> Monetary policy isn’t the only or even the primary driver of inflation.
After two degrees in economics, my perception is that monetary policy is definitely considered a primary driver of inflation, probably THE primary driver. But this is probably irrelevant - see below.
> In this case, the inflation comes from increases demand on a portion of the food supply chain (shipping services).
Yes, for example: "in North America... a shortage of both shipping containers and truck drivers".
> The alarmism in the comment section largely comes from people misreading the headline.
To me, it feels alarmist for Bloomberg to consistently say "inflation" instead of "price increases" throughout the article. A temporary problem with supply/demand is not the same as inflation. Food prices will almost certainly fall back to their normal trajectory within a year or two, once supply/demand normalizes, whereas if there was truly inflation that would almost certainly NOT occur.
To be fair, the question was "with inflation" or "without inflation" (inflation rate of zero). A currency with a limited supply results in deflation as the economy grows. Deflation gives an advantage to savers, the same way inflation gives an advantage to debtors. A currency with an unlimited supply which is supplied at the same pace as economic growth results in zero inflation. And that's nice because then the government isn't giving anybody an artificial advantage. Zero inflation means a level playing field.
Speaking as an economist, I tend to get nervous when other economists talk about circumstances where "morality trumps economics." As a profession, we have a miserable track record on morality. Economists widely endorsed eugenics in the first half of the 20th century, for example. And many modern economists endorse a minimum wage, as eugenicists did then, but with even less regard for the harm it causes. Personally, I find it hard to entertain an economist's morality argument unless it goes something like, "We shouldn't do that because it could harm people."
In this article, The Economist is telling governments to force companies to produce "large supplies at fixed prices". Even if governments had that kind of authority in free countries, and they probably don't, that sounds like a policy that could easily cause harm. Companies can't just push one lever to maximum and expect nothing else to change. But most importantly, we don't need it. Yes, we've seen some small-time punks buy up too much hand sanitizer, but the big manufacturers are being decent. As The Economist pointed out, "3M, one of the world’s biggest manufacturers of high-end masks ... has stuck to its list prices and doubled its production." So there's not very good empirical or theoretical support for this idea. But there's hope for economists - "more than half" of economists surveyed about this idea criticized it.
> MMT requires a nation that is internally self-sufficient when it comes to basic supplies
To be fair, isn't this a lot like saying, "MMT requires conditions that don't generally exist"? What modern economy isn't shopping internationally for the best prices on basic supplies?
Ultimately this condition seems to imply that MMT requires either 1) a subject economy to be the most efficient producer of all basic supplies (probably impossible, and if achieved then impossible for any other economy) or 2) a prohibition on the import of basic supplies (despotic and economically dysfunctional). Is this correct?
This is making me think of Import Substitution Industrialization (ISI) in Latin America. It was a strategy to become economically self-sufficient, but it didn't work out well.
> What governments should do is spend appropriately to maximize the welfare of their people
Are you suggesting that people aren't capable of spending appropriately to maximize their own welfare, and that the government would do a better job of it (after taking a cut of the money)?
> What governments should do is ... borrowing and spending during economic slumps
Even if this were true, and I think global economic malaise since the financial crisis is evidence it's not, it omits the corollary that governments should then repay debt and save during economic booms. You can't responsibly have one without the other, can you?
> balanced budgets [are a bad idea]
So debt is a good idea? We should finance current spending at the cost of future spending? That's a pretty radical statement. The burden of proof is on you.
Translation: Countries can incur as much debt as they want, because they can "print" their way out of it without harmful consequences.
> inflation is the most important constraint in public spending
Translation: People's economic suffering is the most important constraint in government spending.
> most cases of hyperinflation in history, including the infamous Zimbabwe, are due to a supply shock
Translation: Most cases of hyperinflation in history were due to economic crisis.
Hyperinflation is due to creating far too much new money. Enough to foster price increases of at least 50% per month. Economic crisis does not necessitate doing that.
By the way, in the case of Zimbabwe, it was the government economic mismanagement that created the economic crisis that you blame for the monetary mismanagement. From your article: "From an economic perspective though the [government] farm take over and collapse of food production was catastrophic." Then the government chose to try "printing" its way out of the problem. Hyperinflation wasn't mandatory, it was a consequence of reckless behavior.
> how an honest reader of the MMT literature would arrive to that conclusion
The only substantial concession to inflation risk I've seen in the MMT literature is in conditions of "full employment." Feel free to set me straight if that's not correct.
Empirically speaking, inflation follows injecting money into an economy, and inflation is quite harmful. It seems MMT resists at least the first conclusion, if not both.
While we're on the topic of honesty, doesn't MMT feel like an economic "get rich quick" scheme to you?
TL;DR: MMT starts by saying that governments that manage their own currencies have unlimited spending ability – they can simply create money when they need it. And that's obviously true, to the extent that people are willing to accept that money in exchange for their goods and services (an extent which is not infinite). Then, building on that premise, MMT basically claims that nobody needs to get hurt when governments create money out of thin air. The explanations for this are pretty wonky and hard to follow, but they amount to saying that the theory generally predicts no harmful inflation of the currency.
Analysis: Hasn't mankind already concluded that governments can't just create and spend money boundlessly without harming the economy and the people who constitute it? I'm looking at Argentina, Venezuela and Zimbabwe right now, where the governments have each created money to finance their spending, and people are truly suffering as a result. And those are just some contemporary examples – human history offers many more, and they're quite consistent. If MMT doesn't predict inflation as a result of arbitrary creation of currency, then it seems we can conclude MMT is incorrect.
Radical alternative theory: Governments should be fiscally responsible, practicing balanced budgets and promoting currency stability. Outlandish, true. But it turns out that historically this has been a very winning formula. More efficient economies, less corrupt governments, fewer innocent people getting hurt.
"A job guarantee (JG) is an economic policy proposal aimed at providing a sustainable solution to the dual problems of inflation and unemployment." However, it is economic consensus that inflation is caused by government monetary policy (the "monetarist" view). It is also economic consensus that inflation is destructive and creates unemployment. So if government policy is creating inflation, and therefore unemployment, why would a government "job guarantee" be a sensible response? More alcohol doesn't sober a drunk man; more intervention doesn't balance an economy.
As the article correctly notes, "When inflationary expectations subside, [unemployed] people will get their jobs back." So isn't the most sensible solution to have the government stop inflating the currency? That would solve the "dual problems" without introducing a third. It would also be a fair and honest thing to do. After all, inflation is the government's way of raising revenue by cheating (it's "the hidden tax").
As a side note, it amazes me these antique economic fallacies consistently appear on HN, of all places. They are worse than nonsense, they're dangerous. When practiced, they really hurt people. Yes, they might help a few people - but they hurt far more than they help, and for far longer. Consider the government make-work programs during the Great Depression, which are now credited for dragging out that misery. Please, enough with the junk economics. There are far more fruitful government policy discussions to occupy intelligent minds - increasing efficiency, reducing deficits and debt, fighting corruption, stopping war, to name a few.
After two degrees in economics, my perception is that monetary policy is definitely considered a primary driver of inflation, probably THE primary driver. But this is probably irrelevant - see below.
> In this case, the inflation comes from increases demand on a portion of the food supply chain (shipping services).
Yes, for example: "in North America... a shortage of both shipping containers and truck drivers".
> The alarmism in the comment section largely comes from people misreading the headline.
To me, it feels alarmist for Bloomberg to consistently say "inflation" instead of "price increases" throughout the article. A temporary problem with supply/demand is not the same as inflation. Food prices will almost certainly fall back to their normal trajectory within a year or two, once supply/demand normalizes, whereas if there was truly inflation that would almost certainly NOT occur.