I want to review the 4th comment on AlwaysLand, Greg's comment. I begin by putting the comment in my own words, to make clear what I understand Greg to say.
One thing I'm not sure your accounting for is the currency issuer. They still have the power to "fund" the savings desires of the private sector and keep aggregate demand high enough for employment not to fall.
In other words, the currency issuer -- the federal government -- can create enough money to satisfy both "the savings desires of the private sector" and enough "aggregate demand" to keep unemployment reasonably low.
In that video I asked you to watch with Stephanie Kelton, there was a second video with a Q&A session. Very poor audio for parts of it but one place you can hear Mosler very clearly and he is talking about inflation (not hyperinflation) and he says something interesting. That inflation is never a REAL problem. It is simply a situation that humans get uncomfortable with and we must remember that but there is never real economic hardship DUE TO inflation. People are getting richer and paying higher prices but they can meet all their financial obligations out of their incomes usually. I dont care if bread is 6$ loaf if I only have to work 5 minutes to earn that 6$. The real question is how much work am I having to do to pay my cost of living, and in most inflationary situations through history, that is not usually a problem according to Mosler.
Mosler says inflation doesn't create hardship, so it isn't really a problem.
I think we get waaaay to inflation scared and therefore always run deflation bias which kills us in times of large debt.
And Greg says that deflation (by contrast) really is a problem.
Next, I summarize my restatement of Greg's comment, and then respond.
Inflation doesn't create hardship, so it isn't really a problem. But deflation really is a problem. And since the federal government can create enough money to satisfy both our desire to save and our need to grow, that is what it should do.
In other words:
1. The government can print as much money as it wants; and
2. Inflation is an acceptable solution.
Wow. Inflation is not an acceptable solution.
Look: Fiat money has an advantage over gold-backed money, in that fiat gives us more flexibility. For example, my idea to "print money and use it to pay off private-sector debt" could not possibly be done if we were on a gold standard. Today, however, we have the flexibility that makes it possible.
Having a fiat monetary system gives us an advantage. So, our present monetary system better prepares us to deal with monetary problems than the old system. What that means is we should better be able to achieve the same goals.
It does not mean we should claim that inflation is okay. It means we should have better chances of avoiding inflation and other monetary problems, than anyone in history.
7 comments:
I agree with you.
I have written repeatedly inflation is NOT politically acceptable, and hence my policies and proposals at drafted accordingly.
Note that talk of Fed exit strategies over the last year didn't draw any criticism even though implied was a 'tightening' of conditions even as unemployment and the output gap was still rising. That tells me there is an extreme political aversion to inflation.
Hey Art
"The Man" himself has found your blog and commented on it. Way to go!
Art and Warren
Let me make sure my quoted comment is clear. I was trying to quote something you (Warren) said during the conference in April following Stephanies talk and I may have misunderstood you Warren, so my apologies if thats so. You appeared to be saying that while inflation was politically unpopular it was not ,in most cases in countries where steady moderate inflation was occuring, causing "real" economic problems. That rang true with me. Not because I have studied economic history and could confirm it but because I know for me the price of something is not as important as whether or not I had the income to afford it. Even further, if last year I worked 3 months to buy my $3500 tractor but this year I only need to work 2 months to afford the 4500$ tractor, I feel better off. Now some folks just look at the price of the tractor and scream "inflation, inflation!!" but I see it differently.
We all must agree that deflation kills debtors way worse than inflation while inflation is more a problem for savers and creditors. Therefore since there are wayyyyyy more debtors than creditors we will be increasing general welfare with some inflation.
Personally I think the real problem in our system is the unrealistic goals savers have. People act as if their virtuous saving (of money) is of paramount importance and thus, us profligates should manage our monetary policies so THEY are assured that that which they "forwent" ( I know I know , my new word) consuming would be available at the same relative price in the future. This seems a most unreasonable expectation of anyone.
I guess I should add this.
Inflation, like anything, is a matter of degrees. Moderate inflation, even steady, is fine in my book. Obviously severe hyperinflation is bad.
Also Art, saw you commenting over at Winterspeaks site. Thats the first place I was introduced to MMT a couple years ago............its been downhill since then ;-)
ps- listen to that Tom Hickey fella
Warren --
Wow... Thank you, sir! Now of course I must review that Stephanie Kelton video myself...
The more I learn of MMT, the more I see how close it is to my own thinking. The trouble (for me) is that you guys seem to make it difficult to understand what you think... By contrast, it is extremely easy to understand what Austrians think but most difficult to understand why they think it.
Our similarity emerges from the fact that we analyze the same economy, I am sure.
Art
Greg --
I know... "the man" himself. I was thinking the same thing!
And I apologize to you, Greg, for creating a third-hand view of what "the man" thinks, when I could have just gone and watched that video myself in the first place.
I appreciate your view of inflation. I bought a house just before the inflation of the late 1970s, and inflation really helped me with the mortgage. But I would have to agree ...with the Austrians, probably... that there is a big difference between accidental inflation and the conscious design of a policy to inflate.
I agree absolutely that deflation is much worse for the economy as a whole than inflation, at least now when there is so very much debt. Deflation increases debt relative to our ability to pay it off. Those who say we should simply let the economy collapse and get it over with, are fools. If that doesn't create a Dark Age it will certainly drive the center of economic power out of the U.S. and into some other nation for the next century and beyond.
No apologies necessary Art
I didnt see what you posted as misrepresenting Mosler I saw it as wondering how I could think there was anything positive about inflation. I agree with Mosler that most objections to inflation are political... but then again everything is political.
I'm jealous that Warren has commented on your blog and not mine....... heck I sent the guy money for his political campaign. I guess there are some things you cant buy ;-) He HAS emailed me like a dozen times though ......... so there.. (picture me with my tongue sticking out)
... but then again everything is political.
I am not political :)
I too noticed that Mosler's comment above presents political reasons for opposing inflation. I didn't want to challenge him on it, but I'm glad you brought it up.
This may sound unkind; that is not my intent: In his comment Mosler sounds to me like a politician -- like a "leader" following his voters... Willing to oppose inflation when crafting his policies and proposals. (I know Mosler said "drafting." I think "crafting" is a more appropriate term.) I think he should either defend a pro-inflation position, or reject it on better grounds than the voters don't like it.
Those Austrians and Tea Party guys that oppose inflation with such vehemence... Don't you think they have reasons? Their reasons may be wrong (I couldn't say), but I bet their reasons are better than what Mosler said above.
Personally, one reason I would hesitate to support a pro-inflation policy is... there is no guarantee that wages will go up along with prices. I just don't trust the plan.
But I have a better reason: A nation has two symbols, its flag and its money. Inflating the money is like dragging the flag through the dirt.
Twenty or thirty years ago maybe, I remember people making fun of Italian money because it was worth so little. I don't want people doing that to my country's money.
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