3 ms·

Unfortunately, that is the end game of our current trajectory whether it works or not, we will soon find out. U.S. government just distributed $2 trillion and t

Unfortunately, that is the end game of our current trajectory whether it works or not, we will soon find out. U.S. government just distributed $2 trillion and there's already talks of printing and spending another $3 trillion. I've listened to many arguments about MMT and everyone who supports it boils down to the theory that if governments can just tax enough to hold off inflation they can spend as much as they want, and deficits in your native currency don't matter as long as inflation is unaffected. The definition of inflation has gotten conveniently flexible. We see stock, real estate, healthcare, and education prices rising while some goods and services have gone down. I think some of the deflationary pressure is from technological innovation (for example, a mobile phone does everything that thousands of dollars worth of equipment would do 20 years ago). Some of it is due to the deflationary pressure of globalization and the exportation of goods production to less developed countries (namely China). That trend won't last much longer though as those countries become more affluent (if it hasn't already reversed). At any rate it seems when inflation does occur, MMT seems to think that governments can and will levy higher taxes at will to stem it off. And will subsequently lower taxes when inflation subsides. I've rarely seen the government willfully lower taxes if they have a surplus. And I've rarely seen a politician run on a platform of raising taxes at will. It seems like such an unworkable theory in practice that it should be dismissed outright. However, we've already spent ourselves into a corner and we have massive deficits that are going to drag on our economy for a long time. So the MMT theory is alluring, as it allows for a level of irresponsibility we have not previously seen before. I don't predict this ends well, but I still see it as the last hail Mary of the fiat dollar regime. It will either lead to a golden era or cause a world of hurt and pain.

laurencerowe 6y ago
> The definition of inflation has gotten conveniently flexible. We see stock, real estate, healthcare, and education prices rising while some goods and services have gone down. Stock and real estate prices are assets, so have always been excluded from definitions of inflation, they're essentially inversely proportional to the interest rate. Rent (or the owner's equivalent rent) is included in CPI. I share your concern about rising healthcare and education costs though, but that is largely a political choice - other developed countries are able to provide them for substantially lower proportions of GDP. (Healthcare costs will inevitably increase over time as countries populations age, but other countries spend much less on healthcare and achieve better outcomes.) Good post from Noah Smith on inflation: https://noahpinion.substack.com/p/your-local-price-changes-arent-inflation https://noahpinion.substack.com/p/your-local-price-changes-a...
orwin 6y ago
So, i agree with some of the MMT observation, but not the main tenet (so i might have missed something tbh). To me, like for MMT, hyperinflation is not caused by money printing (this "theory" is really not supported by the facts), but against MMT, to me that does not mean that not printing money doesn't cause inflation. But money printing is not the main inflation lever. Also, to me, taxes have nothing to do with inflation control. Or maybe it helps, but it is also not the main lever. From what i've tested anyway. Production deficit is creating inflation. Every single country that went through hyperinflation saw a deficit in production the years prior and wasn't self-sufficient in food and/or basic amenities. And normal inflation is close to the same. Inflation comes when the production is strained: it was the case in the 30s, it was the case from the 50s until the 70s, it is still the case in China. This can be caused by a positive effect (people are hopeful and want to consume more than what is actually produced and/or sold) or a negative one (drop in production, or in price of an asset/ressource that a country exploit heavily and use to buy food and amenities). I don't think money supply have a huge impact on inflation, except maybe on asset inflation? Anyway this will be the MMT crash test.
throw0101a 6y ago
> I think some of the deflationary pressure is from technological innovation (for example, a mobile phone does everything that thousands of dollars worth of equipment would do 20 years ago). Some of it is due to the deflationary pressure of globalization and the exportation of goods production to less developed countries (namely China). That trend won't last much longer though as those countries become more affluent (if it hasn't already reversed). The three main drivers of deflation: > But Inflation is not inevitable. There are numerous countervailing forces that have been at work for much of the past 50 years. The three big Deflation drivers: 1) Technology, which creates massive economies of scale, especially in digital products (e.g., Software); 2) Robotics/Automation, which efficiently create more physical goods at lower prices; and 3) Globalization and Labor Arbitrage, which sends work to lower cost regions, making goods and services less expensive. * https://ritholtz.com/2021/02/stop-stressing-about-inflation/ https://ritholtz.com/2021/02/stop-stressing-about-inflation/ For (3): the entire continent of Africa can be further developed. Generally: > Put into this context, Inflation is periodic, driven by specific events; Deflation is consistent, the background state of the modern economy.
neilwilson 6y ago
"and everyone who supports it boils down to the theory that if governments can just tax enough to hold off inflation they can spend as much as they want" It doesn't boil down to that. That's looking at it from the wrong angle. The line is that to spend there has to be something to buy. If it is available to buy and nobody else wants it, then why not bring that item into use (largely the unemployed). Spending stops automatically when you run out of things to buy priced in your currency at a price worth paying. If you see somebody talking about raising tax rates and lowering tax rates in relation to MMT on a counter stabilisation basis, then that person either doesn't understand MMT, or you've misunderstood what they are saying. The primary stabilisation mechanism of MMT is the Job Guarantee and the secondary one is government demanding a lower price for goods and services it purchases, which it can force on people because otherwise the system will run short of spending. Taxes are a very distant third or fourth in the control stakes. In MMT they are essentially a garbage collector. There to ensure we don't overcommit the system.

laurencerowe 6y ago

> The definition of inflation has gotten conveniently flexible. We see stock, real estate, healthcare, and education prices rising while some goods and services have gone down. Stock and real estate prices are assets, so have always been excluded from definitions of inflation, they're essentially inversely proportional to the interest rate. Rent (or the owner's equivalent rent) is included in CPI. I share your concern about rising healthcare and education costs though, but that is largely a political choice - other developed countries are able to provide them for substantially lower proportions of GDP. (Healthcare costs will inevitably increase over time as countries populations age, but other countries spend much less on healthcare and achieve better outcomes.) Good post from Noah Smith on inflation: https://noahpinion.substack.com/p/your-local-price-changes-arent-inflation https://noahpinion.substack.com/p/your-local-price-changes-a...

orwin 6y ago

So, i agree with some of the MMT observation, but not the main tenet (so i might have missed something tbh). To me, like for MMT, hyperinflation is not caused by money printing (this "theory" is really not supported by the facts), but against MMT, to me that does not mean that not printing money doesn't cause inflation. But money printing is not the main inflation lever. Also, to me, taxes have nothing to do with inflation control. Or maybe it helps, but it is also not the main lever. From what i've tested anyway. Production deficit is creating inflation. Every single country that went through hyperinflation saw a deficit in production the years prior and wasn't self-sufficient in food and/or basic amenities. And normal inflation is close to the same. Inflation comes when the production is strained: it was the case in the 30s, it was the case from the 50s until the 70s, it is still the case in China. This can be caused by a positive effect (people are hopeful and want to consume more than what is actually produced and/or sold) or a negative one (drop in production, or in price of an asset/ressource that a country exploit heavily and use to buy food and amenities). I don't think money supply have a huge impact on inflation, except maybe on asset inflation? Anyway this will be the MMT crash test.

throw0101a 6y ago

> I think some of the deflationary pressure is from technological innovation (for example, a mobile phone does everything that thousands of dollars worth of equipment would do 20 years ago). Some of it is due to the deflationary pressure of globalization and the exportation of goods production to less developed countries (namely China). That trend won't last much longer though as those countries become more affluent (if it hasn't already reversed). The three main drivers of deflation: > But Inflation is not inevitable. There are numerous countervailing forces that have been at work for much of the past 50 years. The three big Deflation drivers: 1) Technology, which creates massive economies of scale, especially in digital products (e.g., Software); 2) Robotics/Automation, which efficiently create more physical goods at lower prices; and 3) Globalization and Labor Arbitrage, which sends work to lower cost regions, making goods and services less expensive. * https://ritholtz.com/2021/02/stop-stressing-about-inflation/ https://ritholtz.com/2021/02/stop-stressing-about-inflation/ For (3): the entire continent of Africa can be further developed. Generally: > Put into this context, Inflation is periodic, driven by specific events; Deflation is consistent, the background state of the modern economy.

neilwilson 6y ago

"and everyone who supports it boils down to the theory that if governments can just tax enough to hold off inflation they can spend as much as they want" It doesn't boil down to that. That's looking at it from the wrong angle. The line is that to spend there has to be something to buy. If it is available to buy and nobody else wants it, then why not bring that item into use (largely the unemployed). Spending stops automatically when you run out of things to buy priced in your currency at a price worth paying. If you see somebody talking about raising tax rates and lowering tax rates in relation to MMT on a counter stabilisation basis, then that person either doesn't understand MMT, or you've misunderstood what they are saying. The primary stabilisation mechanism of MMT is the Job Guarantee and the secondary one is government demanding a lower price for goods and services it purchases, which it can force on people because otherwise the system will run short of spending. Taxes are a very distant third or fourth in the control stakes. In MMT they are essentially a garbage collector. There to ensure we don't overcommit the system.