A Recession To Save Democracy?

"Today's report... demonstrates that we are making progress in slowing the rate of price increases," Joe Biden said, commenting on another red-hot CPI print. I suppose that depends on one's definition of "progress." Biden claimed December's numbers showed "a meaningful reduction in headline inflation," which is true if you go by the MoM print. Depending on the context, it does make sense to put more emphasis on the monthly readings than the YoY numbers, but failing to at least nod to the highe
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10 thoughts on “A Recession To Save Democracy?

    1. They didn’t listen. And they never will. Or at least not centrist Democrats. Also, MMT isn’t a theory. It’s descriptive, not prescriptive. It just is. I’m not going to debate this with you or any other readers because it’s fruitless. MMT is a fact. It’s the way government finance works in advanced currency-issuing economies. The problem is that by calling it a “theory,” those who teach it condemned themselves to debating the subject with people who either refuse to admit the obvious, or don’t understand how government finance works. When you corner people on the self-evident facts, they resort to strawman arguments. That’s why I stopped debating it. It’s obvious you haven’t read Stephanie’s work, otherwise you wouldn’t have made this comment. It’s nonsensical. On multiple levels.

      1. Technically you’re right, they didn’t listen. And it is descriptive, so the next part of that description is to target inflation by raising taxes, right? I wonder how popular that will make the party in power? Not trying to be nonsensical, sorry!

          1. I have the read the literature, but to directly quote Mrs Kelton, “So taxes are important, because they’re one way that the government can reduce the purchasing power of all the other spenders in the economy. So if the government wants to come in and do a big ambitious infrastructure project and spend trillions of dollars into the economy. It might be worried that spending trillions of dollars could push prices higher, could lead to inflationary pressure.
            And to offset or mitigate the inflationary pressure, it matches up some of its new spending with higher taxes. So it makes room for the government to be able to spend those dollars into the economy without creating inflationary pressures. Taxes are important because they allow government to pull a lever if it’s interested in rebalancing the distribution of wealth and income.” Source: https://www.macrovoices.com/guest-content/list-guest-transcripts/3912-2020-10-22-transcript-of-the-podcast-interview-between-erik-townsend-and-stephanie-kelton/file

          2. This is a reply to the comment below, by William:

            The citation you have is the answer to the question “And why is it a myth that it’s important to pay for what we spend or what the government spends through taxes?”

            It’s not the answer to the question William posed: “how to tame inflation?”

            MMT just explains why large deficits in governments with fiat currencies need not lead to inflation and what can be done with this power. It doesn’t say there will never be inflation or how to tackle this specific type.

            Within the MMT framework one could argue that spending to remove supply bottlenecks and keep people healthy and working throughout the supply chain (child care, health care), and engaging more workers (education, eviction prevention), the inflation we are seeing can be tamed.

            In that regard, Democrats are still listening to Dr. Kelton.

  1. H-Man, you stir up a hornet’s nest and then say your going to the sidelines. Joe has nightmare in front of him — raging inflation and rising interest rates going into the 2022 midterms. He needs a lot of luck that inflation will go in reverse and the Fed will not tap the brakes to hard. Right now it looks like a feeding frenzy for Republicans.

    1. Don’t hold your breath. Mid-term campaigns got underway on 1/6/21. What has been going on is a battle for hearts and minds that makes what we have tried to do in Vietnam, Iraq, Afghanistan, etc look like child’s play. Some folks have said we are already in a civil war and have been for some time. I agree It will be ugly and there will be many casualties. The key thing to remember is that there is no logic underlying the rhetoric or the actions involved. Any pretext, any lie can turn the tide. Fasten your seat belts.

  2. There’s a side to MMT that cannot be debated as to how government doesn’t need taxes to finance its expenditure.

    The other side, where the massive flaw resides, is based on the fact expenditure isn’t the end all be all. Oil cannot be printed, neither can railroads, food, containers or air/land/sea fleets. The naive application of MMT intervention, for lack of a better description, has caused the current inflation conundrum and putting the Federal Reserve between a rock and a hard place. Its ultimate downfall always was the stagflation scenario: tightening monetary policy and increased taxation to counter an exogenous inflationary shock.

    All models advocating for direct intervention aren’t robust to tail events. Complexity and non-ergodicity overwhelm every econometric model, as the Fed can very well attest to.

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