MMT is official policy now

Published: Tue 22 November 2022
Updated: Tue 22 November 2022
By steve

In Markets.

Sat 7 May

MMT and its implication for inflation

MMT says that governments can keep printing money and investing it to take up the slack in the economy until it hits full employment. Knowing whether there is real inflation, or just random disconnected price spikes is hard to know, and politicians will always hope for the best.

Under this framework, fiscal policy can be used to control inflation, but not monetary policy. Pushing rates up to the point where (real) GDP goes down is just not part of the program. The Fed surely does not want to let the long end of the curve go much above the short end. The US govt. has a lot of long-dated debt to refinance. The problem with trying to use fiscal policy is that voters won’t stand for higher taxes, so it will be too little, too late.

Mark Lapolla thinks that Fed Funds are capped wherever you think nominal GDP is (1% population growth + 2% inflation = 2.50%/3.00% max approx..) It’s hard to see productivity growth getting off the ground, because of the aging workforce. I think that old people can be productive, but they are not good at changing entirely their way of working. I speak from experience!

This is a problem for the US, but probably more of a problem for the rest of the world. Of all advanced economies, the US has the best demographics, certainly if it’s willing to accept more migrants from Latin America.

What does this mean in practice? I think that bonds have gone down as far as they are likely to, but that commodity prices will continue to rise.

Would anything change under a GOP administration? I don’t think so. All governments understand that voters want more stuff. They cannot get it by being more productive, so they have to be fooled by the money illusion of inflation, rising nominal wages, and disappearing returns on savings.

This post also thinks that inflation is coming.


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