> They rely on a qualitative understanding of inflation like the Austrians as opposed to a CPI quantitative understanding.
Perhaps I’ve missed this, but what the hell is a “qualitative” understanding of inflation, and where have MMTer argued this?
Edit: after doing some basic searching, it seems that MMT’s primary critique is that CPI is a poor measure of overall inflation, and that it shouldn’t be a primary target of fed policy, because monetary policy mechanisms don’t have a very direct impact on moving the index.
> I never quite understood how this theory would work while avoiding inflation
I see this sentiment any time MMT is brought up. I think it shows a misunderstanding of what MMT is saying.
While I’ve got my own issues with MMT, it’s always been made clear by MMTers that inflation is an important signal to respect and that you can’t infinitely ‘print’ money due to the constraint of real resources.
>MMT economists don't support inflation at any level, do they?
MMT does not make normative judgements on inflation. It does state that taxation and fiscal spending are more effective control knobs to target inflation than monetary policy, but that isn't a normative judgement either.
>it sounds like you're using "MMT" as an incantation to dismiss inflation
I'd do it for the same reason for why I'd reference oil company profits in reference to global warming skeptics - because it's the responsible thing to do to associate the motive for spreading bad science with the bad science.
Naturally this gets abuse slung at me - with phrases like "left-wing back-rationalized voodoo economics" slung around for instance.
> I think our current method of measuring inflation against the CPI is nonsense,
It's not nonsense for policies that are directly concerned with consumer prices, which most that the CPI (or, more precisely, any of the CPIs, of which there are several) is used for do. We have lots of other inflation measures (, industry specific PPIs, for instance) for other purposes.
> Measuring inflation (or whatever you want to call the difference between an asset's nominal value and it's intrinsic value) is still useful
That's not what inflation is supposed to measure, because that's a nonsense thing to try to measure, because there is no such thing as intrinsic value.
> but the current method of pegging everything against the bag-of-goods in the CPI seems like an overly simplistic model.
How? Consumer prices are final prices. Everything else is instrumental to producing final goods and services.
> The intrinsic dollar value of an asset is its value relative to how many dollars there are
No it's not, and even if it was, that wouldn't make M1 a sensible measure. Why not the actual number of actual dollars there are: monetary base. Or something that better captures the number of effective dollars, M2.
I have my own issues with MMT, but I feel like most people that share your position seem to believe that MMT means “you can print as much money as possible without ramifications” which is not correct. One of the core ideas of MMT is that inflation is the limiting factor of how much money can be printed, or rather that inflation should be the gauge of when to stop. The idea is to spend new money wisely, in ways that increase productivity rather than contribute to inflation. I think that part of MMT is quite reasonable.
> My layman understanding of inflation is that it is the measure of change of purchasing power a unit of currency has over time.
That's loosely correct; but general inflation is the change in purchasing power for currency buying final consumer goods and services, not assets which are intermediary stores of value. Purchased homes are assets (actual or foregone but using a home you own yourself) rents are consumption expenses.
> I think it is a sensible expectation that if inflation was said to be 2% for 20 years then I should be able to buy a house that cost $200K 20 years ago for ~$300K now
It's not. Specifically, that would be the fallacy of division, even if your basic understanding of inflation was correct. The change of an aggregate is not identical to the change in every subset of the aggregate.
>>" If MMT doesn't predict inflation as a result of arbitrary creation of currency, then it seems we can conclude MMT is incorrect."
That is not at all what MMT says and I don't understand how an honest reader of the MMT literature would arrive to that conclusion.
What they say is that public debt and public deficits are irrelevant (there goes your "outlandish true" of balanced budgets) but they also say that inflation is the most important constraint in public spending.
>> And that's obviously true, to the extent that people are willing to accept that money in exchange for their goods and services (an extent which is not infinite)
In the MMT framework, there is always demand for the currency in what taxes have to be payed. That's obviously true. That doesn't mean that inflation is not a factor.
>It is amazing to me that we live in an era with tiny amounts of inflation despite large central bank interventions, and yet Austrians still presume to claim that their theory is vindicated.
I think it is amazing to me that economists have redefined the definition of inflation from an increase in the money supply to an increase in the consumer price index. Yes, we haven't seen significant rises in CPI yet, but you cannot deny there has been hyperinflation in other sectors of the economy like equities and real estate. As far as I can tell mainstream economists don't really believe in the Cantillon effect (that inflation happens in a gradual sector-by-sector fashion) so inflation in certain sectors of the economy is unthinkable as, according to them, money is neutral and inflation always happens everywhere at the same time and that for some reason CPI is the best measure for this. This is categorically and logically wrong and does not hold up to critical analysis.
>Prominent Austrians claimed we would have runaway inflation after QE, and it just didn't happen.
Just because it hasn't happened yet does not mean it won't happen. All fiat currencies have always throughout history, without exception, and always for the same reasons, ended with hyperinflation and the total destruction of the currency. I don't see how the US Dollar possesses properties that renders it immune to monetary laws.
> Inflation is by definition an increase in prices.
Sure, I think everyone agrees on that but the CPI only measures a vary narrow range of goods and weights them such that it ends up ignoring some very obvious trends.
Most of the inflation could simply by accounted for by the drastic rise in stock prices, real estate values, etc. Even though the CPI/Fed doesn't care about those segments with regards to inflation does not mean it is not inflation.
>then tell me there have been less than 2% inflation?
Good for you because nobody says that there is less than 2% inflation right now. I mean, bad for you because that government manipulation theory is on shaky ground now, the only real issue is that changing the definition of M1 is annoying and breaks the charts.
> At least the type of inflation modern monetary theory has provided in the past several decades
I wouldn't characterize the past several decades as modern monetary theory. Rather they were traditional post Bretton Woods monetary policy of monetary creation primarily benefiting the financial industry. I believe that MMT will actually help control overall inflation - the government printing money and injecting it places besides the financial industry will create quicker consumer price inflation, which will prevent the Fed from continuing to create asset inflation by lowering rates.
The Austrian school is expressly, overtly, an unashamedly ideologically normative rather than empirically descriptive, which is why they are the example I cited.
> Meanwhile, what’s your take on the historical fact that gold rushes (when money was backed by gold) resulted in inflation?
That money supply changes can cause inflation is not the same as all inflation being the fault of money supply changes.
> What’s your take on the fact that the US had net zero inflation from 1800 to 1914, and endemic inflation ever since (except for a brief period during the Depression)?
Well, that its false, there have been brief deflationary periods far more recently than the Great Depression (the most notable recent one, though not actually the most recent, being during the Great Recession.)
> And why are oil price hikes always blamed for inflation, but when oil prices fall there’s no deflation?
Oil price falls can lead to deflation (IIRC, that was the main cause of the brief, slight 2015 deflation).
> Let’s face it. Inflation is the result of the Fed policy of “spend all you want - we’ll just print more!”
A baseline bias to low inflation is a deliberate policy goal of the Fed (and basically every central bank, its not something unique about the Fed); that doesn’t mean every instance of actual inflation is accurately solely attributable to monetary policy as the cause. There are some inflation spikes that are due to factors like exogenous supply issues, there are others that are due to monetary policy miscalibration. The latter are more easily resolved, as demonstrated by the intense–but brief–post-COVID-recession inflation spike. (Which was, while there were other factors which contributed to it, largely caused by the failure to sufficiently-quickly dial back monetary stimulus in the rebound from the brief-but-sharp COVID recession.)
> The original meaning of “inflation” was “an increase in currency supply”.
Can you provide a source for this? It seems like an overly monetarist view to me: trying to be assertive about the cause rather than just describing the phenomenon.
> So whenever monthly inflation goes up, it's transitory, and when it doesn't, there is no inflation.
No, when consumer prices (not inflation) goes up, there is inflation, and when they don’t, as they have not (overall) in the last two months, there isn't. That’s the definition of inflation.
> Meanwhile, prices on a lot of things I buy doubled.
So... assuming that's over a 12-month period, there are some things that you buy that have been affected vastly more by inflation than even the highest overall sector of the CPI (fuel oil, +68.8% over 12 months.)
Not sure what general importance you want assigned to this or why.
> I wonder if those Modern Monetary Theory people will start pushing to increase taxes to combat inflation.
Probably, but (1) MMT support among people with any political relevance is already in the faction known for supporting higher taxes, and (2) no one listens to the people who support MMT, anyway.
>Can you source your claim that MMT doesn't make normative judgements on inflation?
It's in the name - modern monetary theory. Much like the theory of gravitation does not posit that gravity is "bad" or "good", modern monetary theory does not posit that inflation is bad.
>That's not my understanding, it's not what this article says, and it's not what Kelton said in her debate with Jason Furman on Ezra Klein's show.
Much as your earlier posts massively misrepresented what I said, I strongly suspect you are misrepresenting what others said.
>In my understanding, the MMT economists would say "here are a set of policy levers we should use to ensure inflation doesn't increase", and in yours MMT economists would say, essentially, "single payer is worth extra inflation".
MMT economists might very well opine that extra inflation is worth medicare for all and at the same time set out a set of policy levers which can bring down inflation if desired. One is a normative statement; the other positive.
>The idea that inflation and deficits simply don't matter as much as conventional economists think it does is, as I understand it, a caricature of MMT that actually annoys MMT economists.
I think the personal feelings of many MMT economists is probably that a slightly elevated inflation doesn't matter that much. There are economists who are motivated by money and prestige who will naturally gravitate towards, for example, richly funded think tanks representing investor interests and there are economists who are interested in figuring out how the economy actually works.
These two groups will naturally have differing personal feelings about inflation precisely because the people who pay their bills do.
I think what pisses them off are the people who say that MMT is simply a theory that says governments can spend limitless amounts of money.
> So I think the idea is that MMT recognizes that inflation would indeed occur if you kept printing money without a demand for that money, which they say will be supplied by government-sponsored full employment.
Nope, it's when too much money chases too few goods and services. Inflation is everywhere and always a dynamic process. The federal reserve can print 100 trillion dollars and credit it to their own account and it won't affect inflation at all until they start spending it or transferring it to parties that will.
Perhaps I’ve missed this, but what the hell is a “qualitative” understanding of inflation, and where have MMTer argued this?
Edit: after doing some basic searching, it seems that MMT’s primary critique is that CPI is a poor measure of overall inflation, and that it shouldn’t be a primary target of fed policy, because monetary policy mechanisms don’t have a very direct impact on moving the index.
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