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:
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!”
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.
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!”
And that is what people cling to. Unfortunately they need to read the ENTIRE paragraph:Economists generally believe that high rates of inflation and hyperinflation are caused by an excessive growth of the money supply.[SUP][6][/SUP]
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.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.
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.