tag:blogger.com,1999:blog-2098432983500045934.post491506459214209974..comments2024-03-12T22:19:32.339-04:00Comments on The New Arthurian Economics: Two dimensional thinking in a three dimensional worldThe Arthurianhttp://www.blogger.com/profile/16501331051089400601noreply@blogger.comBlogger5125tag:blogger.com,1999:blog-2098432983500045934.post-41060705079639567642012-01-08T19:34:38.743-05:002012-01-08T19:34:38.743-05:00Art,
I agree with your position, and I believe th...Art,<br /><br />I agree with your position, and I believe that the core MMT economists would agree with it as well.Clonalhttps://www.blogger.com/profile/18290009954839887975noreply@blogger.comtag:blogger.com,1999:blog-2098432983500045934.post-46588861926382238432012-01-08T16:03:16.071-05:002012-01-08T16:03:16.071-05:00Clonal: "My understanding (and I could stand ...Clonal: <b>"My understanding (and I could stand to be corrected on this) is that 'demand push' inflation, or in other words inflation caused by 'too much money' can only occur close to full employment. That is the only type of inflation that can be targeted by monetary and fiscal policy."</b><br /><br />And yet inflation was targeted by monetary policy repeatedly during the 1960s and 1970s and into the 1980s. And all the while unemployment was trending upward. <br /><br />Anna Schwartz <a href="http://newarthurianeconomics.blogspot.com/2009/10/schwartz.html" rel="nofollow">still argues</a> that inflation results from "An increase in the supply of money". I reject that view. <br /><br />I argue that inflation was already cost-push by the mid-1960s, and that the factor cost of money was the driving force behind cost-push inflation. I argue that the reason anti-inflation policy was unusually ineffective in the 1970s is that policy was fighting cost-push inflation with demand-pull methods. <br /><br />Still today, no one acknowledges that the inflation of those years (and since) was cost-push, with price increases driven by rising rates and the cost of interest on accumulating debt. And there is Anna Schwartz and her antebellum view.<br /><br />Policymakers continued to reduce inflation since that time by accepting the Phillips tradeoff of higher unemployment, as you know.<br /><br />So while you and I may agree that "inflation caused by 'too much money' can only occur close to full employment," policymakers do not seem to care. They do not identify an inflation that might be caused by excessive reliance on credit.. And Bernanke has said <a href="http://newarthurianeconomics.blogspot.com/2009/06/bernanke-fed-wont-keep-rates-too-low.html" rel="nofollow">the Fed will increase interest rates</a> at the first sign of inflation.<br /><br />Apart from all that, disagreement over the "best" trade-off of inflation and unemployment implies no improvement in the "misery index" and no change in the position of the pattern on the Phillips curve graph. Shift the pattern toward the origin, and you can reduce <i>both</i> inflation and unemployment. But shifting the pattern requires a different solution than is envisioned by those who call for lower unemployment and higher inflation as the alternative of choice.The Arthurianhttps://www.blogger.com/profile/16501331051089400601noreply@blogger.comtag:blogger.com,1999:blog-2098432983500045934.post-60091460278146709472012-01-08T13:16:31.580-05:002012-01-08T13:16:31.580-05:00Art,
My understanding (and I could stand to be co...Art,<br /><br />My understanding (and I could stand to be corrected on this) is that "demand push" inflation, or in other words inflation caused by "too much money" can only occur close to full employment. That is the only type of inflation that can be targeted by monetary and fiscal policy. Other types of inflation can occur, caused by other factors. That inflation cannot be tackled by monetary policy, and has to be combatted by other means - e.g. inflation due supply chain interruptions.<br /><br />This would also match with our Milton Friedman analysis -- money supply had little to do with inflation.Clonalhttps://www.blogger.com/profile/18290009954839887975noreply@blogger.comtag:blogger.com,1999:blog-2098432983500045934.post-73052643361472573322012-01-08T12:54:29.064-05:002012-01-08T12:54:29.064-05:00Clonal: "....would likely take issue with you...Clonal: "....would likely take issue with you on that."<br /><br />That would be fine. I understand that the "core" people likely have the best understanding of MMT, and that the "average" MMT guy might not claim to have all the ducks in a row. But you'll do, Clonal. :)<br /><br />However, I'm not sure I get your point. JHK seems to think that "MMT recognizes the inflation constraint". I'm sure MMT is *obligated* to recognize the inflation constraint, to fend off Austrian attacks or what-have-you. I don't know enough MMT to know at what point "the inflation constraint" would kick in. I do expect that it would be a higher inflation-rate than current policy allows, in order to achieve a lower rate of unemployment... That's the Phillips Curve flatland trade-off.<br /><br />If what you say is true, and "inflation targeting would only occur at full employment" then there is essentially no upper limit to the MMT-acceptable rate of inflation. (See, I don't think the "core" people would say that. But maybe they would...)The Arthurianhttps://www.blogger.com/profile/16501331051089400601noreply@blogger.comtag:blogger.com,1999:blog-2098432983500045934.post-16050849076079921772012-01-08T12:11:17.532-05:002012-01-08T12:11:17.532-05:00Art,
The core MMT economists, and by that I mean ...Art,<br /><br />The core MMT economists, and by that I mean the UMKC economists, Bill Mitchell, and Warren Mosler would likely take issue with you on that.<br /><br />In their paradigm, inflation targeting would only occur at full employment - i.e. the JG buffer stock drops close to zero -- hence the whole kerfuffle in the MMT world about the JG/JIG/BIG<br /><br />As we have discussed before, growth is primarily necessary to pay interest to the bankers (while keeping a reasonable wealth distribution) and to account for a rising population. The only other reason for desiring economic growth is to reduce income disparity, and to raise the standards of living of the ENTIRE community (I would go even further, and turn the whole trickle down hypothesis on its head. If you raise the standard of living of the bottom part of society, everybody is better off, or at worst more equal)Clonalhttps://www.blogger.com/profile/18290009954839887975noreply@blogger.com