MMT’s Fatal Flaw #1 – Measuring InflationI suspect quite a few people view it this way.
The first flaw is in the measurement of inflation. In the article mentioned above, we state:
“Inflation is impossible to calculate. Inflation is impossible to calculate. No, that is not a typo. For emphasis, let us put it another way. Inflation is impossible to calculate.
The point that inflation is impossible to calculate cannot be overstated.”…
MMT’s Fatal Flaw #2 – Political Willpower
The second and more vexing problem with inflation is politicians’ willpower and vested interests. Should we expect elected officials to reduce spending and raise taxes when inflation is problematic? One needs only to consider the current environment when answering the question....
Inflation is MMT’s fatal flaw. Inflation is the fly in MMT’s ointment.
The current high inflation episode exposes MMT’s fatal flaw. Despite the flaw, we suspect the push for MMT will continue, and the rules around inflation will change, allowing for more inflation. Without stringent inflation guidelines [contradiction: he says inflation cannot be measured] and willpower, MMT is nothing more than a printing press for the government....
Historically, MMT-like schemes have always resulted in default. We do not doubt that the adaption of MMT leads us on that same path.
Thursday, December 23, 2021
MMT’s Fatal Flaw: Political Willpower — Michael Lebowitz
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18 comments:
I have questions.
How are these "flaws" unique to MMT? Did not inflation occur before the MMT perspective became widespread? Does the absence of political will only become a problem when MMT is being discussed?
Everything that doesn't meet the approval of the .1% is fatally flawed.
Ecomomists can't agree on what causes inflation. Warren Mosler argues just increasing bank rate causes inflation a mainstream economist's favorite tool. I'm bored with MMT critics they never hit any relevant spots!
See Scott Fullwiler, Rohan Grey and Nathan Tankus, An MMT Response on What Causes Inflation
“Inflation” is a figure of speech you can’t specifically it… it’s not a technical term…
We technical people are laughing at you Art degree morons still using it..
The main problem is you Art degree people… humanity would do well to get rid of you people.,,
Humans would be doing a lot better (materially) without you Art degree morons.,,
Think about that you add no material value.., what good are you?
Think about it…
Where should you contribute?
The problem is not the figure of speech “inflation” …
The problem is you Art degree moron people among us that think using a figure of speech in technical investigation is a good idea…
If we could get rid of you people we could get rid of “inflation” for good…
You shouldn’t be allowed to breath the same air..,
If the earth was justified…
“ The current high inflation episode exposes MMT’s fatal flaw. ”
lol MMT says that increased govt spending when nongovt sector goods/services supply is depressed (pandemic shutdowns) exactly leads to “inflation” which is what we are seeing… so how is this a “flaw” in MMT?
What an Art degree dope…
Who is this guy?
No CV… I smell the stench of Art Degree all the way… no info available.., have to assume,,,
"Should we expect elected officials to reduce spending and raise taxes when inflation is problematic?"
MMT says specifically that you don't raise taxes when inflation is problematic. There is no reactive process where politicians make discretionary stabilisation decisions because they can't do that fast enough. Same with interest rate rises. MMT shows how that is both backwards and counter productive. So you don't bother.
What you do is asses the economy in real terms and understand where the bottlenecks are, and why that isn't being resolved via market action.
Price rises are always a sign that competition isn't working as we want it to work - the quantity expanders are not outcompeting the price expanders. Therefore the competition authorities should be all over price rises, shutting down and breaking up firms that have gained monopoly power to raise prices.
Those forced failures and increased competition then transfers people from higher paid jobs to the Job Guarantee, which then eliminates inflation. *Both* excessive profits *and* unsustainable wages are purged from the market.
Where there is a genuine unresolvable shortage of essentials you use rationing - as you would in war time. Otherwise you turn competition up to 11.
It's not a difficult concept to grasp.
MMT says specifically that you don't raise taxes when inflation is problematic. NeilW
That's news to me. But I guess MMT continues to evolve - except in the direction of ethical finance.
Raising taxes to control for inflation has always been a pedagogical tool to get the broader concept of automatic stabilisers across, some of which in effect as tax rises thus they become endogenous to the system not an exogenous reaction function
The Cato institute (Koch-funded, so no tree huggers!) published a study of 56 hyperinflationary episodes throughout history. How many did some central bank run amok trigger? Answer: none.
Ever and always (yes, even Zimbabwe & Weimar) the problem was a shortage of goods, often with a balance of payments problem. In Zimbabwe, the exiting Rhodesian colonial farmers left less-expert natives behind, and there was a shortage of food. The necessity for imports gave Zimbabwe a balance of payments problem too.
In Germany, they were slow to deliver some telephone poles that were part of the WWI reparations, so the French sent their army into the industrial heartland of Germany (the Ruhr), and shut things down. The shortage of goods, coupled with the balance of payments problem created by the need for reparations led to wheelbarrows of deutchmarks for a loaf of bread.
In the U.S. conventional (non-fracking) oil production peaked in 1971. When the Arabs applied the "oil weapon" and withheld some of this critical commodity, it was the first time the U.S. couldn't produce its way out of a shortfall. The price of a barrel of oil in 1971: $1.75. That price quadrupled overnight, peaking at $42/bbl in 1982. The price receded when Alaska's North Slope came online, just after that, but the shortage of this critical commodity, not action by the Fed, or a change in Federal fiscal policy, was what triggered the stagflation of the '70s.
Who's in charge of the supply chain?
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