From Lars Syll So what is the MMT solution to dealing with inflation ex post—i.e. once the problem is here? There isn’t one. And I’d suggest running fast and far from anyone who offers you a quick and easy prescription for dealing with any and all inflation. Mainstream economists, of course, offer just such a solution. The Federal Reserve will fix it! After all, it’s already their job (dual mandate), and they can act quickly and “independently,” tightening policy without fear of any backlash at the ballot box. I don’t know of a single MMT economist who agrees with this view. Why? For one thing, we don’t think rate hikes work to constrain inflationary pressures the way mainstream economics teaches. It might even be possible, as Warren Mosler and Randy Wray have argued for years, that
Topics:
Lars Pålsson Syll considers the following as important: Uncategorized
This could be interesting, too:
John Quiggin writes Trump’s dictatorship is a fait accompli
Peter Radford writes Election: Take Four
Merijn T. Knibbe writes Employment growth in Europe. Stark differences.
Merijn T. Knibbe writes In Greece, gross fixed investment still is at a pre-industrial level.
from Lars Syll
So what is the MMT solution to dealing with inflation ex post—i.e. once the problem is here? There isn’t one. And I’d suggest running fast and far from anyone who offers you a quick and easy prescription for dealing with any and all inflation.
Mainstream economists, of course, offer just such a solution. The Federal Reserve will fix it! After all, it’s already their job (dual mandate), and they can act quickly and “independently,” tightening policy without fear of any backlash at the ballot box. I don’t know of a single MMT economist who agrees with this view.
Why? For one thing, we don’t think rate hikes work to constrain inflationary pressures the way mainstream economics teaches. It might even be possible, as Warren Mosler and Randy Wray have argued for years, that raising interest rates does more to push inflation higher rather than lower.
The way I see it, inflation is a complex and dynamic process, with potentially many underlying drivers. It takes a certain hubris to assert that by nudging a single price—the federal funds rate—higher, the entire economy can be shifted back onto to a stable inflation path. My view is that any effort to rein in inflation must start with an autopsy of the problem.