“People may have different ideas about how to pay for it,” Jen Psaki said Tuesday, while elaborating on Joe Biden’s multi-trillion dollar plan to give the American economy a facelift.
The plan is actually two proposals, which together comprise what may ultimately be a ~$4 trillion makeover aimed at addressing everything from the country’s crumbling infrastructure to chronic underinvestment in research to myriad societal inequities to the tax code.
“We’re open to hearing them. So hopefully people will bring forward ideas,” Psaki added.
This is a maddening discussion. So maddening, in fact, that I’m compelled to simply step back from it and speak as though I too believe the ridiculous fiction that says the government needs to embark on a quest for offsets in order to “pay for” things like 20,000 miles of better roads, repairs to the nation’s most critical bridges and the elimination of lead pipes from water supply lines. (All of that is included in the infrastructure plan.)
Attempting to incorporate this discussion into what are sure to be dozens of articles about Biden’s longer-term economic stimulus package will be as maddening as the discussion itself. Given that, I wanted to publish a brief piece (this one) reiterating the main points so that I can simply refer back to it later, as opposed to incessantly recapitulating.
There’s no need to “pay for” any of this. The federal government doesn’t need to borrow or tax to do it. I’m more extreme on this point than any MMT advocate because ultimately, I view things through a philosophical lens rather than through the lens of disciplines like economics which, stripped of their pretensions to scientific rigor, amount to little more than disparate (and desperate), competing theories about humans and how they interact in different settings. Having subjected myself to what, for most people, would count as extensive post-graduate work in both political science and economics, I can tell you, definitively, that there is nothing more “scientific” about the latter than the former. Nothing. Neither are amenable to any kind of deterministic conclusions.
So, we can’t say much about the purportedly inflationary effects of, say, Congress simply changing laws, abandoning any pretense to whatever “fiscal rectitude” means these days and/or instructing the Fed to create money with nothing in the way of offsets.
It’s true that inflation is a constraint, but if we’ve learned anything since the financial crisis, it should be that we have no idea what the threshold is for policy largesse when it comes to generating inflation in the developed world — especially when demographics, technology and debt continue to distort and otherwise undermine traditional dynamics.
How many times have you heard (on Twitter or on someone’s blog or in some newsletter penned by people peddling economic doomsday fantasies) that inflation is coming? Or that you should buy gold now, before it’s too late? Remember that 2010 “open letter” to Ben Bernanke published by The Wall Street Journal and signed by a who’s who of purportedly “smart” people, all of whom predicted “currency debasement and inflation” if the Fed persisted in accommodation? How have any of those predictions and pseudo-forecasts panned out? That’s a rhetorical question.
I should offer a caveat or two. We’re not completely bereft when it comes to understanding how inflation can manifest in advanced economies. It’s just that what we know is obvious, and could easily be addressed with new laws.
For example, we know that if we deliberately screw up and refuse to fix the situation (e.g., letting the free market dictate the provision of healthcare) or create perverse incentives (e.g., college tuition in the US) we can generate what looks like runaway inflation for certain goods and services. And we know that when everyone suddenly wants to buy something that’s made out of wood, the price of lumber will rise.
Other than those types of obviously inflationary scenarios which require nothing in the way of high-level thinking to grasp, we don’t know anything about inflation in the post-1990 developed world. While I haven’t studied it as extensively as a Larry Summers or a Janet Yellen, the gap between my study and theirs is smaller than the gap between the average reader’s and mine. So trust me when I tell you (again) that nobody knows anything with certainty about inflation in developed economies. The figure (below) is another “Any Ideas?” chart.
All of that to say that there is no reason whatsoever to believe that simply creating the money to fund a multi-trillion dollar economic modernization plan would be any more inflationary in the US than “funding” such an initiative with tax hikes and “borrowing” a currency that America has the sole legal authority to issue.
Ultimately, the above is meant to be provocative. It’s deliberately incendiary. I’m putting the extreme version of the argument out there so I don’t have to keep repeating it to readers over the course of documenting Biden’s two-part plan to reimagine the economy.
To be clear, I do believe that at some point, inflationary pressures would mount if you, say, sent everyone a check for $5 million. In the same vein, inflation expectations would doubtlessly pick up if the public started to connect “too many” dots.
However, I don’t believe anyone has anything like an accurate read on where the thresholds are. If they did, then so many people wouldn’t have been so spectacularly wrong over the past dozen years since Lehman.
If you want to know when, if and how inflation is coming, you’d be better off asking a philosopher than you would an economist or an analyst.