For examples of that you need to go to Eastern Europe. Word got out the Serbian nationalists were printing extra money to pay for pet projects. Inflation went fucking nuts. By 1993, they were printing 500 billion dinar notes and then the country collapsed into civil war. You get something similar in Hungary.Lago wrote: How often is inflation caused by just monetary expansion, with no other confounding factors? Inflation seems to have a lot stronger correlation with political instability than the reverse, since substantial expansions of the monetary supply (e.g. Japan) hardly do anything. Hell, I think I might do a mini-graph showing that surpluses or deficit reduction caused by revenue increases has a lot stronger correlation with recessions.
While the US Federal Reserve appears to be able to fiat two trillion dollars into existence and have inflation stay below historical norms, money printing for ideological reasons seems to have a much lower tolerance among the people. That is: is respectable people in suits make a speech about "blah blah demand curve blah blah liquidity blah blah" and then announce that they are putting an extra trillion dollars into circulation, no one cares and inflation doesn't move. Well sure, Austrian types announce the sky is falling, but enough people accept that things are working responsibly that the inflation dial barely twitches, if at all. But if some political party announces that they are printing a bunch of money because they want party hats for dogs, the economy collapses.
That is to say: whenever you print money, you have to come off as respectable and serious or people will freak out. If there is even a hint that the people at the mint are printing money to enrich themselves, political instability is not far behind.
Ancient History already went to the link. To me it sounds like he gets alarmed at some of the blanket statements made by MMT people and then rejects things without considering the rest of it in context. Consider this portion:Lago wrote:1.) What does Paul Krugman have against MMT or its offshoots? I can understand him not bringing it up because the American political elite would label him as (even more) shrill and delusional if he did. But it seems like he's actually against it. And not in a reasoned way, but in a 'tut tut unserious person' way that he accuses the political elite of doing towards traditional ideas.
MMT agrees with that unreservedly. It's not an objection to MMT, that's MMT's theory of currency of inflation pretty much in a nutshell.Krugman wrote:The point is that there are limits to the amount of real resources that you can extract through seigniorage. When people expect inflation, they become reluctant to hold cash, which drive prices up and means that the government has to print more money to extract a given amount of real resources, which means higher inflation, etc.. Do the math, and it becomes clear that any attempt to extract too much from seigniorage — more than a few percent of GDP, probably — leads to an infinite upward spiral in inflation. In effect, the currency is destroyed. This would not happen, even with the same deficit, if the government can still sell bonds.
My impression is basically that Krugman has come to almost exactly the same conclusions as the MMT crowd, but because he came to them from a different direction he labels his terms differently and the two groups are talking past each other. MMT thinks of the "deficit" as the amount of currency being injected into the economy, such that a "deficit" that is too high would saturate demand for currency and create inflation. Krugman is thinking about the deficit as actual money that the government owes and printing money as a separate action used to cover that obligation by injecting currency into the economy. But it's really the same.
Krugman just chokes and sputters when MMT people state that the government can't go bankrupt. Which of course, they can't. Both MMT people and Krugman accept the need for money printing for the economy to grow. Both Krugman and MMT accept that too much money printing can increase inflation and be self defeating. Both Krugman and MMT acknowledge the primary difference between Greece and Japan or Italy and the UK. But the hats are slightly different, and that makes them shake their fists at each other.
Honestly, it wouldn't really surprise me if Krugman actually did fully understand and embrace MMT and even did MMT analysis at home, but felt that for political reasons he had to place his discussions in non-MMT terminology. Because when he wrote out his "objections" to MMT, it was actually just the limits that MMT already says exist on policy, not really any new objections from outside the theory.
-Username17