Inflation can be caused for four reasons.

First, if a government tries to spend more within an economy already at productive full employment it will create inflation because the resources required to meet the demand that it is stimulating will not be available. Price increases would, then, be the inevitable consequence. This is an incredibly rare phenomenon because full employment at a living wage, indicating that all labour is used productively, is almost unknown.

Most economists would argue that that’s the major form of inflation rather than being incredibly rare. But then, you know, the P³ and economics.

It’s also a wonder where he’s got that living wage qualification from. Near no one in Turkey makes the British living wage but they’ve got quite a lot of inflation there, don’t they?

12 thoughts on “Fascinating”

  1. In fairness to the P3 – in the snippet he says there are 4 reasons for inflation, so presumably he would argue that Turkey’s inflation is caused by one of the other 3 reasons that you haven’t snipped.

    Whether he’d be correct to say is neither here nor there – it’s a valid defence to the dig in this specific blog post.

  2. The “living wage” part is how he gets “incredibly rare” into that sentence. Rather than being “almost always the case” (assuming he actually wanted to be accurate, which is unlikely).

  3. I’ll add in the three Reasons Geoffers but it’s fairly urgent that you check out one of his other posts Tim as he is 100% correct – the post is meant as a jest but he says that

    ‘Climate change concern…is all down to indoctrination by Left wing professors’

    We’re quick enough to criticize him when he’s wrong so this correct statement is of monumental importance.

  4. The three other reasons are:

    Second, inflation can be caused by a shortage of supply. (uses the example of a shortage of food)
    Third, there are externally imposed shortages of supply. (this is a dig at oil producers restricting supply)
    Fourthly, inflation can be imposed by domestic political choice. (he mentions Brexit here)

    Fortunately the solutions are at hand:

    Apparently MMT solves inflation caused by Full employment – presumably you simply tax people which is my recollection of how they explained inflation would be tackled.

    For Reason 2 – ‘Market Reform’ which seems to be the state will take over the entire means of production of everything

    For Reason 3 – Apparently this is to be solved by ‘Foreign policy and reliance on renewables’

    For Reason 4 – don’t elect incompetent government, only those that embrace MMT.

    I’ve honestly never seen anything less coherent. I think I had more idea about politics when I was 13. Just simply surreal

  5. Actually the minimum wage in Turkey is a rather interesting beast. It is unusually high for the economy and it is linked to an unusual number of other pay rates. So it has become a real competitive issue for them.

    But it’s ok because Erdogan has just raised it 50% so they’ll all be really wealthy later this year.

  6. I wonder if the mighty Spud understands the full irony in his statement that “full employment at a living wage, indicating that all labour is used productively, is almost unknown”. Who defines this living wage? Does he know about frictional unemployment? What does full employment actually mean – it generally doesn’t mean that every adult is in employment. Even if he does, would anyone automatically assume that the situation he describes could never result in inflation? With all these caveats, of course, such a situation is rare. Basically he is trying to say that “real”inflation has never happened: it is only caused by “Tory” governments.

  7. Those of us who lived through the 1970s remain aware that domination of the country by public sector trade unions can cause inflation. The value of the £sterling worse than halved in six years under the Wilson-Callaghan Labour government as a consequence of various trade union leaders demanding wage rises to compensate for the price rises caused by pay awards to other public sector unions.

  8. This is very stupid, or disingenuous (it can be hard to tell with Prof Potato).

    He is saying explicitly that the type of inflation (type 1) where it would be appropriate to rein in demand hardly ever happens. So there is never a reason not to spend more money.

    Even if lots of us thought that we did have full employment and type 1 inflation, he or others would claim that many workers were not being paid a “living wage”.

    So the inflation would be type 2 and the right answer would still be “market reform” instead. Many MMTers (not sure about Prof Potato) go onto say that the right reform is then a Jobs Guarantee – offering everyone who wants it a state-guaranteed job at £15 an hour or whatever.

    The consequences for genuine economic activity, and inflation, of what would be an ever-expanding state labour scheme can be imagined – although perhaps best by people who have lived in somewhere like Peron’s Argentina, or Madura’s Venezuela.

  9. “Inflation can be caused ‘for’ four reasons.”
    Not being an economist, does that statement mean that inflation is deliberately instigated by government, or should it read “by four reasons”? If the former, what are the advantages for the average person as opposed to a government balancing their books?

  10. @Penseivat
    If you are debtor, inflation is great. The real value of your debt decreases at the inflation rate. This is why government and other debtors like inflation, it’s easier to pay off debt.

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