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Inflationary Pressures in the Time of Covid-19: MMT as a Theory of Inflation — Andrés Bernal

Summary:
Abstract: According to Modern Monetary Theory (MMT), the only constraint on public spending for a currency issuing authority like the United States government is inflation. This paper develops an alternative understanding and analysis of economic inflation through the lens of MMT in the aftermath of the Covid-19 public health crisis and consequential economic shutdown and reopening. It argues that conventional explanations of inflation remain ideologically constricted to an outdated social theory and conceptual framing. As such, public policy responses to contemporary price increases are limited in scope and incapable of neither effectively stabilizing prices nor avoiding the worsening of social inequities and harm. The paper will first develop MMT’s insights about inflationary pressures

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Abstract: According to Modern Monetary Theory (MMT), the only constraint on public spending for a currency issuing authority like the United States government is inflation. This paper develops an alternative understanding and analysis of economic inflation through the lens of MMT in the aftermath of the Covid-19 public health crisis and consequential economic shutdown and reopening. It argues that conventional explanations of inflation remain ideologically constricted to an outdated social theory and conceptual framing. As such, public policy responses to contemporary price increases are limited in scope and incapable of neither effectively stabilizing prices nor avoiding the worsening of social inequities and harm. The paper will first develop MMT’s insights about inflationary pressures as a theory of qualitatively determined resource use, costs, and political coordination, as opposed to a collapse in the value of money from excessive public spending. An analysis of price pressures throughout 2021 is then provided by examining supply chains, industry specific shocks, and market power. Lastly, inflation is explored in the context of an ongoing planetary climate and environmental crisis with deep implications about the future of sustainability, economic development, and price stability.
I said this some time ago. The concept of inflation is not useful for at least two reasons. First, it is not good science. Secondly, the term carries both emotion and ideological charge. It should be retired.

Inflation in contemporary economics and finance suffers from the physics envy that affects the economics profession and spills over into finance. It is a search for a simple solution to a complex problem that is complicated by economics and finance being historical and social rather than naturalistic, as theories of inflation assume.

Moreover, attempting to apply concepts that apply more or less general special cases involving exogenous shock, which the pandemic certainly is, can be myopic unless one addresses the speciality of the case. This is compounded by the criticism of those opposed to fiscal policy for ideological reasons (rather than evidence) who claim that rising prices are proof of fiscal profligacy.

Global Institute for Sustainable Prosperity
Working Paper No. 132 —December 2021
Inflationary Pressures in the Time of Covid-19: MMT as a Theory of Inflation
Andrés Bernal, Research Fellow


See also
Larry Summers has struck again with yet another missive agonising about inflation risks. What is somewhat interesting about this latest piece is that parts of it could have been written by myself. Unfortunately for Summers, that is not exactly complimentary for his world view, for reasons that I will explain.
Bond Economics
Almost Agreeing With Larry Summers (And Why That's Bad...) 
Brian Romanchuk
http://www.bondeconomics.com/2021/12/almost-agreeing-with-larry-summers-and.html


Mike Norman
Mike Norman is an economist and veteran trader whose career has spanned over 30 years on Wall Street. He is a former member and trader on the CME, NYMEX, COMEX and NYFE and he managed money for one of the largest hedge funds and ran a prop trading desk for Credit Suisse.

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