Start with Duelling Monopolies

Yesterday I was fortunate enough to receive an email with a fresh cup of Mosler.

A Couple of Substacker’s Notes on Inflation

I had posted the following to an MMT discussion group.

Recently Brian Romanchuck and Dougald Lamont blogged a bit about inflation. Lamont here and Romanchuk here .

Steve Keen also had one here: “What About Prices?” .

I asked the mmt group:

Lamont writes about a chart showing Canada oil price history: “What it illustrates, in very clear terms, is that inflation of oil prices — which drive consumer inflation — are due to conflicts and political events…”
     Question for the mmt googlegroup: is it a fair critique if I reply to Lamont pointing out there is also a monopolist (OPEC+) setting price? It begs the question how influential “politics” and “conflict” are, and which direction causality goes. Major war in the Donbas or Middle East can certainly impact supply, but the monopolist is still the price setter, right? So it is really down to how political and conflict events disturb the leisure of the oil monopolist. (That’d be my challenge for inflationistas. Is the oil monopoly going to continue raising price? But then are central banks going to think they need to raise rates to “fight the inflation” [cough!]? Leading to sustained inflation!!!) Regards to all.

Fresh shot o’ Mosler

As is almost typical, Warren chimed in with a one-liner.

“I’ve called it duelling monopolies. The currency monopolist vs the oil monopolist.”

OK, so maybe not fresh Mosler, but it was fresh for me, since i had not heard “duelling monopolies” before in the context of inflation discussions.

It is another one of those macroeconomics points that really only an MMT expert will comprehend. It is “highly macro”. It is recognition the source of the price level is with the monopolist.

If there is no monopolist then something else is governing the price level, whatever anchor or lack of anchor that may be. However, the MMT historians point is that since the dawn of monetary systems (records of credits and debits, held in people’s heads or collective memory, or clay tablets, or these days computer records) there has always been a currency monopoly.

You cannot find single currency regions outside of systems of mere bank clearing, like the Banco del Giro, that are absent a currency monopolist. Whether they know they are the source of the price level or not is an interesting and highly relevant question for social equity. But operationally there is no denying almost all currencies since inception have had a monopoly issuer.

Since the oil supply these days is not the currency monopolist, and energy is the driver of all non-financialized${}^\ast$ real economies,

${}^\ast$OK, nerds. Financialized economies do run on fast computers for those parasitic traders. The point is, we do not need financialization. It is an obscene parasitic layer, completely unnecessary.

Mosler Round 2

The next day Warren followed up with another succinct email concerning the response a nation has to a foreign monopoly setting oil prices.

“To continue, with the duelling monopolies/price setters, when the Saudis raise prices, our choices include, for example:
   1. Allow the relative price of oil and products that contain oil to rise accordingly, while all other prices remain the same. This would be a reduction in our real terms of trade and diminish our real wealth accordingly, and the reverse for the Saudis. And it’s what they would prefer — get more for their oil in real terms.
   2. Allow our entire price level to shift up accordingly such that real terms of trade remain as before. There would be no shift in real wealth.”

Can we say, to trigger the Boomers, only MMT understands how to do this non-disruptively and equitably. The government should have a wage floor, called a Job Guarantee, and this can be used to one-time adjust the price level, whenever necessary, according to policy option 2.

A pragmatist would probably suggest a few other ways to upwards adjust the price level, transfer payments, pensions, and public servant wage rates, for example. Note that there is no inherent “conflict” here. The public servant wages are not competing with the JG wage. Nor really are private sector wages. Once the government currency injection goes up, and the JG goes up, if people drop out of low paid work to choose the JG, the private firms can upwards adjust their compensation to workers, to keep them hired.

The government fiscal injection provides the funds for firms to make higher sales, so their prices can be marked-up too. But then they’ll have to retain employees. So this should all have the intended effect of a one-time upwards adjustment in the price level.

This is the design intent of the policy, so private sector employees also get a trickle up in wage rise. If they do not, then it is not a big deal. There is no need for the government to press private firms to increase their wages. The government protection for workers is the Job Guarantee, and enforcement of labour standards.

MMT Comprehension

Here is the way to understand these matters.

The government, from inception, first issues the currency. It functions as a tax credit.

The Purpose — is that the government needs to provision the public sector. But in real terms not nominal (currency) terms.

Explain it this way to your friends. This way you do not cause moral panic excitations in the fibre of their whole being when you say taxes and bond sales do not finance government spending.

The tax liability (not the tax receipt) creates a demand for the currency, and sociologically an insatiable demand, this allows the government to hire real resources. Why? Because the government just created millions of people who want to accept the currency in exchange for their goods or labour. There does not even need to be any bank in existence except a scoreboard at one central bank. And there were no “tax payers” before the government imposed the tax liabilities.

Taxes do “fund” the government — indirectly but by design in real terms, not monetary terms. Finding the money is never a problem, except politically and psychologically. Why is it a psychological problem? Because the idiots in charge (however well educated, MENSA level IQ, and worldly knowledgeable) do not understand the monetary operations. So tell them! They are capable of understanding if they want to understand.