Seize the Means of Production of Currency – Part 2

Last week, Thomas Fazi and I had a response to a recent British attack on Modern Monetary Theory (MMT) published in The Tribune magazine (June 5, 2019) – For MMT. The article we were responding to – Against MMT – written by a former Labour Party advisor. In – Part 1 – we considered how the MMT critique was not really about MMT at all. We provided a more accurate summary of what MMT is and what it is not. In this second Part we consider the way the former advisor’s article misrepresented MMT authors on issues such as taxes, inflation and democracy. Not that this three-part series is not just a point-by-point response to the attack on MMT noted above. In part, that article was not really about MMT but some concoction the author created to make his argument easier to sustain.

In – Seize the Means of Production of Currency – Part 1 (June 11, 2019) – we provided a coherent summary of what MMT is rather than what the critics claim it is.

It is impossible to tell whether their misrepresentations are deliberate to set up the ‘straw person’, a product of ignorance and lack of research, or plain stupidity – or a combination of all three.

In Part 1, we got up to the question of taxes. And so we resume …

Does this mean that taxes are not necessary?

Of course not. Taxes, in part, serve a functional role in depriving the non-government sector of purchasing power, which, in turn, frees up the goods and services that would otherwise have been used by the non-government sector for public use.

In other words, taxes help to free up real resource space to allow governments to spend without invoking the inflation risk.

Does this mean that we shouldn’t ‘tax the rich’?

The present authors’ values indicate we are all for taxing the rich. But not to get their money.

Rather, the rich should pay higher taxes in order to deprive them of their purchasing power, which translates into economic and political power.

This is not a minor issue.

Ultimately, fuelling the notion that we need the rich folk’s money to ‘[pay for] our schools and our caring services’, as the likes of Jeremy Corbyn and John McDonnell never tire of repeating, is a dangerous and misguided narrative for progressives to engage in.

Not only because it fuels damaging myths about how the monetary system works, but also because it elevates the rich and high-income earners to an indispensable status that is unwarranted.

As Pavlina Tcherneva, from the Levy Economics Institute, notes in her excellent response to Doug Henwood’s rather loopy attack on MMT – MMT Is Already Helping (February, 27, 2019):

I would say that Henwood (like other “tax-the-rich-to-pay-for-progress” lefties) is tethered to the wealthy by an imaginary umbilical cord that holds his progressive agenda hostage to his oppressors. To me, this is the definition of a self-induced paralysis.

Time to cut the cord. MMT has a profound emancipatory power and the Left would do well to awaken to its potential.

Progressives should come to terms with the fact that the incomes and taxes paid by the rich do not enhance the capacity of a currency-issuing government to provide first-class public services and infrastructure.

If the reader finds all this perplexing, it is because for the past forty or so years policymakers and mainstream economists and commentators have peddled a series of false myths about how modern monetary systems work.

For example, politicians seek to relate our own experiences as households managing financial constraints with the opportunities available to government even though the comparison is false at the most elemental level: households use the currency the government issues.

They blur that difference and attack government welfare programs using terms such as ‘maxing out the credit card’ to amplify this misunderstanding.

They also know that rising public debt can be politically manipulated and demonised in order to get citizens and workers to accept – demand even – policies that are not in their class interest. Even though they know that governments do not issue debt to fund government spending.

To be clear, politicians and central bankers know full well how the system works.

Indeed, governments already operate according to the framework offered by MMT.

As a recent article in FT Alphaville – America has never worried about financing its priorities (January 16, 2019) – by Brendan Greeley noted:

When Washington wants something – to fight a war, to cut taxes – it appropriates. And so arguments about balancing budgets aren’t actually about constraints. They’re about priorities. Important programs get appropriations, full stop. Unimportant programs need to be paid for with taxes.

Or, in Washington: “We can’t afford that” actually just means “I don’t think that’s very important.”

The same can be said for the UK.

As of March 2006, approximately £4.5 billion had been spent by the UK in Iraq, enough to pay for the building of around 44 new hospitals and to fund the recruitment and retention of over 10,300 new teachers for ten years.

Yet, there was never any debate about how the UK would ‘fund’ the war. The same goes for the massive post-crisis financial bailouts.

Unfortunately, the mainstream macroeconomic narrative continues to infest large swathes of the Left, particularly in Europe.

Meadway’s article is representative.

He writes that (about MMT):

This article aims to concentrate instead on the practical and political implications, why they are wrong – and why Labour’s own economic programme makes more sense.

In that sense, he is really talking about some conception of the application of MMT understandings according to some value set, rather than MMT itself, although he clearly doesn’t understand the difference.

There is no MMT program!

The “Labour’s own economic programme” will be implemented, if they gain office, in the context of a monetary system that is best understood through the MMT lens and the principles outlined in – Seize the Means of Production of Currency – Part 1 (June 11, 2019).

Trying to set up a comparison to show “Labour’s own economic programme” is superior or more sensible demonstrates Meadway’s complete lack of understanding of what MMT is.

It is such a basic error that he should disqualify himself from further discussion until he takes the time to understand this key difference between a ‘lens’ that allows for understanding and a policy program.

The inflation bogey

The knee jerk reaction to MMT is that government deficits will be inflationary, especially if they are not accompanied by debt issuance.

The critics characterise MMT as being about ‘monetary financed deficits’ (and they usually slip the ‘printing’ word in here because that is the paradigm these sorts of criticisms are stuck in).

Meadway is no exception.

He recognises that:

As a technical detail, modern governments do not have to collect taxes before they can spend: they can also borrow the money, or create and spend that money directly. On a day-to-day basis, these three things can (and often do) all happen at once. Unfortunately, what holds as a technical description of how governments pay for their daily operations does not apply over the longer term. The grave danger from issuing money, in particular, is that it will lead to a general rise in prices, known as inflation, something readily acknowledged by academic MMT supporters. They often argue that governments should use taxes to deal with this problem: taxes take money out of wider circulation, and by reducing the amount of money chasing goods and services, you reduce the pressure on prices.

His claim that this description of the monetary system is “readily acknowledged by academic MMT supporters” is a blatant misrepresentation of the MMT position. There is no such acknowledgement.

That aside, Meadway’s claim can be distilled down to the classic Monetarist assertion that increasing the ‘money supply’ in the economy reduces its value (via inflation).

First, Meadway’s mainstream textbook characterisation is not an accurate description of how government spending enters the system.

As noted in Part 1, government spending enters the economy via the central bank crediting the relevant bank accounts to facilitate the spending requirements of the treasury.

This process is not dependent on whether the fiscal position is in deficit or surplus and occurs whether the government issues debt or not.

To distinguish, as Meadway seems to, between spending that is “issuing money” from spending that is, presumably, “not issuing money”, is nonsensical.

All government spending involves currency entering the non-government sector, irrespective of what other operations might accompany it (such as issuing bonds).

Second, it is the government spending itself that carries the inflation risk.

Indeed, all spending (private or public) is inflationary if it drives nominal aggregate spending faster than the real capacity of the economy to absorb it. There is nothing particular about government spending in this regard.

But if the net government spending is purchasing real goods and services that are, for example, idle (which means there is no demand for them from the non-government sector, then such spending is unlikely to trigger inflation. A growing economy requires a growing volume of currency.

Further, there will be times that a policy ‘program’ does run into resource constraints – given there is sometimes likely to be a mismatch of idle capacity and required capacity.

For example, if the government pursues a major infrastructure project then they will likely need skilled tradepersons in the construction sector and the unemployed and under-employed might not have those skills.

So on those occasions, the government ambitions may require productive resources being diverted from current uses to government use, which requires additional policies to accompany the spending plans (taxes, regulation, etc).

These spending offsets are not related to the ‘funding’ of the spending, as might be popularly conceived (by Meadway and others), but are related to the fact that government spending is subject to real resource constraints (rather than financial constraints).

Further, these decisions then will reflect political judgements on what is best for the nation and have nothing to do with the capacity of the government to spend its own currency.

Third, what happens if the government issues debt to match the deficit?

All that happens is that the non-government sector exchanges cash for an interest-bearing asset. The central bank records this as a decline in the reserves held in the banking sector and an increase in another ‘account’ – government debt liabilities.

When the debt is repaid the numbers are reversed.

Fourth, issuing debt does not reduce the inflation risk attached to the spending despite what Meadway (channelling orthodox textbooks) suggests.

The funds to buy the debt were held in a wealth portfolio and were not being spent anyway.

If those funds were being spent by the non-government, then it is likely the required fiscal deficit to support well-being and high levels of employment would be smaller.

Further, in the event that the government spending hits resource bottlenecks, as noted above, issuing debt or not, does not alter the demand squeeze that the bottlenecks will create.

Fifth, what would happen if the government did nothing other than instruct the central bank to credit bank accounts to facilitate its spending plans?

This option has been referred to, unfortunately, as overt monetary financing (OMF) and has been advocated in recent years even by mainstream economists such as Ben Bernanke, former governor of the Federal Reserve, and Adair Turner, former chair of the British Financial Services Authority.

There would be no heightened inflation risk. The risk is in the spending.

The claim that Meadway makes – that the crediting of bank accounts by the central bank on behalf of the government is inevitably inflationary without accompanying debt issuance – has been thoroughly discredited by the evidence.

Central banks have created trillions of pounds/dollars/euros since the financial crisis, with little or no impact on inflation.

All that happens is that the net financial assets created by the deficits in the banking sector cannot be held in the form of interest-bearing bonds.

What happens if inflation accelerates?

Meadway introduces another straw person accusation: he claims that the only solution proposed by MMT to deal with inflation is:

… that governments should use taxes to deal with this problem: taxes take money out of wider circulation, and by reducing the amount of money chasing goods and services, you reduce the pressure on prices.

In this scenario, far from the transformative claims made by its online fans, we have ended up in a place remarkably similar to the hated mainstream of economics. Mainstream economics also acknowledges that inflation is an issue, but instead of saying taxes should be used to control it, its adherents, known as neoclassical economists, propose interest rates as a remedy.

First, there is nothing mainstream about dealing with inflation; on the other hand, obsessing about it, like Meadway does, is very mainstream indeed.

Second, it is remarkable that he holds himself out as a progressive, yet has been part of a policy-making team, that has designed the British Labour Party’s Fiscal Credibility Rule – which gives primacy to the Monetary Policy Committee – as the arbiter of when and if the Rule can be suspended in bad times.

The MPC sets interest rates to control inflation – which Meadway says is a hallmark of “neoclassical” economics – the “hated mainstream of economics”. But as we will see in Part 3, he holds this privileging of the MPC of the Bank of England out as the exemplar of fiscal credibility.

Somewhat ridiculous really – a very confused position.

Meadway also misuses literature when he writes:

But as two left-wing economists sympathetic to MMT, Arjun Jayadev, and J. W. Mason, have recently argued, this means that the only meaningful difference in policy terms between MMT and the mainstream on the central issue of managing inflation is whether the government should use taxes or interest rates.

I considered that particular article (Jayadev and Mason) in these blog posts:

1. The divide between mainstream macro and MMT is irreconcilable – Part 1 (September 10, 2018).

2. The divide between mainstream macro and MMT is irreconcilable – Part 2 (September 11, 2018).

3. The divide between mainstream macro and MMT is irreconcilable – Part 3 (September 12, 2018).

One of the points I made was that the authors were not discussing MMT at all despite their article being titled “Mainstream Macroeconomics and Modern Monetary Theory: What Really Divides Them?”

After that three-part response to their article, one of the authors (JW Mason) admitted via Twitter (December 31, 2018) that:

In August INET published “Mainstream Macroeconomics and Modern Monetary Theory: What Really Divides Them?” In retrospect we should have used different title, simce focus was on fiscal policy, not MMT generally. But I still think it moved convo forward.

In other words, trying to use this article as a source of commentary on MMT, as Meadway does, is dishonest. Even the authors (Mason’s tweet was retweeted by Jayadev) had to concede they had misrepresented what their article was about when it was first published.

Third, in fact, MMT identifies that if the inflation is due to excessive growth in aggregate spending (which is only one way inflation can arise), then that growth has to be attenuated.

There are a number of ways that attenuation can occur, tax rises being one of them. The government might choose to also cut spending in some areas.

As Scott Fullwiler, Rohan Grey and Nathan Tankus noted in their recent Financial Times article – An MMT response on what causes inflation (March 1, 2019):

When MMT says that a major role of taxes is to help offset demand rather than generate revenue, we are recognising that taxes are a critical part of a whole suite of potential demand offsets, which also includes things like tightening financial and credit regulations to reduce bank lending, market finance, speculation and fraud.

Further, they wrote:

Assessing the potential inflationary effect of new spending proposals also requires seriously assessing how underutilised our existing resources are. This requires detailed, expert analysis from a range of industry analysts; not just statistical regressions on aggregate economic data by macroeconomists.

That is, an MMT understanding also requires governments to be continually analysing real resource constraints ex ante and avoiding stimulus beyond those limits.

But if there is a need to attenuate spending growth in the economy, then MMT analysis demonstrates the superiority of an employment buffer stock approach (which is denoted the Job Guarantee) to replace the current unemployment buffer stock approach to inflation control.

When the government currently seeks to constrain spending growth, it creates unemployment to discipline wage demands.

Under neoliberalism, unemployment ceased to be a policy target (lower the better) and has become a policy tool to control inflation.

This is incredibly costly both in terms of income and personal losses.

MMT proponents advocate that the government would, instead, offer a public sector job at a socially inclusive minimum wage to anyone who seeks to work.

Redistributing labour from the inflating sector to the fixed price sector ensures price stability and avoids costly mass unemployment.

Why didn’t Meadway acknowledge this central aspect of MMTs approach to inflation?

After all, the Job Guarantee, the integral macroeconomic stability framework within MMT, is the only policy option that can be considered pure MMT.

Fourth, Meadway also compounds these errors by asserting that MMT is anti-democratic because:

… three pro-MMT academics writing recently in the Financial Times, who called for an ‘administrative agency’ to take responsibility for managing inflation via ‘aggregate demand’. So whilst the mainstream wants central banks to be ‘independent’ of democratic government when setting the interest rate, MMT expects an ‘administrative agency or agencies’ to do the same thing when setting taxes. Either way, democracy misses out.

The FT article referred to is the Fullwiler et al. article linked to above.

In fact, the Fullwiler article did not reach that conclusion.

Inasmuch at there was discussion of the possibility that we could replace one unaccountable technocracy (central bank) with an unaccountable fiscal agency, there was no hint that this was a core MMT proposition.

The authors were presenting their own opinion about this matter.

There is nothing in the core body of MMT work that would lead to outsourcing fiscal policy to a bunch of unelected technocrats.

That is a straightforward misrepresentation and lie from Meadway.

I considered the issue of creating independent fiscal authorities in Parts 2 and 3 of the blog posts cited above.

Further, their opinion expressed in the FT article runs counter to the views of the current authors (Thomas and I).

… to be continued.


In Part 3 we enter the murky world of politics – the British Fiscal Credibility rule (again) and more.

That is enough for today!

(c) Copyright 2019 William Mitchell. All Rights Reserved.

This Post Has 23 Comments

  1. It’s like delivering a crash course on MMT to them isn’t it?
    As I read your responses, I think this is the basics of MMT. A rudimentary search of the core authors works will reveal these answers.

    Whilst I think it is a product of all 3, I sincerely hope it is more the “product of ignorance and lack of research”.

  2. “There is nothing in the core body of MMT work that would lead to outsourcing fiscal policy to a bunch of unelected technocrats. ”
    I would just add that having advice (just like advice on potential bottlenecks from industry-specialist economists) does not mean the final say would not/could not be by the people’s Representatives.
    In other words, something like the FOMC/MPC in makeup would advise on things that are actually useful (as opposed to their silly infatuation with interest rate manipulation now), i.e., what industries might be building bottlenecks, how much total spending is advisable etc.

    There is, of course, nothing odd or undemocratic in an advisory board.
    At any rate, there is already a “fiscal agency” in the USA, UK etc. known as the House of Representatives and Honourable the Commons. The problems is not the lack of a fiscal agency but the lack of educated members within them, which ultimately stems from the economic literacy of the voting public. That is where the battle has always lain and where it still lies. It is ALL about education at the end of the day.

  3. Great post, as usual!

    Maybe a bit off topic, but regarding ‘Groupthink’ in economics, it also occurs in other fields. Below is a link to a Philosopher’s Zone podcast on how Analytical Philosophy excluded other forms of philosophy through the ‘peer review process’. I think this will resonate with readers of Economics (and other social sciences, too, such as Psychology).

  4. Grammar error: “To distinguish as Meadway seems to be inferring … “. I think you mean to say that Meadway is implying or suggesting, not drawing a conclusion.

    Meadway should have been seen as an embarrassment by Labour.

  5. People Bin Laden, Mercer, and Bannon all can do what they have done and been doing because of their purchasing power.

    America created all the terrorism with funding mujahadeen, and they won’t stop because it enriches the war merchants. Nobody said anything about that.

    Not a whiff when Trump raising military budget right after he got elected from these mainstream “left” characters, but if you want to give people free education (which they have to go to school and work for btw so its not “free.”) then everybody loses their minds.

    I still don’t get the concern about inflation. I don’t see them worry about asset price inflation housing prices. They only come out of the woodwork when you talk about policies to help people.

    If Bill gates buys 90 percent of chickens, i will bet wings prices will fly through the roof. Nobody would be concerned about his money but the fact he is buying all the chickens.

    MMT is anti-democratic? Looks who is talking!

  6. New ideas often require new language with which to express them and to distinguish them. What I see now is MMT struggling to explain itself in neoliberal language, inherently an uphill battle. MMT should talk about “government investment,” not “government spending.” MMT should talk about “positive or negative levels of government investment,” not budget deficits or surpluses. And MMT should come up with a different term to describe inflation, perhaps along the lines of a monetary signal to realign supply with demand. The words used to describe a phenomenon or an idea usually carry connotations, which can be favorable or unfavorable. For example, an “inheritance tax” has a different connotation than a “death tax.” “Medicare for all” has a different connotation than “socialized medicine” (at least in the States). To bring my point back to MMT, just ask yourself: when we talk about budget deficits and surpluses, trying to explain how the former is not necessarily bad and oftentimes necessary for a healthy economy, etc., are we not falling into the trap of implicitly reinforcing the “household budget” paradigm, which may be MMT’s greatest obstacle to overcome?

  7. Bill,
    I’ve been reading your blog for many years now and am hugely grateful for your service, as they say, since this really is a battle that could ease suffering and increase happiness for millions of people. However, even if it’s true, I think that using terms like “stupid” to characterize viewpoints or the persons who hold them will be counterproductive as MMT debates continue to gain a wider audience. At least “uninformed” might be better. I like your fiery language in general though, thanks!

  8. @Newton Finn

    “New ideas often require new language with which to express them and to distinguish them.”

    How do you want to prosecute a debate, with slogans or arguments?

  9. @Tom

    “I still don’t get the concern about inflation.”

    Ask the the average Venezuelan man in the street what he thinks of 1,000,000% inflation (or whoever’s estimate you want to use). An extreme case for sure but it should sheet the point home.

    In matters economic there is more uncertainty about the future than what might be healthy – inflation just adds to the uncertainty. Planning becomes very problematic. The purchasing power of money changes in unpredictable ways. Inflation might appear to favour borrowers but inflation is always accompanied by commensurately higher nominal interest rates. And of course, inflation messes with exchange rates in unpredictable but generally undesirable ways. (MMT claims there is no foreign exchange constraint so I would imagine you will ignore that point.)

    And I’m sure you will take comfort from the irony of asset price bubbles. The rich might think they’re gaining something but if they sell they have to use those funds to buy other assets at equally inflated prices – so they have effectively gained nothing. They could always buy another yacht but how many of those can you have and be more satisfied?

  10. Governments operate monetary systems exactly as described by MMT, and yet, the differences between government positions and the positions put forward by the MMT core group, the experts on this very system, as solutions to the standard economics problem set, never ceases to amaze.

    What puzzles, is how a system as poorly understood as it is evident it was and remains today, was adopted so rapidly and with little or no discussion or debate?

  11. Henry, as one who has made a living for some 36 years by “prosecuting a debate” as a litigator, I learned early on to phrase my narrative in MY terms, not in the terms of my opponent. Coming up with my own phrasing of the situation was half the battle. Why in God’s name does MMT continue to talk about “budget” deficits and surpluses when one its cardinal principles is to reject the entire idea of a currency-sovereign government operating with anything remotely like a household budget? The very use of the term “budget” implicitly reinforces the false neoliberal narrative. Or so it seems to me. This is not a matter of slogans but of using words and terms that, as they say, play your game, not the other guy’s.

  12. @Finn

    Some suggested words may help.

    I think Bill uses “fiscal statement” for the actual “budget” document.

    How about “portfolio” to neutralise the fiscal bias.

  13. @Henry

    I think Tom means the concern about the risk of inflation and not inflation itself. Nobody in full capacity of his senses would argue high inflation is no concern, but in the advanced economies of the world the risk of inflation is generally vastly overrated by “experts”. In your Venezuelan example, first came the drop in oil prices, then came Obama’s and now Trump’s sanctions, and only then followed the hyperinflation due to the historical reliance on imports for food and energy and their dependance on oil to purchase them. This is a more than an unlikely scenarion for the US, Germany or Japan. I’m interested in your statement about MMT and unexisting foreign currency constraints. I can’t help but thinking you might be oversimplifying a more complex issue, but I have to do some research first.

    I have a different take on your view regarding the rich gaining nothing from asset price bubbles. It might apply to the value of some of their stock, but if they buy up real assets with a portion of their wealth before the bubbles burst, they do come out with something to show for it. More importantly, they do buy politcal power for further “gaming the system” in their favor (think privatization), so that even if some or most value is lost when the bubble bursts, they are in pole position to re-enrich themselves.

    In ancient Greece, Socrates and Aristophanes stated that accumulating money is not like eating chocolate or any other consumable commodity. They said money is different because it is addictive. They refered to this as “aplêstia”: an insatiable desire. So if there is any irony to be found at all, it’s that the richest refrain from actually using their money even more for their own benefit, rejoicing instead at higher numbers displayed on a computer screen. Even more ironic is the fact that some of them aren’t even happy and are despised by the general public.


  14. @Samuel

    Interesting link, thanks.

    In fact, a similar writing was produced in regards of Physics and string theory by Lee Smolin: “The Trouble with Physics”. After some “difficult” encounters with dogma in the field, Paul Romer (not the first name you would associate with a renegade in economics) wrote his “The Trouble with Macroeconomics” piece, in which he harshly citiziced the work in the field since according to him ” it no longer qualifies as scientific research.”

    I won’t link to the piece but it is readily available online. I’ll allow myself to just include a small quotation out of the abstract, since I think it is absolutley on point and consistant with what MMT has been saying for decades:

    “The treatment of identification in macroeconomic models is no more credible than in the first generation large Keynesian models, and is worse because it is far more opaque. On simple questions of fact, such as whether the Fed can influence the real fed funds rate, the answers verge on the absurd.”

    “The larger concern is that macroeconomic pseudoscience is undermining the norms of science throughout
    economics. If so, all of the policy domains that economics touches could lose the accumulation of useful knowledge that is characteristic of true science, the greatest human invention.”

    I’m fairly sure Romer is refering to the DSGE models and Blanchard’s “haiku-like” rules that Bill has often and thoroughly “debunked”. It’s been a while since I read the whole thing and it was before I was aware of MMT, so I can’t really say much more than that I agree entirely with his particular description of mainstream macro as little more than a (bad) joke.

  15. Hermann, you might just love this. Romer’s post was reviewed by one Thomas Sargent who said, much to this effect, I haven’t read this and don’t intend to but it is obvious that Romer has done any serious scientific work in 25 years. That is the state of mainstream macro. It is outrageous.

  16. @ larry

    Im sure you meant to write “[…]hasn’t done any scientific […]”, to which I say: yikes.

    In effort to “shoot the messanger”; Sargent declares the 2018 “Nobel” laureate in economics (I know, Riksbank prize and all that…), who just a couple of years ago was heading the World Bank, too incompetent to formulate a valid criticism of macroeconomic research. It should follow then that the people that award the “Nobel” and the World Bank as an institution, both pretty much in the middle of said establishment, are not to be taken seriously, which is kinda Romer’s point to begin with.

    How some of these people come to terms with such cognitive dissonance is a mystery to me. Then again, accepting you are a modern day’s phrenologist is probably a pretty hard pill to swallow.

  17. Hermann, you are right. It was an awful typo. Modern day phrenologist. Very good. I don’t know how they live with themselves either.

  18. @larry

    Just reading back my own post to myself, there were way more typos in it than in yours, friend.


  19. Bill’s points about inflation fall just short of making a point that I have made before.
    Bill said, all money creation can be inflationary. However, he failed to give any examples of how in the recent past money creation by QE and by bank lending has let to examples of inflation in stock prices and in housing prices, respectively.
    . . Mortgage lending has led to inflation in house prices in several nations, incl. Aust.. Mainstream economists have never to my limited knowledge complained about this inflation. Why? My guess is because it works in favor of the already rich, that is, the ones who (at the end of the day) pay the economists their salaries. It also works in favor of another group of rich people, i.e. the bankers who are making the loans. “Never bite the hand that feeds you,” as the saying goes.
    . . QE [IMHO] has led to a rise in stock prices. [to quote myself,] “Mainstream economists have never to my limited knowledge complained about this inflation. Why? My guess is because it works in favor of the already rich, that is, the ones who (at the end of the day) pay the economists their salaries. “Never bite the hand that feeds you,” as the saying goes.”
    . . People are being damaged by both kinds of inflation, but MS economists never complain about this. They don’t even seem to count house and stock price shifts as part of any calculation of inflation, i.e of any calculation of any CPI. Why is this? Really, someone jump in here and give us your idea of why MS economists don’t track inflation of house prices and stock prices as any kind of inflation. It seems to me that even MMT economists don’t see this process as a kind of inflation. I think it was Stephanie Kelton who said that America had not had any cash push [as opposed to cost push] inflation in several decades.

  20. @Steve_American

    Steve, I have often thought of what you say as well and think our confusion might merely be due to terminology. What you describe, I think, is referred to as asset-price-inflation, which is either weighted out or not considered at all in the averages in the (change in) prices of a selection of purchasable goods that is used to calculate inflation, e.g. the consumer price index (CPI).

    As you state, the effect of QE is better reflected in rising real estate prices and inflated stock prices. Michael Hudson has an entry in his “The Insider’s Economic Dictionary” related to asset-price-inflation. Here are some quotes that relate to your observation:

    “[Asset-price-inflation is a] policy in which the banking system recycles savings and extends new credit to finance the purchase of real estate, stocks and bonds so as to create windfall gains […]”

    “Meanwhile, property prices are inflated by steering mortgage credit into real estate, lowering interest rates so that higher mortgage debts can be carried, and loosening the terms of mortgage lending, reducing the down payments needed yet minimizing the repayment of principle by stretching out the loan maturity.”

    “Higher asset prices often are welcomed as increasing net worth (and hence the balance sheet of wealth), as long as the rise in market prices outpaces the growth of debt.”

    Particularly the last part about the pace of the growing (private) debt reminds me of R. Wray’s “Minsky moment”-warnings around the GFC. He published a paper on that with E. Tymoigne in 2008 called “Macroeconomics Meets Hyman P. Minsky: The Financial Theory of Investment” which I think is freely availabele online. More recently, in 2018 in a paper for the Levy Economics Institute of Bard College, he “[…] makes the case that the United State is far more likely to “win” the race to the next “Minsky moment.” Instead of sustainable growth, we have “bubble-ized” our economy on the back of an overgrown financial sector-and to make matters worse, he concludes, US policymakers are ill-prepared to deal with the coming crisis.”

    The “hidden inflation” you and I think of manifests itself in this “bubble-ized” economy, hence, I think it’s safe to say the “Core-MMT-group” is well aware of the issue.


  21. Henry Rech. Do you know what a troll is? He’s an ugly guy who hides under a bridge he doesn’t own, and when others come along to cross he jumps out and demands a rent. Then one day he messes with a big goat, who knocks him for a loop.

    I think people are realizing you’re a troll: someone trying to inhibit and stop learning and understanding. You are against learning and truth. All this time you haven’t learned a thing about MMT, and your objections display your ignorance.

  22. Yok,

    You are entitled to your opinion just as I am to mine.

    However, name calling is not the way to win arguments in fact it is evidence that the proponent of an argument is running out of arguments.

    I have invested considerable time and money trying to understand MMT – I don’t lap things up as they’re fed to me. I enquire and ask questions. I endeavour to understand as best I can.

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