Inflation Bogeyman Redux

Today I will (after a brief prelude) defend the thesis that inflation — if well-designed — is a progressive policy tool that benefits the most disadvantaged. So the MMT Base Case probably should include deliberate designed inflation, of some character. The character I will defend however, is not going to be inflation, it will be one-time re-gauging of the currency — which we take to be the State’s unit of account.

It is only “inflation” if you take a long run continuous interpolation. To be clear, in MMT circles, inflation is defined as a continual increase in the price level faced by consumers today.

• Not a rise in come commodity prices, and not price gouging.
• Not a rise in the wage rate.
• Not not the CPI (which is looking in the past, not today).

The last battle of MMT will be when people running the government (and let’s be generous, and say of whatever political stripe) all of: (a) understand MMT, (b) knows everyone else knows they understand MMT, (c) everyone knows the monetary system is best described in operational terms by MMT. And the last skirmish in this battle, as I see things, is to forever vamoose the inflation bogeyman to the fictional children’s closet it comes from.

But it is clear to my eyes that liberal–progressives stand in the way. They may have dimly perceived the government debt is not a problem. But the standard arguments against expanded social services is always the back-up monster of the inflation bogeyman.

I come up against it all the time. I do not have the educational superpowers yet to send it into the Phantom Zone, or better yet, down a proverbial Black Hole of gravitationally crushed stupid economics.${}^\ast$

${}^\ast$This is a bit of a physics joke, if you know my stance on black-holes! Black Holes could be mirrors, so emit the same information that hits them, foiling my plans to sink ꕷꖾꕯꖡꖡꔇ economic thought down the gravity well.

This does not mean MMT is a Lens on merely the scorekeeping system. I take my definition of MMT as:

An understanding the monetary system is a simple public monopoly and all the consequences thereof.

If the government is not a monopoly currency issuer then the analysis will not be as simple as the MMT Lens. But today, most nations do operate an MMT system. Private banks and firms cannot create net State tax credits, whatever other financial instruments the state allows them to use. Don’t blame us MMT’ers for all the government backwards policy responses to events. all the policy makers are in active denial of MMT.

Today I wish to emphasize that the becoming of items (a), (b) and (c) above will imply the easy elimination of the fear-of-the-debt and the fear of the inflation bogeyman. Both are due to false psychology. It is increasingly clear to me that a major obstacles stands in the way of MMT education. It is not the Deficit Myth, it is the Inflation Bogeyman. even moderate liberals and headline MMT people promote this fear. The headline MMT’ers perhaps only passively. But this includes the otherwise excellent Randall Wray, and the MMT educator Supreme Stephanie Kelton.

They parrot the old tired pablum that inflation is a real constraint.

Well, no it isn’t.

I am going to defend my position, of course for educational purposes, so “take it for leave it”. Your problem if you decide not to learn. My position is that inflation — but “deflating"🤣 the meaning to one-time currency re-gauging, so not technically inflation per se — is a darn good thing.

Parry 1

Firs thing to be clear on is that one-time regauging the currency unit downwards (1) reduces the purchasing power of hoarded wealth (a good thing) and (2) reduces the burden of past debt (a good thing). Here “good” is relative to present political economy class relations, which I wish did not exist, but I’m analysing what system we have, for now, not some socialist or anarcho-syndicalist utopia.

OK, but I cannot say one-time depreciation is going to have these nice outcomes. The policy implementation matters, because of the dynamical effects of hysteresis.

Parry 2

Any government that has decent social policy and the love of their people can sustain inflation on to infinity. It’s a book-keeping nuisance of course, to have firms constantly re-gauging prices. But if the democracy can withstand, then high inflation rates are sustainable in perpetuity. The nuisance factor means I do not support pro-inflation policy. However, I would support the next best things, either:

1. A Gesell currency — erodes the purchasing power of the government scorepoints by clear transparent policy design.
2. Currency re-gauging by increasing the lowest wage, but that is all.

The former is essentially currency devaluation, but keeping market prices basically quasi-stable. Prices change when the economy changes, when some goods become expensive due to supply constraints, while others are due to newfound automation and other efficiencies.

Recently Derek McDaniel wrote a nice review of a third policy, the negative interest rate. Which is a modern way to run a type of Gesell currency. It is effectively equivalent to a tax on holding not money (government scorepoints). But I see the negative interest rate as a pedagogical talking point, a toy model, not a good policy. Why?

Because I think there could be huge nasty unintended consequences, like pirating and hoarding of other resources, and nasty rent seeking and nasty competition, which should be avoided, since it is pointless, it’s the same sort of stuff you get when adopting a gold standard, currency peg, or fixed exchange rate, but especially a gold standard — people wasting their labour figurately ‘digging an almost useless metal up out of the ground’ all just because the government promises to redeem taxes for the stupid metal. (Hey, at least Austrian School nerds do not advocate a water or air standard — but you just imagine a monopoly issuer of air and water! In some countries we nearly have such entities, which is a clear case in favour of a workers League of Assassins: exterminate the Nestlé water fascists.)

For the same reason I’d be a bit wary of a Gesell currency. I prefer stability when possible. So just stick to ZIRP and a decent Job Guarantee automatic stabilizer. It is wholesome goodness. Heterodox economists of all people aught to be very wary of unintended consequences. This is the sort of concern promotion I like, the sort based upon known unknowns… or something like this (getting your head around the right quadrant of Rumsfeld space you are in can be a headache at 4am in the morning writing a blog)