Inflation data continues to come in from various nations indicating an ongoing escalation in prices dominated by energy and cars (in the US), housing and transport (UK), housing and transport (Australia) and so on. The major question I always ask is this: What would you expect to happen after a major global pandemic that has lasted more than 2 years and is still not resolved and which has closed factories, ports, transport networks, made workers sick so they cannot work, choked shipping, kept people at home while governments have to varying extents maintained their income, shifted spending to home maintenance etc away from haircuts, and the rest of it. And then, add an uncompetitive cartel that manipulates supply to gouge profits (OPEC). And on top of all that have some bushfires and floods around the place. And to even top all of that have a character who thinks he is a Tsar invading a neighbour and creating havoc and destruction. What else would you expect? Oh, its all down to QE and fiscal deficits, I hear them say. Modern Monetary Theory (MMT) again – now we know those ideas are defunct. We told you so! And repeat. Interest rates have to rise. Repeat. At least the ECB seems to understand the situation more than most, which is something.
Bill knows a lot more than I do about this, but from where I sit it seems to me that there are too many balls in the air to come to any conclusion on the matter, especially in that mixed among the balls are some sharp knives.
There are two types of uncertainty, epistemological uncertainty and ontological uncertainty. Epistemological uncertainty arises when it is not possible to calculate risk owing to known unknowns, e.,g, in designing a statistical model, as Lars Syll has explained in detail. Ontological uncertainty arises from unknown knowns resulting from changing conditions in a complex adaptive system subject to synergy and emergence.
There are three factors affecting supply — war, pandemic, and climate change, i.e., weather. The problem with "inflation" right now is not demand side but rather supply side, involving shortages and pass-through price rises, in particular energy but also other vital resources like metals and minerals that affect, for instance chips and fertilizer.
These conditions infect the world system as a whole and thereby the global economy, trade, and resource availability. It always comes down to availability of real resources and there is considerable uncertainty here. For example, the US and NATO are inviting (or preparing) a false flag involving the use of chemical weapons in Ukraine that will be blamed on Russia. Such a scenario is likely, given the history false flags, and Western leaders are priming the pump with their warnings, knowingly or unknowingly.
This could completely alter the dynamic suddenly. It could and likely would deprive Europe not only of Russian energy but also natural resources. What would the effect of that be on the European economy and the world economy. Would it be inflationary or deflationary?
The current inflation still looks to be a transitory phenomenon
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia
14 comments:
Academic living a comfortable lifestyle opines about inflation. What's the agenda here?
"The problem with "inflation" right now is not demand side but rather supply side,"
Price rises are always both demand side and supply side at the same time.
Stable prices only come about when there is excess capacity to supply into a market and firms are scared to raise prices because that won't lead to increased turnover (they'll lose more sales than they gain in income from the price rises). Workers are similarly scared to ask for more money because they believe the firm will just let them go, or replace them with somebody else.
Firms that plan higher prices leave disappointed. Workers that plan higher wages leave disappointed.
Once a firm gets a sense that they have pricing power, they will always ask for more money as that is the easiest way to get more turnover. For that to happen there has to be sufficient demand capable and willing to confirm the higher prices requested.
What MMT people seem to be missing is that people *really* don't like price rises at all. The rejection of Keynesianism is the population's rejection of the semi-inflation resolution process. Neoliberals realised this and jump all over any sort of price rise, creating demand destruction to stop the price rises *quickly*. If that creates vast unemployment, so be it. Politically 10% annoyed at being unemployed or threatened with unemployment is better than >50% annoyed at prices going up.
People who don't like price increases, can try rationing. During WWII, the US government saw fit to issue ration coupons. It was a repudiation of market solutions.
Good point Neil in us it is the number 1 concern …
Biden people have given the task to the Fed to stop it.,,
While many people think that demand side inflation comes from government overspending, most economists set the criterion for demand side inflation as rising labor costs owing to increasing labor power as full employment approaches. Then the central bank is supposed to increase interest rates to "cool the economy," which increases inventory build up, leads to recession and layoffs, which in turn "corrects for" rising labor cost through increasing labor power at full employment by artificially increasing unemployment through policy. This is the NAIRU scenario.
But this is not the case now. The classic reason of supply side inflation is supply shock, which is the case now.
Economist think of inflation in term of a scissors model of supply and demand interaction in liquid markets with flexible prices.
There are therefore two ways to address inflation, either reduce demand or increase supply. They also assume that inflation occurs at full employment, so that supply cannot be increased and therefore demand must be decreased. So the strategy is to increase interest which makes borrowing more expensive. In a credit based economy, increasing borrowing costs is deflationary.
Again NAIRU and again, that is not happening now, where the problems are chiefly supply shock and corporate pricing power.
"While many people think that demand side inflation comes from government overspending"
After watching the power to close for a month - Why is that?
Why do the population think that way ?
The into propaganda is no different to what is being used in the war.
These psychos are not finished with MMT yet. It won't get a mile near the corridors of power.
They'll cancel it .
The economics of globalism, neoliberalism, EU expansion, NATO expansion has served them well. The economics of colonial rent seeking.
Why the shit show was set up in the first place.
I fear you are deluding yourselves trying to reason it out.
Continue to believe we live in a democracy were The argument can be won in a class room.
When all the evidence proves otherwise.
It is going to suck large parts of your life away. Spending years trying to implement change and you will be ignored by those with the real power.
Did you see the UK spring budget ?
They just roll right over the top of everybody. You have just watched over the last month how they do it.
They hypnotise complete idiots to defend their official narrative by the billion.
Why I gave up about 2 years ago. Just concentrate on currencies.
Mike knew this would happen right from the very beginning as he watched Stephanie career stall in the Bernie campaign.
Sunak has just shouted FUCK MMT
In case anybody missed it.
https://mobile.twitter.com/George_Osborne/status/1506622184344768522?cxt=HHwWlMC-yZ25zOgpAAAA
And
https://mobile.twitter.com/George_Osborne/status/1506618321973784582?cxt=HHwWjMC91bTYyugpAAAA
@Footsoldier
No doubt TPTB will do everything in their power to harness MMT, discrediting for welfare purposes as "socialism," while using its insights to accumulate capital and increase control, e.g., though military/intel and related spending.
Where MMT could do well is in Russia, China and elsewhere in the Global South/East, where it is already making inroads. While Michael Hudson is not an MMT economist but rather a Marxian, he has cred in those areas. MMT economist Fadel Kaboub, associate professor of economics at Denison University and president of The Global Institute for Sustainable Prosperity, does focus in the Global South/East. He is from Tunisia.
The US and UK are not ready for it yet politically, and Europe has hamstrung itself with Maastricht, along with German economic dominance, Germany being solidly behind "sound money."
MMT won't emerge in force until after the transition, if there is an after. Need to bottom out first. This transition will likely result in a significant culling of the global population.
Tom,
"Where MMT could do well is in Russia, China and elsewhere in the Global South/East"
My thoughts exactly.
Why I wish and hope they have overplayed their hand on Ukraine.
Only way things will change in my honest opinion.
China is designed on MMT principles anyway.
They must wonder what All the fuss is.
Goodbye MMT, hello CBDC and UBI.
Post a Comment