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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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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Single-payer health care should be funded by the federal government

Here is my Wednesday news blog post which ends as usual with some music – today some consummate guitar playing. Today, I discuss the dispute about M4A in the US and clear up some misconceptions. Many think that Medicare for All is defunct in the US because the ruling party – the Democrats have essentially rejected the lobbying attempts. Some people who have associated themselves with Modern Monetary Theory have, it seems, been advocating a state-based campaign to get single-payer schemes installed at that level. Is this a violation of MMT principles? Some think so. I do not. It might reflect ignorance of the nature of the sector but it doesn’t amount to a rejection of MMT. Anyway, I am a federalist and I explain why. I also bring attention to some anti-colonial struggles in the Caribbean.

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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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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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Participation in our MMTed edX MOOC – gender, education and geographic breakdown

Today’s blog post is a little different. Yesterday, the second running of our MMTed edX MOOC – Modern Monetary Theory: Economics for the 21st Century – came to an end after running for the last 4-weeks. This is a free course developed by the University of Newcastle and – MMTed – which provides an introduction to Modern Monetary Theory (MMT). The course is self-paced and contains a range of learning materials (videos, text, discussion forums, assignments, exercises, games, etc). After two years of offering, I thought you might like to see some statistics that relate to who participated in the course broken down by gender, educational background and geography. I have more data than I present today which I am examining as a way of understanding patterns of behaviour. We will use this data to improve our MMTed course offerings, as our funding base permits.

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The Weekend Quiz – February 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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Covid-specific inflationary pressures are dominant and are transitory

There has been some very interesting data and other research published recently that allow us to more fully understand what is driving the current inflationary pressures. There is a massive lobby now pushing the idea that the central bank bond-buying programs and the rising fiscal support during the pandemic are responsible. This sort of narrative is coming from the mainstream economists who are suffering attention-deficit disorders (even though they get the top platforms all the time to preach their views), and, who in the last few weeks have become increasingly vehement and personal in their attacks on Modern Monetary Theory (MMT). Their actions are a sign that the cognitive dissonance is getting to them and they realise they have been left behind. But the evidence that is continually coming out across a number of indicators continues to reaffirm my view that the current inflationary spikes are being driven by the total abnormal circumstances the world has found itself in as a result of the pandemic. The usual institutional and structural drivers of an inflation – which were certainly prominent in the 1970s – seem to be absent at present. I will present further research next week on this topic as I build further evidence.

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US labour market – employment and participation up, but still no obvious wage pressures

Last Friday (February 4, 2022), the US Bureau of Labor Statistics (BLS) released their latest labour market data – Employment Situation Summary – January 2022 – which reported a total payroll employment rise of only 467,000 jobs in December and a rise in the participation rate – which often leads to a rise in the unemployment rate as marginal workers outside the labour force sense their opportunities for work are now better. Employment growth accelerated in January 2022 which reverses the recent trend. 0.3 points decline in the official unemployment rate to 3.9 per cent, while participation was unchanged at 61.9 per cent. While the US labour market is still creating work – it is doing so at a declining rate and there are unequal patterns across the industrial sectors. The US labour market is still 2,875 thousand jobs short from where it was at the end of February 2020, which helps to explain why there are no fundamental wage pressures emerging. 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 – February 5-6, 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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Income support for children improves brain development

When I first came up with the idea of a buffer stock employment approach to maintain full employment and discipline the inflationary process (back in 1978), the literature on guaranteed incomes was still in its infancy. The idea of a basic income guarantee was still mostly constructed within the framework Milton Friedman had laid out in his negative income tax approach, which I first came across when reading his 1962 book Capitalism and Freedom, while I was an undergraduate. I wasn’t taken with the idea and the preferred an approach to income security that not only integrated job security but also had a built-in inflation anchor. When I developed that idea, inflation was still conceived of the main problem and governments were fast abandoning full employment commitments because mainstream economists told them TINA. I thought otherwise. However, as I developed the buffer stock approach further in the 1990s as part of the first work that we now call Modern Monetary Theory (MMT), nuances about additional cash transfers became part of our approach. I refined those ideas in work I did developing a minimum wage framework for the South African government in 2008. I was reminded of all this when I read a report in New Scientist last week (January 24, 2022) – Giving low-income US families $4000 a year boosts child brain activity. Some might think this justifies the BIG approach, whereas it strengthens the case for a multi-dimensional – Job Guarantee.

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Australia – inflation mania is alive and well but running on fumes!

There is an increasing frequency of articles appearing in the financial press in Australia about how inflation is back and that the RBA had better start hiking rates and stop buying government debt. Warnings to home buyers that mortgage rates are about to go through the roof. And all that sort of stuff. Moronic. If you examine today’s data release from the Australian Bureau of Statistics – Consumer Price Index, Australia (January 25, 2022) – which relates to to the December-quarter 2021, you might be wondering what the fuss is all about. Inflation rose slightly in the December-quarter 2021 and was driven by rising automative fuel costs (uncompetitive cartel and deliberate government petrol tax policies), global supply chain disruptions (pandemic) and material shortages (supply chain and bushfires). Not much more to see than that really. I note the same journalists are out there beating the inflation mania drum. Don’t they get sick of being wrong all the time. Their wages should be linked to their predictive capacity – they would starve!

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Euro area inflation is not accelerating out of control

Last week (January 20, 2022), Eurostat released the latest inflation data – Annual inflation up to 5.0% in the euro area – which followed the release from the US Bureau of Labor Statistics data (January 12, 2022) – Consumer Price Index Summary , the latter, which shocked people, given that it recorded an annual inflation rate of 7 per cent before seasonal adjustment. The Euro area inflation rate over the same period was published as 5 per cent. It is obviously hard to see clearly through the data trends given the amount of pandemic noise that is dominating. But I stand by my 2020 assessment (updated several times since) that we are still seeing ephemeral price pressures as a result of the massive disruption the pandemic has caused to production, distribution and transport systems. In a sense, I am surprised the inflationary pressures have not be greater.

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The European conservatives are organising while the progressives fight among themselves

I read an article in the Frankfurter Allgemeine Zeitung (FAZ) yesterday (January 16, 2022) – Ich hoffe auf Deutschland – which made me laugh really. Comedy in absurdity. It also told me that the forces in Europe are firmly against any major progressive change. I considered this issue last week in this blog post – German threats of exit rely on the ignorance of others reinforced by Europhile progressives (January 11, 2022). I know progressives thought that the invocation of the Stability and Growth Pact escape clause in 2020 as the pandemic took hold might have been a sign that things were changing in Europe after years of austerity bias. But as the days pass, more evidence mounts that there is a status quo that is being managed and it won’t be long before we see the familiar claims about excessive deficits and debt. The latest input comes from Austria’s new Finance Minister, Magnus Brunner who was reported in the FAZ article as saying that he rejects a debt union outright and hopes to win over the new German government to ensure they hold the fort. With the new German finance minister also of a similar if not more extreme persuasion about sound finance, I do not think he will have much trouble convincing the German. He also signalled that he wants to use a coalition – the “Staaten der Verantwortung” (States of Responsibility) to maintain discipline in the Eurozone. The short period of fiscal flexibility is coming to an end. Meanwhile, with the French Presidential election approaching, the Left is fighting among itself for peanuts. The old guard is not about to fall yet.

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More evidence that the current inflation is ephemeral

When I am asked whether I still consider the recent bout of inflation to be transitory, I say that transitory means as long as the pandemic disrupts the balance between supply and demand. Note: demand. I have been getting lots of E-mails telling me that Modern Monetary Theory (MMT) is a fraud because of the inflation spike and our denial of the demand (spending) involvement. Apparently, the data shows that large fiscal deficits and central bank bond-buying programs are always inflationary. Good try. I last provided data and analysis of this issue in this blog post – Central banks are resisting the inflation panic hype from the financial markets – and we are better off as a result (December 13, 2021) – where I made it clear that the spikes are a unique coincidence between abnormal, pandemic-related demand and supply patterns. That couldn’t be clearer. And when that sort of imbalance occurs, with the addition of cartel-type price gouging (which has nothing to do with fiscal or monetary policy settings) then MMT predicts a nation will encounter inflationary pressures. The idea that the economy is defined by periods below full capacity when there will be no inflation and beyond full capacity when there will be inflation is not part of the MMT body of knowledge. It is more complicated than that dichotomy which we address in our textbook – Macroeconomics. Supporting this view, is a recent ECB research paper, which uses fairly advanced econometric techniques to decompose one measure of inflationary expectations in a component that reflects short-term risk and another that reflects longer term inflationary expectations. They find the former is driving the current inflation trajectory while the latter is largely stable. That means, in English, that the current inflation is likely to be of an ephemeral nature driven by how long the pandemic interrupts supply chains.

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The Weekend Quiz – January 15-16, 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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When ABC journalists mislead the public and spread fiction

There is a difference between a journalist reporting news about economics and money and a journalist writing an opinion piece. In the first instance, the responsibility of the journalist is to ensure they cover the topic in a balanced way, seeking input from all viewpoints if the topic is controversial, as most topics in economics are. Too often journalists in this situation allow themselves to be used as mouthpieces for specific viewpoints, sometimes because they are coerced by editorial deadlines. Often they just uncritically summarise press releases put out by some group or another and represent the material as fact. In the second case, when a journalist is writing an analytical piece they are holding themselves out as experts. Then they better get it right. Usually, when they are writing about macroeconomics they do not get it right because they merely rehearse mainstream thinking, which most people by now should realise is off the mark. A case in point was a recent Op Ed (represented as analysis) published by the economics reporter at the ABC (January 10, 2022) – How the banks may profit from the taxpayer as COVID quantitative easing winds down. It is full of errors that journalists make when they don’t exactly understand the material they are dealing with. This should have been worked out during the GFC, when these issues arose in the general media. The fact that the same errors are being made more than a decade later doesn’t suggest any learning has taken place.

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German threats of exit rely on the ignorance of others reinforced by Europhile progressives

I read a story in the German press – Der Euro auf dem Prüfstand (‘The euro on the test bench’, published January 7, 2022) – which reinforced my view that progressives who think the harsh austerity-bias of the Economic and Monetary Union (EMU) have vanished with the invocation of the ‘general escape clause’ within Article 126 of the Treaty of the Functioning of the European Union when the pandemic arrived are off the mark. And when the same commentators/thinkers welcomed the end of the Merkel era and the dawning of the new German government, their assessment reflected that they are trapped within the TINA to the euro thought process. Well, economists with influence in Germany certainly don’t think that and one of the bosses of the Kiel Instituts für Weltwirtschaft (IfW) (Kiel Institute for the World Economy), which is a German research institute, has called for the topic of German exit from the EMU to be debated. He believes that this will put pressure on the other Member States (particularly the so-called “Achse Paris-Rom” (Paris-Rome axis) to abandon any thought of relaxing the economic and monetary rules and force the ECB to tighten monetary policy again. The iron gauntlet of ‘schwarze Null’ is still firmly gripping the European debate.

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US labour market cannot be healthy with rising numbers of sick people

Last Friday (January 7, 2022), the US Bureau of Labor Statistics (BLS) released their latest labour market data – Employment Situation Summary – December 2021 – which reported a total payroll employment rise of only 199,000 jobs in December and a 0.3 points decline in the official unemployment rate to 3.9 per cent, while participation was unchanged at 61.9 per cent. While the US labour market is still creating work – it is doing so at a declining rate and there are unequal patterns across the industrial sectors. The US labour market is still 3,572 thousand jobs short from where it was at the end of February 2020, which helps to explain why there are no fundamental wage pressures emerging. Any analyst who is claiming the US economy is close to full employment hasn’t looked at the data. The failure to introduce a renewed fiscal stimulus will definitely leave the economy worse off, especially with the renewed virus onslaught from Omicron.

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The ECB is facing a crisis – rising inflation and risk of Member State insolvency – how to make a problem

The Eurozone continues to stumble on, held together by the vast bond-buying program of the ECB, which has saved several Member States from insolvency over the last several years. While all the talk at present has been about what to do about the punitive and unworkable fiscal rules in a post-pandemic (when will that be?) period, when the emergency waivers of the Excessive Deficit Mechanism procedures are withdrawn, the reality is that under the current architecture, the only thing that keeps the currency union intact is the ECB acting outside of the legal structures set down by the treaties. Yes, I know full well that the elites have massaged the public into believing that there is no breach of the no bailout clauses, but the reality is different. The ECB is (indirectly) funding Member State fiscal deficits through its massive asset purchasing programs, the two relevant ones being the PSPP and the PEPP. And ever since they introduced the Securities Market Program (SMP) in May 2010 they have been providing funding to Member States to allow them to run fiscal deficits while maintaining low bond yields. With the Pandemic Emergency Purchase Programme (PEPP) scheduled to end in March 2022, the fears are growing that Italy will be the first Member State to succumb to the bond markets – the yields on debt will rise because the investors appreciate the credit risk and will know they cannot offload as much debt onto the ECB in the secondary markets. The fact that these fears are becoming more widespread should tell you that the role of the ECB is exactly what I say it is rather than the ‘maintaining order in investment markets’ spin that the ECB runs as the smokescreen.

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