Monday, September 12, 2022

Inflation Hurts Everyone, But So Does Unemployment — Stephanie Kelton

Last week, I joined David Westin on Bloomberg TV to talk about what the Federal Reserve and the European Central Bank (ECB) are doing to try to tame inflation. If you’ve been reading this newsletter for a while, then you know that I don’t subscribe to the conventional view that a series of aggressive and indiscriminate rate hikes is the right way to respond to our current bout of high inflation. Indeed, I’ve called it Bad Medicine. It comes with some nasty side effects, and there’s no guarantee it will cure the disease.…
Phillips curve tradeoff that uses unemployment to target inflation.

The Lens
Inflation Hurts Everyone, But So Does Unemployment
Stephanie Kelton | Professor of Public Policy and Economics at Stony Brook University, formerly Democrats' chief economist on the staff of the U.S. Senate Budget Committee, and an economic adviser to the 2016 presidential campaign of Senator Bernie Sanders


Matt Franko said...

Once the interest income becomes substantial then UE might go down… then what?

NeilW said...

This, unfortunately, is where MMT and Keynesianism in general becomes unstuck.

What she misses is the simple truth: everybody is directly affected by price rises, but only some are directly affected by unemployment. And the population really doesn't like price rises. Therefore they will support the political belief that appears to be keenest to stop price rises - without raising taxes.

Trying to pray in aid a survey about "self reported well-being" is possibly one of the most desperate arguments I've seen in a long time - and demonstrates once again that economics is about dressing up beliefs in pseudo-scientific garb, not finding out the truth. The paper behind it has possibly the most obvious aggregate/individual biases I've seen in a long time. There's nothing in there that separates the scores of the unemployed from the scores of the employed. Therefore it can be pulled down by the experience of the unemployed being truly awful. But that has no real effect on the majority of the population, and you only need a majority to get elected.

The Keynesian side won't state the hard truth - if people won't pay extra taxes and they want prices to remain stable, then the number of people employed by the public purse needs to be reduced.

The size of government is now too big for the level of taxes we're prepared to pay, and those workers need transitioning to the private sector to alleviate wage pressure there.

If we had a Job Guarantee then that would be happening automatically. Since we don't we need to do the same thing manually - eliminate government positions.

It's not a tradeoff between inflation and unemployment. It's a tradeoff between inflation and being employed by government.

mike norman said...

Inflation: producers gain, consumers lose.

It's income redistribution.

And there's no correlation between inflation and unemployment. She's talking about the current institutional approach to "curing" inflation--rate hikes. And even that has little if any correlation to unemployment.

mike norman said...

Fed's been raising rates and job growth is increasing. Corporate profits setting records. (So, they're getting "hurt?")

She's as confused as the monetarists. If she really wanted to make an impact, why not debunk rate hikes as an inflation cure?

Instead, she goes along with the monetarist nonsense. Kelton jumped the shark. 15 minutes of fame.

Matt Franko said...

“ Fed's been raising rates and job growth is increasing. Corporate profits setting records.”

Right so their Art degree theory then tells them to keep increasing the rates until they see a different result of higher UE…

Have they ever operated their “Phillip curve” on us with govt stock of debt at 100% gdp? Probably not I’d assume…

Govt interest income increase still in embryonic phase and you’re already seeing this,,,

This policy could get wild from these deranged unqualified Art degree people…

Matt Franko said...

“everybody is directly affected by price rises, but only some are directly affected by unemployment.”

Their concern comes from here:

“The King will reply, ‘Truly I tell you, whatever you did for one of the least of these brothers and sisters of mine, you did for me.’ Mat 25

It’s in the scriptures..

The economic result is not fully equitable so a judgmental cohort of mankind is going to want to set it right..,

You certainly can’t fault their motivation but the technical solution is lacking as they are Art degree too just like their interlocutors..,

You can’t solve technical problems via Art degree dialogue … the best you eventually get is some synthesis of the opposing theories… but it appears that is after your death (sick!) … science you don’t have to wait for that you can just do it right now in the present why wait?

The main problem here is methodological…

Matt Franko said...

Don’t these people also have a “Minsky conference” somewhere?

When Minsky is famous for his thesis “stability creates instability!”

So prices have become unstable so the solution logically (to them) would be to destabilize the policy interest rate and destabilize unemployment no? Because the current price instability was created by the former rate stability (they were at ZIRP for like 15 years) and unemployment stability at lower levels near zero?

Wouldn’t this be the way they would proceed?

Trying to understand how the deranged Art degree mind functions,,,

NeilW said...

"If she really wanted to make an impact, why not debunk rate hikes as an inflation cure?"

Can't do that. Too many in that side of the club who have hung their hats on it - even though Warren has always said that zero interest in the vertical circuit should be the default setting.

Paying interest on public funds is a 400 year old mistake. The last King Charles kicked that caper off. Before that it was considered verboten for centuries.

mike norman said...


The problem is, she WANTS to be in the club. Desperately.

Matt Franko said...

Bottom line reality here though:

Summers signaling to Biden to let Fed do what they think they have to do:

“ Today’s CPI report confirms that the US has a serious inflation problem.
Core inflation is higher this month than for the quarter, higher this quarter than last quarter, higher this half of the year than the previous one, and higher last year than the previous one.”

Matt Franko said...
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Peter Pan said...

Summers is an oracle. Joe better listen!

CaveMan said...

Yes, very bizarre argument kelton makes here. Claiming that unemployment affects us all and is just as bad as inflation is a claim that deserves a decent explanation and what she said here falls far short and is a great pity.
Only the most extremely left wing would go for that

CaveMan said...
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CaveMan said...

@NeilW can you elaborate on what you said about government size vs taxes (as we know taxes dont fund spending) what you meant by eliminating government positions, which, why and how?