An economics, investment, trading and policy blog with a focus on Modern Monetary Theory (MMT). We seek the truth, avoid the mainstream and are virulently anti-neoliberalism.
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Tuesday, February 12, 2019
Brian Romanchuk — A MMT View On The Theory Of Hyperinflations
Now that MMT is in the news big time, it's high time to repost a link to Brian's post on MMT and hyperinflation.
Links on Brian Romanchuk’s ‘A MMT View On The Theory Of Hyperinflations’
Economics as tireless production of proto-scientific toilet paper: inflation theory as an example https://axecorg.blogspot.com/2018/09/economics-as-tireless-production-of.html
MMT was right all along: Gov-Deficits do NOT cause inflation https://axecorg.blogspot.com/2017/10/mmt-was-always-right-gov-deficits-do.html
MMT: Distribution is the drawback NOT Inflation https://axecorg.blogspot.com/2019/02/mmt-distribution-is-drawback-not.html
Brian Romanchuk’s 20114 article is far too convoluted for my taste/intellect. But he is broadly correct in summarising MMT writers regarding hyperinflation: “Various MMT economists ... have tended to correctly point out that hyperinflation is associated with a country with large foreign currency liabilities and a collapse in its productive capacity. In other words, a hyperinflation is just the death throes of an economy.” . This account has several weaknesses: (a) Borrowing in foreign currencies can be justified for many countries without risking hyperinflation. It is just plain incorrect to regard large foreign currency liabilities as either a necessary or sufficient requirement for hyperinflation. Venezuela had quite low “internal” and “external” debts when the current hyperinflation started. https://www.economics.utoronto.ca/diegor/research/MFHLA_paper.pdf . (b) What left-wing MMT writers fail to emphasise is the obvious point that most hyperinflations were caused by EXCESS DEMAND, not just supply side changes. Most hyperinflations were indeed associated with large declines in the supply of goods onto the domestic market e.g. due to reparation payments, or collapses in productive capacity resulting from populist, protectionist and socialist policies (Weimar, Argentina, Zimbabwe, Venezuela, etc. ) But all these hyperinflations were simultaneously associated with a failure of governments to prevent excess demand by cutting government spending raising taxes. These economies were trying to operate beyond the “inflation barrier”. . It seems that cutting government spending and raising taxes is not a natural instinct in the thought processes of most MMTers.
But all these hyperinflations were simultaneously associated with a failure of governments to prevent excess demand by cutting government spending raising taxes. KongKing
Except modern economies run off private bank deposits, not fiat itself*, and the banks themselves can also create bank deposits ("Bank loans create bank deposits.")
*Even physical fiat, coins and bills, is almost always redeemed bank deposits since governments don't typically pay via coins and bills but by check and direct deposit. True, government checks can be cashed without a bank account but for a fee.
It seems that cutting government spending and raising taxes is not a natural instinct in the thought processes of most MMTers. KongKing
In my experience, de-privileging "the banks", i.e. depository institutions, is what's truly unthinkable to most, including (especially?) economists and certainly including almost (if not all, excluding myself) MMT advocates.
Links on Brian Romanchuk’s ‘A MMT View On The Theory Of Hyperinflations’
ReplyDeleteEconomics as tireless production of proto-scientific toilet paper: inflation theory as an example
https://axecorg.blogspot.com/2018/09/economics-as-tireless-production-of.html
MMT was right all along: Gov-Deficits do NOT cause inflation
https://axecorg.blogspot.com/2017/10/mmt-was-always-right-gov-deficits-do.html
MMT: Distribution is the drawback NOT Inflation
https://axecorg.blogspot.com/2019/02/mmt-distribution-is-drawback-not.html
Egmont Kakarot-Handtke
Don’t feed the link spamming troll.
ReplyDeleteBrian Romanchuk’s 20114 article is far too convoluted for my taste/intellect. But he is broadly correct in summarising MMT writers regarding hyperinflation:
ReplyDelete“Various MMT economists ... have tended to correctly point out that hyperinflation is associated with a country with large foreign currency liabilities and a collapse in its productive capacity. In other words, a hyperinflation is just the death throes of an economy.”
.
This account has several weaknesses:
(a) Borrowing in foreign currencies can be justified for many countries without risking hyperinflation.
It is just plain incorrect to regard large foreign currency liabilities as either a necessary or sufficient requirement for hyperinflation.
Venezuela had quite low “internal” and “external” debts when the current hyperinflation started.
https://www.economics.utoronto.ca/diegor/research/MFHLA_paper.pdf
.
(b) What left-wing MMT writers fail to emphasise is the obvious point that most hyperinflations were caused by EXCESS DEMAND, not just supply side changes.
Most hyperinflations were indeed associated with large declines in the supply of goods onto the domestic market e.g. due to reparation payments, or collapses in productive capacity resulting from populist, protectionist and socialist policies (Weimar, Argentina, Zimbabwe, Venezuela, etc. )
But all these hyperinflations were simultaneously associated with a failure of governments to prevent excess demand by cutting government spending raising taxes.
These economies were trying to operate beyond the “inflation barrier”.
.
It seems that cutting government spending and raising taxes is not a natural instinct in the thought processes of most MMTers.
But all these hyperinflations were simultaneously associated with a failure of governments to prevent excess demand by cutting government spending raising taxes. KongKing
ReplyDeleteExcept modern economies run off private bank deposits, not fiat itself*, and the banks themselves can also create bank deposits ("Bank loans create bank deposits.")
*Even physical fiat, coins and bills, is almost always redeemed bank deposits since governments don't typically pay via coins and bills but by check and direct deposit. True, government checks can be cashed without a bank account but for a fee.
It seems that cutting government spending and raising taxes is not a natural instinct in the thought processes of most MMTers. KongKing
ReplyDeleteIn my experience, de-privileging "the banks", i.e. depository institutions, is what's truly unthinkable to most, including (especially?) economists and certainly including almost (if not all, excluding myself) MMT advocates.
protectionist and socialist policies (Weimar, Argentina, Zimbabwe, Venezuela, etc. )
ReplyDeleteAll these countries have had outside economic pressure from other nations.
It seems that being poorly educated about the examples one use to prove a point is the natural instinct of KingKong.