been paying attention or not to the blog posts that I post. See how you go with the following questions. Your results are only known to you and no records are retained.

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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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A cynical fiscal statement from a crooked government

Last night (March 30, 2022), the Federal Treasurer released the annual ‘fiscal statement’ (aka ‘The Budget’), which revealed to everyone how cynical these exercises have become. The statement is normally released in May but the Federal government has to go to the polls then and they are so far behind the Opposition Labor Party in the opinion polling that they decided to bring forward the fiscal statement as a last ditch attempt to bribe the voters with pennies. I hope it doesn’t work. This is one of the most dishonest and incompetent governments we have ever had to deal with – and that is saying something given our history. While everyone is talking about the cash splash – it is offset by a range of cuts and dissipates in a few months anyway – just after the election. And the Government is once again revealing it has not foresight – to deal with the major challenges – climate, aged care, health care, higher education, social housing, etc. I can barely even write about the statement it is so bad.

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Exploring the essence of MMT – Part 1

Today, I am reflecting on the evolution of the body of work known as Modern Monetary Theory (MMT) and responding to many E-mails I get seeking clarification about things and some that keep getting things wrong. Some of the things I write today might introduce some dissonance, which just means that those feeling that have not really got to the bottom of the matter before and thought they knew what isn’t. This blog post also forms part of my – MMT Provenance – series where I trace the development of MMT in historical terms – who said what, who were there, who weren’t etc. And it is good sometimes to reflect on your work to see where it has gone and to wonder why. So, a bit of a different post today as we wait for tonight’s fiscal statement from the Australian Treasurer.

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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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The Weekend Quiz – March 26-27, 2022 – answers and discussion

Here are the answers with discussion for this Weekend’s Quiz. The information provided should help you work out why you missed a question or three! If you haven’t already done the Quiz from yesterday then have a go at it before you read the answers. I hope this helps you develop an understanding of Modern Monetary Theory (MMT) and its application to macroeconomic thinking. Comments as usual welcome, especially if I have made an error.

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