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MMT False Counterpoint #1 - Inflation/Hyperinflation

pdog

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There have been several pro and anti MMT threads at this point, yet all I see from the anti-MMT folks are tactics and fallacies to avoid actual debate. I would like to compile a list of all of the lame arguments used against MMT so they can be easily referred to and used the nullify those that just want to toss deception and uncertainty into the threads.

To kick it off, I thought I’d start with inflation.

The false argument is this: The more money you print, the more it loses its purchasing power.

There is very little truth in this, both in theory and in evidence.

To start we should define inflation:
https://en.wikipedia.org/wiki/Inflation said:
In economics, inflation is a sustained increase in the general price level of goods and services in an economy over a period of time.[SUP][1][/SUP]
When the price level rises, each unit of currency buys fewer goods and services. Consequently, inflation reflects a reduction in the purchasing power per unit of money – a loss of real value in the medium of exchange and unit of account within the economy.

So we’re talking about the purchasing power or the value of money.

You don’t have to get fair in that Wikipedia article to see how people jump the gun and yell “inflation!”
Economists generally believe that high rates of inflation and hyperinflation are caused by an excessive growth of the money supply.[SUP][6][/SUP]
And that is what people cling to. Unfortunately they need to read the ENTIRE paragraph:
However, money supply growth does not necessarily cause inflation. Some economists maintain that under the conditions of a liquidity trap, large monetary injections are like "pushing on a string".[SUP][7][8][/SUP] Views on which factors determine low to moderate rates of inflation are more varied. Low or moderate inflation may be attributed to fluctuations in real demand for goods and services, or changes in available supplies such as during scarcities.[SUP][9][/SUP] However, the consensus view is that a long sustained period of inflation is caused by money supply growing faster than the rate of economic growth.
So there’s a couple of counter examples, and more importantly a consensus view at the end. Inflation is about money supply OUTPACING economic growth, not the money supply itself.

With this, one way you could define inflation is:
“When demand outpaces supply”

Unfortunately the couterpoint conveniently holds supply constant and then comes up with some hyperbolic senario of drastically increasing the money supply by “giving everybody a million dollars” or similar. First, the only reason that supply of goods and services would stay constant is if the resources required to make those goods were somehow constrained. We might be low on natural resources (unlikely), low on labor (low unemployment), etc. But if those constraints do not exist, then there is NO REASON to believe that the supply of goods wouldn’t expand to meet the new demand. So even in absurd hyperbolic scenarios this isn’t really a problem. Of course short term, inflation probably would occur since it’s not as easy to increase supply as it is to increase the money supply. The good news is that “giving everybody a million dollars” is never going to happen and has never been suggested so I’m not sure why the counter argument even uses it.

That said it may be better to think of inflation as:
“Demand outpacing our productive CAPACITY”

As long as we have the capacity to produce more goods, there is little reason to fear inflation.

For those that would like to add to this and cover things like Weimar and Zimbabwe in how they are terrible example of money supply and better example of constrained production I would appreciate it.
 

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It can also be noted that MMT does not necessarily mandate a particular public policy.

When it is said that a government is not financially constrained in its ability to spend, that does not mean that it should spend anything. Further, MMT acknowledges that increases in the money supply can result in inflationary pressure.
 

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The only thing I would add is MMT does not own that explanation for what causes inflation/hyperinflation.
 

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Whatever happened to the hyper inflation that we were assured would result from Obama's economic policies?
 

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Whatever happened to the hyper inflation that we were assured would result from Obama's economic policies?

Because when there is plenty of supply and not enough demand..
Also, when it comes to QE, reserves don't enter into people's hands.
 

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The only thing I would add is MMT does not own that explanation for what causes inflation/hyperinflation.

Well, MMT proponents are usually the first to explain, correctly, what has caused instances of hyperinflation.
 

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Whatever happened to the hyper inflation that we were assured would result from Obama's economic policies?

It landed in the same pile of uselessness as all those ads on FoxNews claiming Gold would be well above $3000 per oz.
 

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It landed in the same pile of uselessness as all those ads on FoxNews claiming Gold would be well above $3000 per oz.

Anyone who invests in gold preparing for a collapse of the dollar is a lunatic. Good on Fox News for drawing them out!
 

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Well, MMT proponents are usually the first to explain, correctly, what has caused instances of hyperinflation.

So then you think Krugman explaining why we did not have the hyperinflation that right wing economist/commentary groups back around 2010 and 2011 was wrong? (BTW, his explanations predate his criticism of MMT... so you do not get to claim his explanation was sourced from MMT.)
 

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So then you think Krugman explaining why we did not have the hyperinflation that right wing economist/commentary groups back around 2010 and 2011 was wrong? (BTW, his explanations predate his criticism of MMT... so you do not get to claim his explanation was sourced from MMT.)

We're talking about different things. I'm talking about hyperinflation that has actually taken place, such as the Weimar.
 

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Anyone who invests in gold preparing for a collapse of the dollar is a lunatic. Good on Fox News for drawing them out!

It was a major problem, and like many things completely collapsed leaving duped investors holding gold assets at purchase price (plus commission premium) well above what Gold has been over the past entire calendar year.

Those companies utilizing FoxNews to sell Gold, screwed all those customers... badly.
 

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We're talking about different things. I'm talking about hyperinflation that has actually taken place, such as the Weimar.

And I am talking about Krugman calling out those claiming hyperinflation was going to happen as early as 2010 (if not earlier.) His commentary on why we did not see the hyperinflation right wing politicians and commentary groups said would happen was spot on. Meaning, MMT does not own the OP definition of inflation or hyperinflation.
 

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It can also be noted that MMT does not necessarily mandate a particular public policy.

When it is said that a government is not financially constrained in its ability to spend, that does not mean that it should spend anything. Further, MMT acknowledges that increases in the money supply can result in inflationary pressure.

True, I'll add to your statement:

While it is said that a government with sovereign currency is not financially constrained in its ability to spend, it is (or at least should be) economically constrained by productivity and thereby inflation, and NOT trivial metrics like "debt level".
 

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The only thing I would add is MMT does not own that explanation for what causes inflation/hyperinflation.

While i'd hope that would be obvious by referring to the well-cited wikipedia article, you are absolutely right and that is worth calling out.
 

pdog

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So then you think Krugman explaining why we did not have the hyperinflation that right wing economist/commentary groups back around 2010 and 2011 was wrong? (BTW, his explanations predate his criticism of MMT... so you do not get to claim his explanation was sourced from MMT.)

This is a tangent off of Krugman and Inflation. I'm a fan of Krugman, but even he reaches a little on the topic of MMT:

http://krugman.blogs.nytimes.com/2011/08/15/mmt-again/ said:
Let’s have a more or less concrete example. Suppose that at some future date — a date at which private demand for funds has revived, so that there are lending opportunities — the US government has committed itself to spending equal to 27 percent of GDP, while the tax laws only lead to 17 percent of GDP in revenues. And consider what happens in that case under two scenarios. In the first, investors believe that the government will eventually raise revenue and/or cut spending, and are willing to lend enough to cover the deficit. In the second, for whatever reason, investors refuse to buy US bonds.

The second case poses no problem, say the MMTers, or at least no worse problem than the first: the US government can simply issue money, crediting it to banks, to pay its bills.

But what happens next?

We’re assuming that there are lending opportunities out there, so the banks won’t leave their newly acquired reserves sitting idle; they’ll convert them into currency, which they lend to individuals. So the government indeed ends up financing itself by printing money, getting the private sector to accept pieces of green paper in return for goods and services. And I think the MMTers agree that this would lead to inflation; I’m not clear on whether they realize that a deficit financed by money issue is more inflationary than a deficit financed by bond issue.

"For whatever reason" really says nothing. So we're already in fictitious land, and then no where else does he mention productivity level, why demand on lending would increase with the new supply, or that inflation should actually be the constraint and not just the result. Like I said, I'm a fan, and I actually tend to lean towards more redistribution as an economic booster before deficit spending, but still, in more than one of his posts I think he suspends reality just to bit to make his point against MMT.
 

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This is a tangent off of Krugman and Inflation. I'm a fan of Krugman, but even he reaches a little on the topic of MMT:

"For whatever reason" really says nothing. So we're already in fictitious land, and then no where else does he mention productivity level, why demand on lending would increase with the new supply, or that inflation should actually be the constraint and not just the result. Like I said, I'm a fan, and I actually tend to lean towards more redistribution as an economic booster before deficit spending, but still, in more than one of his posts I think he suspends reality just to bit to make his point against MMT.

Because if you agree that "inflation/hyperinflation is about money supply OUTPACING economic growth, not the money supply itself" then you have to also agree that MMT saying "the government can never run out of money" purposefully ignores the status of the economy. And more importantly, ignores the relationship between monetary policy and investment sentiment.

And that is more or less the point of Krugman's arguments against MMT (even if he has more recently backed off those criticisms.)

From the same article further down...

"The point is that under normal, non-liquidity-trap conditions, the direct effects of the deficit on aggregate demand are by no means the whole story; it matters whether the government can issue bonds or has to rely on the printing press. And while it may literally be true that a government with its own currency can’t go bankrupt, it can destroy that currency if it loses fiscal credibility."

So again. We can have an economist that literally leans left, a sort of modern-Keynesian thinking economist completely adversarial to modern conservative economics, that also does not completely buy into MMT's oversimplification of what any sovereign nation can do with its own money. Fiscal credibility means something to the discussion, else no government would even bother auctioning bonds.
 

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The false argument is this: The more money you print, the more it loses its purchasing power.

There is very little truth in this, both in theory and in evidence.

Actually there is a lot of truth to it in theory, so much so that nobody has been foolish enough to try it resulting in real world evidence. They recognize that if they did there would be outrage around the world, and people would start losing confidence in the U.S. Dollar.

With this, one way you could define inflation is:
“When demand outpaces supply”

“Demand outpacing our productive CAPACITY”

Neither of these accurately reflect what people are talking about when they say inflation in this context.
A more general definition of inflation would be anything that requires people to spend more money to purchase the same amount of goods.

A normal amount of inflation is almost always happens. It is caused by population increases. More people in the world increases the demand for resources. While certain resources(mainly land) are not expending. The increased competition forces the price of land up. Anything else which requires land to be made would also have to go up accordingly.

The type of inflation we are referring to here though is when you increase the supply of money to the point where it becomes so easy to obtain it that nobody has any motivation to work for it. Or at the very least they start demanding more of it to do the same amount of work.

Think about it this way. Currently the Mexican Peso trades with Dollars at about 0.058%. So what's to stop Mexico from printing 900 Trillion Peso's and trading them for $52.2 Trillion Dollars? If we're doing it why can't they?
 

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Because if you agree that "inflation/hyperinflation is about money supply OUTPACING economic growth, not the money supply itself" then you have to also agree that MMT saying "the government can never run out of money" purposefully ignores the status of the economy. And more importantly, ignores the relationship between monetary policy and investment sentiment.

And that is more or less the point of Krugman's arguments against MMT (even if he has more recently backed off those criticisms.)

From the same article further down...

"The point is that under normal, non-liquidity-trap conditions, the direct effects of the deficit on aggregate demand are by no means the whole story; it matters whether the government can issue bonds or has to rely on the printing press. And while it may literally be true that a government with its own currency can’t go bankrupt, it can destroy that currency if it loses fiscal credibility."

So again. We can have an economist that literally leans left, a sort of modern-Keynesian thinking economist completely adversarial to modern conservative economics, that also does not completely buy into MMT's oversimplification of what any sovereign nation can do with its own money. Fiscal credibility means something to the discussion, else no government would even bother auctioning bonds.

I don't agree that creating dollars destroys a currency.

Let's say the government prints money so as to multiply every person's worth by 10. We may find that something that used to cost $2 now costs $20. Did our currency lose value ? In a relative sense, yes. But our GDP, inflation adjusted, might be exactly the same. Our GDP, in raw dollars, might be 10x as high.

Did anyone actually lose anything ? Obviously not. The point i'm trying to make is that the value of money is based on the production you can buy with it. Exchange rates would change, but we wouldn't be any richer or any poorer. We'd just have more dollar bills floating around.
 

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Because if you agree that "inflation/hyperinflation is about money supply OUTPACING economic growth, not the money supply itself" then you have to also agree that MMT saying "the government can never run out of money" purposefully ignores the status of the economy. And more importantly, ignores the relationship between monetary policy and investment sentiment.

And that is more or less the point of Krugman's arguments against MMT (even if he has more recently backed off those criticisms.)

From the same article further down...

"The point is that under normal, non-liquidity-trap conditions, the direct effects of the deficit on aggregate demand are by no means the whole story; it matters whether the government can issue bonds or has to rely on the printing press. And while it may literally be true that a government with its own currency can’t go bankrupt, it can destroy that currency if it loses fiscal credibility."

So again. We can have an economist that literally leans left, a sort of modern-Keynesian thinking economist completely adversarial to modern conservative economics, that also does not completely buy into MMT's oversimplification of what any sovereign nation can do with its own money.
Fiscal credibility means something to the discussion, else no government would even bother auctioning bonds.

Ok, fair enough. That said, I don't think I agree with the last statement. While I acknowledge that bonds provide an additional metric in the economy and the health of our currency in the form of interest rates, I'm not sure their continued use alone qualifies as evidence of needing "fiscal credibility". Aren't prices alone for this?

Futher, buying bonds instead of buying goods is what production based economies do. Lack of interest in bonds, might just signal the shift to a consumption based economy. I suppose it could indicate a lack of "credibility" in our currency. But, either way we are screwed at that point. It signals that our labor/productive capacity is worth less than their own. To me this has little to do with the amount of currency we created (baring hyperbole of course) and everything to do with what we choose to produce. This goes right back to the idea that our currency's value is derived not from credibility or confidence, but the value of the goods and services that it can buy.
 

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I don't agree that creating dollars destroys a currency.

Let's say the government prints money so as to multiply every person's worth by 10. We may find that something that used to cost $2 now costs $20. Did our currency lose value ? In a relative sense, yes. But our GDP, inflation adjusted, might be exactly the same. Our GDP, in raw dollars, might be 10x as high.

Did anyone actually lose anything ? Obviously not. The point i'm trying to make is that the value of money is based on the production you can buy with it. Exchange rates would change, but we wouldn't be any richer or any poorer. We'd just have more dollar bills floating around.

Yeah but you have to be careful here. Bonds are savings and savings are not going to float like real-time earnings with inflation. Savings are eroded by inflation.

That said, I think that is one of the reasons we have bonds. It's erosion protection to the holder, thereby increasing it's long term desire. Maybe that could be considered credibility.

We should all debate each other more often, its much more productive :p.
 

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Yeah but you have to be careful here. Bonds are savings and savings are not going to float like real-time earnings with inflation. Savings are eroded by inflation.

That said, I think that is one of the reasons we have bonds. It's erosion protection to the holder, thereby increasing it's long term desire. Maybe that could be considered credibility.

We should all debate each other more often, its much more productive :p.

Yeah, i tried to avoid the erosion of savings by saying that the government would hand out the new dollars based on worth.

I was basically trying to say that if every dollar amount was multiplied by 10 courtesy of Uncle Sam, the only thing that would change are the numbers. Nobody would actually be any less poor. While i can understand why drastic instability could be perceived as eroding our dollars credibility, i am skeptical to how that would translate into being bad for us.

And i think a small amount of inflation is a good thing, it can help to apply some pressure to spend or ensure that savings is invested.
 

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There have been several pro and anti MMT threads at this point, yet all I see from the anti-MMT folks are tactics and fallacies to avoid actual debate. I would like to compile a list of all of the lame arguments used against MMT so they can be easily referred to and used the nullify those that just want to toss deception and uncertainty into the threads.

To kick it off, I thought I’d start with inflation.

The false argument is this: The more money you print, the more it loses its purchasing power.

There is very little truth in this, both in theory and in evidence.

To start we should define inflation:


So we’re talking about the purchasing power or the value of money.

You don’t have to get fair in that Wikipedia article to see how people jump the gun and yell “inflation!”

And that is what people cling to. Unfortunately they need to read the ENTIRE paragraph:

So there’s a couple of counter examples, and more importantly a consensus view at the end. Inflation is about money supply OUTPACING economic growth, not the money supply itself.

With this, one way you could define inflation is:
“When demand outpaces supply”

Unfortunately the couterpoint conveniently holds supply constant and then comes up with some hyperbolic senario of drastically increasing the money supply by “giving everybody a million dollars” or similar. First, the only reason that supply of goods and services would stay constant is if the resources required to make those goods were somehow constrained. We might be low on natural resources (unlikely), low on labor (low unemployment), etc. But if those constraints do not exist, then there is NO REASON to believe that the supply of goods wouldn’t expand to meet the new demand. So even in absurd hyperbolic scenarios this isn’t really a problem. Of course short term, inflation probably would occur since it’s not as easy to increase supply as it is to increase the money supply. The good news is that “giving everybody a million dollars” is never going to happen and has never been suggested so I’m not sure why the counter argument even uses it.

That said it may be better to think of inflation as:
“Demand outpacing our productive CAPACITY”

As long as we have the capacity to produce more goods, there is little reason to fear inflation.

For those that would like to add to this and cover things like Weimar and Zimbabwe in how they are terrible example of money supply and better example of constrained production I would appreciate it.

Please name one country that subscribes to MMT or believes in it. That tells the real story.
 

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Countries, like corporations, are not people and, therefore, cannot have beliefs.

What a dodge that was. You clearly can't admit that no one with any authority over their country's economy follows MMT.
 

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Actually there is a lot of truth to it in theory, so much so that nobody has been foolish enough to try it resulting in real world evidence. They recognize that if they did there would be outrage around the world, and people would start losing confidence in the U.S. Dollar.
There is no more truth to it than if I say my car only has 6 gallons of gas in it and ask you if I'll make it to my destination. You simply cannot answer the question without additional context and inflation is the same way. You CANNOT talk about inflation in terms of money supply alone.


Neither of these accurately reflect what people are talking about when they say inflation in this context.
A more general definition of inflation would be anything that requires people to spend more money to purchase the same amount of goods.
To be fair, I made a mistake by saying "defined" and should have said "caused". I had the context correct when referring to consensus causes, but did mess up the statement. Sorry. Does this change your argument?

The type of inflation we are referring to here though is when you increase the supply of money to the point where it becomes so easy to obtain it that nobody has any motivation to work for it. Or at the very least they start demanding more of it to do the same amount of work.
You've got some wires crossed here. Labor prices are hardly any different than any other resource and are governed by supply and demand. Nobody is suggesting any sort of "giveaway". Deficit dollars could be used to create jobs and therefore affect the supply of labor thus raising the cost of labor. But unless we get into hyperbole, I hardly see that as a bad thing.


Think about it this way. Currently the Mexican Peso trades with Dollars at about 0.058%. So what's to stop Mexico from printing 900 Trillion Peso's and trading them for $52.2 Trillion Dollars? If we're doing it why can't they?
You've muddled your point by throwing currency exchange into the argument. What are you trying to say? There is nothing stopping any monetarily sovereign country from creating their own currency. But trading that currency happens in the markets. If they wanted 52.2 Trillion dollars they'd have to find somebody that ALREADY HAD dollars that wanted pesos instead and that has nothing to do with currency creation. Whether or not 900T new pesos would be inflationary or not depends on if there is 900T pesos worth of new productive capacity in mexico.
 
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