To test left wing and MMT economics

So, the lefty idea is that we should have stimulus. OK. And also that it’s better to go big. Inflation is less of a problem than poverty after all. That calculation rather depending upon how much inflation and how much poverty:

Yet the policy stimulus in the US is gargantuan. The fiscal expansion amounts to about 13pc of GDP this year after a similar amount last year, compared to likely spare capacity of only 2pc of GDP. US inflation has already risen to 4.2pc and before too long could easily breach 5pc.

So we’re going to get that idea tested. Then there’s MMT. Which says that if inflation turns up as a result of monetisation of fiscal policy then either the monetisation must stop, or taxes rise in order to curb the inflation. OK, it’s logically true. But does it work?

Do political incentives work that way? Having found the never ending chequebook will he politicians stop using it because inflation, will they increase taxes – a politically bruising at least thing to do – in order to stop inflation?

My bet is that they won’t and that therefore MMT ends up being one of these things that might be logically possible but just doesn’t work with the species homo sapiens.

Gonna be interesting to find out, eh?

4 thoughts on “To test left wing and MMT economics”

  1. You can keep on spending, but (to a point) stop its monetisation by selling bonds.

    The consequent rise in yields will not be good news for existing bondholders or probably for equity owners either, but this type of pain might be more politically palatable than raising taxes.

  2. We know what happens: property speculators make tons of money and the value of money-denominated savings halves in five years. Been there, had that done to us by an ex-communist Chancellor of the Exchaequer.

  3. The only appetite to raise taxes in on “the rich” and won’t be enough to affect inflation. The possible saving grace for the Dems is that the economy is a big enough & complex enough beast that they can blame something other than the spending – speculators, greedy corporations, bad weather, etc. and hope enough voters buy it to keep on trucking.

  4. In a world of prices inflated by, well ‘inflation’ extra taxation to take that ‘inflation’ off the table simply impoverishes those who were last in the queue (line?) for the inflationary expansion of the money supply. That’d be ‘the poor’ (please define?) then. As, as we all know, ‘the rich’ will pretty well avoid all that extra alleged inflation killing tax.

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