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....Like I have been saying — exogenous shock of the pandemic coupled with energy issues arising from beginning to address climate change.
Bill Mitchell – billy blog
Covid-specific inflationary pressures are dominant and are transitory
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia
The new MMT online course is beginning now and there is still time to join. Scroll down to the bottom of Bill's post for info.
7 comments:
Supply side inflation rather than "they printin' money'" inflation.
MMT or taxation won't help you deal with the former.
A massive trucker's strike may help expedite a transition...
"MMT or taxation won't help you deal with the former."
Taxation will. Transaction friction will continue to drop demand until the excess supply capacity condition necessary to allow competition to keep prices under control. The more transactions, the bigger the transaction, the more tax.
Eventually the auto-stabilisers will rectify the situation - as long as the government can keep their hands off the bail-out/indexation button.
When there are insufficient goods to meet demand, the merchant will raise the price. If not, a shortage occurs. No government intervention required for a market solution.
Worst case scenario: rationing.
The 'professional' mainstream economists will blame MMT for inflation, and make no distinction between supply chain issues and government spending.
Pundits will blame Biden.
"When there are insufficient goods to meet demand, the merchant will raise the price. "
Yes they will raise the price, but the wages they pay to fund that price have been taxed, so the price can't stand. That is the plans to reality point that both Keynes and Kalecki make.
Call it the disappointment theory of inflation. Prices only remain stable when all players are scared that if they raise prices they won't get anything at all.
Until then you have to pile on the disappointment. And counter the propaganda.
Canadians may be disappointed at gasoline selling for 1.53 per liter, but that price ain't going down because consumer wages can't afford it.
What else is a retailer to do, when their supplier raises prices?
As long as the price of a bus ticket hasn't changed, the transit authority is absorbing the loss imposed by higher fuel prices. If the government wanted to help, subsidies or tax cuts for transit providers may be the answer.
With regard to the supply chain issue, we're seeing empty shelves instead of price increases. This may be due to a perception that this problem is temporary.
Disappointment theory has to describe a quantitative decrease in the standard of living.
In the extreme situation, only the wealthy are able to afford gasoline, food, etc.
Prices do not come down, and government is forced to impose rationing. At which point, the market mechanism for distribution of goods is suspended.
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