He’s off on the MMT tear today and, as ever, his lack of a grounding in the basics of the subject lets him down:
So money has value because the government endows it with that quality. And then, and only then, is the supposed left-wing quality added to this whole issue, because modern monetary theory then notes that when markets do not create full employment (and they usually do not, as Keynes first pointed out 80 years ago) then the government can create its own money to just to indirectly boost economic activity (which is exactly what QE was supposed to do, but was not very good at, to put it kindly), but to do it directly by investing itself.
And modern monetary theory says that this can be done until we reach full employment. Then, and only then, will we have inflation because of money creation (although we could have it for other reasons, such as a Brexit devaluation, but that’s something quite different). Because we have not had effective full employment for a long time (bogus stats on self-employment levels do not indicate full employment really exists) we have also not had this type of inflation for a long time.
The bit he’s missing here is the definition of full employment. The way he’s put it – we only get inflation if we go above full employment – is just another way of stating the NAIRU, non-accelerating inflation rate of unemployment. Which is something that changes. According to the microeconomic structure of the economy.
We have, for example, in the UK economy in the past had inflation when unemployment was higher than it is today. It’s also true that other countries have inflation when unemployment is higher than our own. And places where they still have less inflation when unemployment is less than our own. That is, there’s something about the structure of the economy that changes that definition of full employment. A useful definition of full employment being when we get inflation – the same statement a Murphy’s own we’ll only get inflation at full employment.
What really provides the joy here is that if you went along to him and said, so Friedman’s NAIRU then, or maybe even, so, this Phillips Curve then, he’d not know what you were talking about. As you explained it he’d insist that it was, or they were, entirely wrong. Because. Despite their both being (NAIRU really only says that we can shift the Phillips Curve, not just move along it) exactly what he is saying. Without his having read the libraries of work on the implications of either or both.