The inflation limitation is the MMT orthodoxy. It’s interesting that the US has adopted MMT without any explicit political process. It’s like when Nixon said “we’re all Keynesians now”. By that time Keynesian economics had been the orthodox economic paradigm for decades.
I always thought the MMT people were naive. You are supposed to suck the surplus liquidity out of the system by raising taxes when you get inflation. But no politicians are ever going to do that when the voters are suffering the consequences of inflation. So MMT can never work in practice.
The solution is an Automatic Tax Modulation Tool as described below:
The sovereign, like the US, can:
a. issue currency to spend and buy anything the economy produces,
b. up to the productive capacity of the economy (adjusted for turnover/velocity),
c. without creating inflation.
In other words the US government can issue currency and hire any and all unemployed and
underemployed folk. The constraint is the productive capacity of the economy, as measured by
wage inflation. If prices do rise above an acceptable level, they can be controlled by i) selling
government securities, ii) raising interest paid on deposits at the fed, iii) raising taxes across the
board (on income, sales/vat, and asset values), or iv) a cut in spending.
Inflation is easily managed in these circumstances. For example, the Job Gty/Green New Deal law should include AUTOMATIC across-the-board tax increases that kick in when certain
monthly wage inflation target are hit-say for 6 months in a row. These can include:
a. issue currency to spend and buy anything the economy produces,
b. up to the productive capacity of the economy (adjusted for turnover/velocity),
c. without creating inflation."
- This is a hypothesis. It may and may not be true.
"If prices do rise above an acceptable level, they can be controlled by i) selling
government securities, ii) raising interest paid on deposits at the fed, iii) raising taxes across the board (on income, sales/vat, and asset values), or iv) a cut in spending.
Inflation is easily managed in these circumstances"
- They are ignoring the psychological components of inflation. It has a strong self-propelling element that is not easy to kill if it gets embedded.
"For example, the Job Gty/Green New Deal law should include AUTOMATIC across-the-board tax increases"
- This is excactly the point. They are not automatic if populistic politicians can get votes by suspending the automation. Anything created by man can be taken away by man.
RE: "….They are ignoring the psychological components of inflation.. ...."
• There are limits to psychological elements of money. When inflation goes above certain targets, say 6% apr for say 3 months in a row, then automatic taxes kick in, pulling money out of the economy in real time. Money and the lack of it doesn’t care about feelings. You have less money to spend. Inflation cools off quickly.
RE: ".. This is excactly the point. They are not automatic if populistic politicians can get votes by suspending the automation. Anything created by man can be taken away by man.. ..."
• Inflation is extremely unpopular. There will be more public sentiment to cool off inflation then there will be for stimulus Its important to note that this would be in conjunction with a Job Gy as part of a Full Employment Fiscal Policy. (Here is the solution in bullet points, posted by a gentleman and a scholar: https://www.blogger.com/blog/post/edit/5855015725291556745/4245871197472795462
• With a Job Gty in place, there would be much less pressure to lower taxes as the automatic anti inflation actions will cause much less pain. .
i am on the island of mallorca but look into my emai account from time to time: think it's a mix of reserve currency, better jurisdiction and if you exclude mag7, my guess is that the underperf of spx vs gld is "gigantic" and will continue, more in miners than physcial now as i believe that fcf will be HUGE in coming quarters/years, loading up the truck as long as miners are cheap...see first majestic silver (AG US)
Great minds think alike. Earlier this morning I published my own post on MMT! https://open.substack.com/pub/tarotfso/p/what-if-i-told-you-debt-makes-us?r=kwvs&utm_medium=ios
I think MMT is not limited by inflation... its limited by politics. Government spending magic money is inevitably corrupt
It may just be that the bond market is fine with huge amounts of debt and big deficits for as far as the eye can see. Japan has shown us the way.
The inflation limitation is the MMT orthodoxy. It’s interesting that the US has adopted MMT without any explicit political process. It’s like when Nixon said “we’re all Keynesians now”. By that time Keynesian economics had been the orthodox economic paradigm for decades.
I always thought the MMT people were naive. You are supposed to suck the surplus liquidity out of the system by raising taxes when you get inflation. But no politicians are ever going to do that when the voters are suffering the consequences of inflation. So MMT can never work in practice.
I was thinking the same thing - its very naive.
The solution is an Automatic Tax Modulation Tool as described below:
The sovereign, like the US, can:
a. issue currency to spend and buy anything the economy produces,
b. up to the productive capacity of the economy (adjusted for turnover/velocity),
c. without creating inflation.
In other words the US government can issue currency and hire any and all unemployed and underemployed folk. The constraint is the productive capacity of the economy, as measured by wage inflation. If prices do rise above an acceptable level, they can be controlled by i) selling
government securities, ii) raising interest paid on deposits at the fed, iii) raising taxes across the board (on income, sales/vat, and asset values), or iv) a cut in spending.
Inflation is easily managed in these circumstances. For example, the Job Gty/Green New Deal law should include AUTOMATIC across-the-board tax increases that kick in when certain monthly wage inflation target are hit-say for 6 months in a row. These can include:
a) Income Taxes,
b) Sales/VAT Taxes
c) Asset Value (or Wealth) Taxes
That'll cool things off pronto
"The sovereign, like the US, can:
a. issue currency to spend and buy anything the economy produces,
b. up to the productive capacity of the economy (adjusted for turnover/velocity),
c. without creating inflation."
- This is a hypothesis. It may and may not be true.
"If prices do rise above an acceptable level, they can be controlled by i) selling
government securities, ii) raising interest paid on deposits at the fed, iii) raising taxes across the board (on income, sales/vat, and asset values), or iv) a cut in spending.
Inflation is easily managed in these circumstances"
- They are ignoring the psychological components of inflation. It has a strong self-propelling element that is not easy to kill if it gets embedded.
"For example, the Job Gty/Green New Deal law should include AUTOMATIC across-the-board tax increases"
- This is excactly the point. They are not automatic if populistic politicians can get votes by suspending the automation. Anything created by man can be taken away by man.
RE: "….They are ignoring the psychological components of inflation.. ...."
• There are limits to psychological elements of money. When inflation goes above certain targets, say 6% apr for say 3 months in a row, then automatic taxes kick in, pulling money out of the economy in real time. Money and the lack of it doesn’t care about feelings. You have less money to spend. Inflation cools off quickly.
RE: ".. This is excactly the point. They are not automatic if populistic politicians can get votes by suspending the automation. Anything created by man can be taken away by man.. ..."
• Inflation is extremely unpopular. There will be more public sentiment to cool off inflation then there will be for stimulus Its important to note that this would be in conjunction with a Job Gy as part of a Full Employment Fiscal Policy. (Here is the solution in bullet points, posted by a gentleman and a scholar: https://www.blogger.com/blog/post/edit/5855015725291556745/4245871197472795462
• With a Job Gty in place, there would be much less pressure to lower taxes as the automatic anti inflation actions will cause much less pain. .
i am on the island of mallorca but look into my emai account from time to time: think it's a mix of reserve currency, better jurisdiction and if you exclude mag7, my guess is that the underperf of spx vs gld is "gigantic" and will continue, more in miners than physcial now as i believe that fcf will be HUGE in coming quarters/years, loading up the truck as long as miners are cheap...see first majestic silver (AG US)