Bill Mitchell — On the trail of inflation and the fears of the same …

One of the big events that led to deep uncertainty among Social Democratic politicians and their advisers, which arguably, was a key driver in the shift of these parties to the Right, was the Stagflation of the 1970s. The phenomenon of the simultaneous coincidence of accelerating inflation and rising unemployment had not previously been witnessed in the period following the Second World War. It needs a careful analysis because much of the popular understanding of this period and the claims that it demonstrated a failure of Keynesian policy approaches are incorrect and provide no basis for rejecting fiscal intervention to maintain full employment.

Bill Mitchell – billy blog
On the trail of inflation and the fears of the same …
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

The Arthurian — Inflation and Oil

Evidence that rising oil price was not the chief factor in rising inflation in the 60s and 70s (Vietnam era).

The New Arthurian Economics
Inflation and Oil

The Arthurian

Paul Craig Roberts — What is Supply-Side Economics?

Back to the Seventies and Eighties. Roberts, a former assistant secretary of the Treasury, reports on the history and politics of supply side economics. Many Tidbits you probably weren't aware of, or had forgotten about.

Counterpunch
What is Supply-Side Economics?
Paul Craig Roberts | former assistant secretary of the Treasury

Lord Keynes — US Inflation Rates (1946–1987), Keynesianism and Stagflation

Lord Keynes explains Seventies stagflation in terms of 1) wage pressure due to increased labor bargaining power, 2) dismantling of commodity buffer stock policies, 3) collapse of Bretton Woods, and 4) oil crisis. Bookmark it.

Social Democracy for the 21st Century

US Inflation Rates (1946–1987), Keynesianism and Stagflation

Lord Keynes

Philip Pilkington — Why MMT is Right and the Dreamers are Wrong – Kaldor Versus the Kaldorians

Nicholas Kaldor was one of the most famous economists of the 20th century. He was considered by many to be the direct heir to John Maynard Keynes as he was not only an extremely accomplished theoretical economist but also played a key role in the construction of British economic policy after World War II and was an all-round politically savvy individual – he ended his life, like Keynes, with a Lordship.

We mention this because if you read his writings you note that there were really two Kaldors. One was the Kaldor of the halls of Cambridge University. This was the Kaldor of abstract mathematical models of how capitalist economies function (some of the finest ever produced, mind you). The other Kaldor was the Kaldor that actually analysed economic problems and proposed solutions – while keeping firmly in mind the political situation of whatever time he was giving advice.

Naked Capitalism
Philip Pilkington: Why MMT is Right and the Dreamers are Wrong – Kaldor Versus the Kaldorians

Economics v. political economy.

Phil and Ramanan debate in the comments.

Progressives, who are you going to believe, Matt Yglesias or Jamie Galbraith?

Is the inflation of the 1970s a myth? I don't think it was, but something Dylan Matthews' excellent overview of Modern Monetary Theory illustrates is that some people think it was. That to me is a mistake, and people should try to separate the merits of heterodox macroeconomic theory (which I think are considerable) from a handful incidental political commitments that its adherents have. The core point of MMT is that if you have a freely floating fiat currency then the sovereign can't "run out of money" and the point of taxes is to regulate demand not to finance government activities. But even though this is a "heterodox" view, I think few mainstream people would actually deny it. Instead they think that talking in these terms will lead to dangerous inflation. I think that fear is overblown, but not as overblown as Jamie Galbraith thinks it is....

Read it at Slate | Money Box
Inflation Denialism
By Matthew Yglesias
(h/t Ben in the comments)

Who are you going to believe, Matt Yglesias or Jamie Galbraith? Maybe Matt should have taken counsel and consulted with Jamie before making a fool of himself.

Why are some many progressives clueless about issues that are vital to advancing their interests?

Did Oil Peak in 2006?

Fatih Birol, chief economist for the International Energy Agency, thinks so:

Despite high prices, crude oil production has stayed basically flat for roughly five years. It seems this is the all-time high-water mark, according to Fatih Birol, chief economist for the International Energy Agency. “We think that crude oil production for the world has already peaked in 2006,” he told the Australian Broadcasting Corporation. “I think it would have been better if the governments have started to work on it at least 10 years ago.”

At a European Parliament conference on peak oil, the European Commission’s director-general for transport and mobility policy warned if actions are delayed to reduce oil dependency, “we may be forced to drastically reduce all our mobility.”

Already, rising energy costs are taking their toll around the world, with U.S. economic growth stumbling and raising the spectre of stagflation, as well as, helping to drive up food prices in Latin America, and driving inflation in Europe.

Read the rest of the article at National Geographic : The World has Passed Peak Oil, says Top Economist

Roubini recommends a "Marshall Plan" for the Middle East

My previous post, Dr. Doom's Latest Warning, put forward Nouriel Roubini's caution that previous stagflations resulted from oil price spikes. Roubini is now concerned that the situation in MENA (Middle East and North Africa) is threatening a repeat, which would result in a double dip for the global economy.

I also cited a post of Mahdi Darius Nazemroaya showing how Pan Arabism is on the rise and could present wider geopolitical problems for the West if not handled appropriately. The demographics of the region are youth-dominated, and the problem is that youth feels left out of the political process and is cut out of the economic picture.

The West must address this challenge creatively. The US especially cannot hang out the promise of democracy and progress without delivering on this promise. Roubini concludes that what is needed to do this is a new "Marshall Plan" for MENA.

... the time to act is now. The transition from autocracy to democracy in the Middle East is likely to be bumpy and unstable, at best. In countries with pent-up demand for higher income and welfare, democratic fervor could lead to large budget deficits, excessive wage demands, and high inflation, ultimately resulting in severe economic crises.

So a bold new assistance program should be designed for the region, modeled on the Marshall Plan in Western Europe after WWII, or on the support offered to Eastern Europe after the collapse of the Berlin Wall. Financing should come from the International Monetary Fund, the World Bank, the European Bank for Reconstruction and Development, as well as from bilateral support provided by the US, the European Union, China, and the Gulf states. The goal should be to stabilize these countries’ economies as they undertake their delicate political transitions.

This is an area where MMT principles could play a formative role, especially the employment assurance program. The government acting as employer of last resort extends a job guarantee for anyone willing and able to work in order to provide employment for anyone without a job offer from the private sector.

The wage associated with the employment assurance program would be under the minimum wage offered in the private sector so that government would not be competing with the private sector. The employment assurance program provides a buffer of employed instead of a buffer of unemployed.

(If you are new to MMT and this raises your eyebrows, the employee assurance program has been exhaustively explored and documented by professionals studying employment. See, for example, CofFEE — Centre of Full Employment and Equity for explanation and references.)

The employee assurance program has several benefits.

1. An employment assurance program greatly reduces or eliminates unemployment. Unemployment is associated with many negative social and economic factors, and it is a key factor in the present unrest.

2. An employment assurance program transfers unused resources to the public sector for public purpose, which could be used for public improvements. This would also serve to train workers in various skills that could be drawn on by the private sector.

3. The income from the employee assurance program would increase demand, spur investment, and increase growth in the local, national, and regional economies.

4. The guaranteed wage serves as a price anchor in achieving full employment with price stability, a major objective of MMT.

The new "Marshall Plan" would not be needed to fund the employee assurance program in the MENA countries that are monetarily sovereign, hence, are able to fund themselves with currency issuance. However, the new "Marshall Plan" could provide foreign reserves needed for importing materials needed for projects, as well as enough goods, especially food, to meet increased demand. This would mean that the new "Marshall Plan" would also increase trade with the sponsoring nations, making it a win-win.

Undertaking such an international developmental program would demonstrate that the way forward is through cooperation and coordination in putting resources to work is a sustainable fashion. Failure to do this will result not only in huge forgone opportunity that can never be recaptured, but also it also risks a volatile area of the world spinning out of control with unpredictable consequences.