Article An MMT Response on What Causes Inflation

Fulwieler et al write: “Indeed, our principal policy recommendation is a Job Guarantee (which is part of a Green New Deal) which automatically creates more jobs as people need them, but does not continue to spend greater and greater amounts once the economy reaches full employment.”

The problem is that, at this point, MMT is being asked to finance more than just full employment—it is being asked to finance (though co-ordinate may be a better word) not only this, but the rest of the Green New Deal (GND).

And if these GND targets have not been met once full employment has been reached, policy will indeed require that “greater and greater” amounts are fixed to meet them. Left as things stand, what is likely to happen is that, as the government goes into debt to finance a set of programs with price tags estimated for a GND, a massive labor shortage will occur causing the GND to either slow down dramatically or to stop all together, also rising prices as various projects of the GND compete not only with each other, but with the rest of the economy to attract labor that has already been employed. The best case scenario will be that the GND can’t keep many of its promises, worst case so much real or perceived harm is done that the last chance to improve the lot of, if not save, the human race will have been squandered.

The GND will impose massive demands upon the economy, many of which may not yet be fully understood. The GND is requiring more consumption in more and better housing, of better food and with the higher incomes that it requires on the one hand and more investment in terms of massive infrastructure changes on the other. The question is really a question of whether or not we have enough money to finance all of this or whether creating this money will “cause inflation” itself or whether or not taxation might reduce this inflation; it is only really a question of AD and AS: whether there is sufficient labor, time and natural resources—enough current or future supply capacity--to meet the GND’s demands—and what the interim costs of expanding supply utilization and capacity will be.

Fullweiler et al. begin to suggest some demand management techniques and other innovative ideas in their article that make a good start, but the kind of demand, and supply management and creation that will be necessary to make a GND real and workable, will require a massive cooperative effort between varying schools of economic and ultimately political thought, between the United States and the rest of the world, and between essentially everyone, not just in this country, but around the world. Now, more than ever, “if we don’t hand together, we shall surely hang” collectively.

On the one hand, we have Artificial Intelligence (AI) of high power at our disposal: Econometrics software and techniques, machine learning and neuronetworks and high powered Natural Intelligence (NI)--human creativity on the other.

The Green New Deal (GND) first of all, needs to be changed along the lines of Paul Hawken’s Drawdown analysis. For example, the massive resource-expensive requirement that buildings be refitted in the current GND will remove a very small amount of greenhouse gasses, whereas, as Drawdown argues, globally replacing air conditioning and refrigeration with newer, environmentally friendly gasses, will remove over eighty gigatons of it. Educating girls and womyn and introducing global family planning the world over will remove over a hundred gigatons of greenhouse gasses: tying aid to foreign countries that requires them to meet these education and planning targets will have no direct cost to the United States.

Ultimately, (this improved) GND will require a massive cultural and spiritual change. We need to understand up front that if are going to make this work, there will be enormously complex challenges to meet and large sacrifices to be made—we cannot go on as we were and may find that meeting these challenges and making “sacrifices” makes us all much happier than we are.

The subject of “An MMT Response on What Causes Inflation” was the real causes of inflation and taxation being used to control AD: “Monopoly busing,” Speculation “busting,” Medicare for all (because of the positive income effect from no longer having to pay for medical care), strengthening unions and transferring wealth to the poor from the rich all increase aggregate demand (AD). Though alone, “monopoly busing,” and speculation “busting” probably would not rise prices much, if at all, in tandem with the massive AD requirements of the GND, these will be factors in a massive demand upsurge, though of course desirable in themselves, where they do not disincentivize innovation.

Sales taxes (and/or bans) make sense as an AD management tool. Income and capital gains tax on the wealthy/ier also make sense to the degree that these classes consume, and where it doesn’t disincentivize real investment, to pay back government debt: this can reduce AD without penalizing the consumption levels of the poor(er). Automatic adjustors to “lap up” misestimations of Aggregate Supply (AS) and AD, that were made in policy planning, in the form of taxation also makes sense.

(Note: the above two paragraphs require an understanding of and agreement with the idea that less wealthy social classes consumer more per dollar / class then their wealthier counterparts.)

Outside of this, of course, putting money into the economy just to take it out is like robbing Peter to pay Paul (except in that taxing the non-consuming wealthy’s “paper” investments might be a good in and of itself)--money would simply be put into the economy to be taken out again. Or to look at it another way, inflation would be reduced at the expense of spending power in terms of income (instead of in terms of higher prices).

The issue, however, is going to be scarcity—and how to reduce it to the necessary levels, whether by limiting AD or expanding AS—whether communicated as inflation in a flexible price regime; as shortages, where prices are sticky or non-existent; or as environmental damage. This scarcity, if not offset by AD and AS management will be of labor with the right skills and of environmentally sustainable physical inputs. While a labor scarcity might only be temporary, the environmental damage caused by a scarcity of environmentally sustainable physical inputs would be likely permanent.

There is currently a medical worker < https://news.aamc.org/press-releases/article/workforce_report_shortage_04112018/>, construction worker and a STEM teacher shortage.. The construction worker shortage is interesting in that it illustrates that “green employment” has already caused a labor shortage in another sector that will be necessary for other GND projects. The linked article also suggests an AS drain from opioid addiction and a young work force with other career goals—this is another labor supply issue in and of itself. This article suggests there is room for AS growth in easing immigration restrictions, something that would be a necessary part of implementing the GND. In addition to these labor issues, healthy food production, required by the GND, is more labor intensive to produce.

Cost estimates for the GND are based on current prices. These, the amount of “money” necessary to finance the GN (its costs as generally understood) fail to have meaning as labor shortages are faced. If the GND operates in terms of these alone, production will end up slowing down or ceasing all together due to lack of necessary labor, worse, wages and “costs” may shoot up as GND projects try to attract new workers in competition with other GND projects and the rest of the economy.

In order to fulfill GND promises and labor will have to be moved from other industries, trained, while still consuming, and possibly paid more. This means that as they are trained, not only are they not producing anything, yet consuming at the same level, but will be permanently removed from other industries whose goods and services are still demanded at the same, if not a greater level. There will be the same level of demand for all goods and services, but less supply of them.

This will be much worse in the short period as professionals have to spend less time producing GND goods and services as they have to spend more time, in some cases much more time, training and educating.

Furthermore, expectations of shortages might cause surges in current demand beyond those caused by their now being free as consumers attempt to “beat the rush”

The provisos of the GND promising improved housing, better food and higher incomes (that given they are in dollar amounts, may become rather meaningless in any event) will likely increase these resource demands even further.

As Green energy is produced, more people work, GND consumption requirements are enforced, more is imported, wages go up and immigrant labor is brought in, there will be an increased negative environmental impact. Green energy is very resource expensive, especially in terms of battery use requiring mining and concomitant environmental destruction. Imported goods mean better standards of living and more consumption by foreign workers. While bringing in skilled labor from abroad may be unfair, as their home countries have paid for their human Kapital development, and also in that it causes a brain drain, in its own right, it also means that these workers in being incentivized to coming to the United States will necessarily consume more. In addition, more U.S. citizens will be working and will be paid more; the GND has massive requirements for improved food quantity and quality and more and improved housing as well: this means a massive increase in the demand for land and extractive resources. This will produce either massive shortages, great environmental damage or both.

The labor and environmental costs of the GND are massive and will require a change in the GND itself, as it stands, as well as massive consumption and incentive changes.

Some Good News:

As it now stands, there are massive inefficiencies in labor and other resource use that can be converted to far more productive labor and some resource use, as required by the GND and otherwise. Some of this labor may have to experience a learning curve in new jobs, but require little training. Much of it, however, may require a lot of training and long term education.

Directly, or by filling other jobs that free up labor elsewhere, there are massive quantities of labor employed in inefficient medical billing and administrative jobs that can be used to fill newly demanded medical ones.

In addition, as Fullweiler et al. point out, the military is a massive and dirty waste of resources: The United States is blessed with insanely protective natural borders. Kapital intensive anti-missile and anti-air defense are all that are necessary for our defense, other than to combat threats of terrorism. In the current and hoped for future world especially, nobody is seriously going to attempt a land invasion of the United States. We have established allies to the North and South. We are therefore naturally defended at a very low resource cost. Further, as implied above, the kind of global cooperation that a global greenhouse gas drawdown (tellingly, a military term) will require will be inimical to warfare.

The problem is, as others have clearly suggested, that the U.S. is way, way to involved in the rest of the world militarily: Stand down and drawdown! Let the rest of the world solve its own problems—they want to do this. We are spending resources that we cannot afford to be involved where we are, with few exceptions, not wanted. In some situations, a vicious cycle is created where resentment against U.S. involvement causes more of the very activities that we are trying to defeat by our presence. If there is global emergency, we can be involved as a partner spending resources, at most, commensurate to our relative size.

The F-35 is a pig with wings: it is made from pork barreling and unable to fly right—pigs with wings shouldn’t fly: the A-10, F-22 and a variety of missals, drones, satellites and specialized bombers perform all of the same roles better. The F-35 program must be killed and the resources freed up used elsewhere.

Lastly< https://wordpress.com/read/blogs/101538645/posts/2> an all-female international force needs to formed to fight Islamic extremism where it is deemed necessary by global agreement. Muslims don’t go to Paradise for killing a womyn, whether in combat or not--female soldiers are far more efficient against Muslims than their male counterparts.

Furthermore, there is some room for non-inflationary supply growth as increased labor and input demand is tempered by international labor markets that have made non-“land” based labor very wage elastic and a sort of quasi-perfect competition (“perfect competition” without the “Walrasian Crier”) means perfectly elastic supply curves for industrial output. (There are, again, issues here as international labor will still consume more, causing negative environmental impact, resource exploitation, even if green. Further, even if prices don’t change in response to increase input demand, this still likely involves environmental costs. Lastly, though supply is elastic, if firms begin to earn negative profits for too long of a time period, they may not be able to maintain their perfect price elasticity.)

Moreover, Dr. Steve Fazzari informally estimates that there is an underutilization of resources allowing for a one or two percent increase in annual GDP growth and further estimates that labor productivity will increase by 50% with increased employment.(See the appendix, P. 40.)

Figuring out ways to reverse extremely high levels of non-ergodic inefficiency in agriculture can vastly increase AS. In general, the cost of labor and to the environment because of institutionalization is quite large. Further, though and related, banning fast food and the “other white powders” (flour and sugar) and legalizing managed psychedelics (I’m not kidding) will free up vast quantities of labor used to otherwise serve and produce fast food, this will reduce stress on the medical system; the controlled use of psychedelics will further make the necessary cultural change to greater cooperation easier as it’s use heightens peoples’ sense of spiritual interconnectedness. In general, the high taxation or banning of any consumption that is unhealthy is highly efficient as it forces aggregate demand away from resources whose consumption further increase aggregate demand by placing it on the medical and other industries and that lead to other undesirable social outcomes. Freeing labor and environmental resources away from the production of harmful goods and services is a boost to AS.

Lastly, there needs to be a New Homesteading Act in which the government uses imminent domain to take over the vast number of unused houses in the United States and gives them to groups for free once they have converted them to cohousing. Cohousing should (and market forces may make it desirable to consumers in any event) be promoted by the U.S. and other governments as it offers vast economies of scale in land and other natural resource use, food production, child care and entertainment expenses. Happiness studies have shown that communal time together is a major source of this. As the falsely perceived utility of much consumption is replaced by the true utility of community, society will be more efficient.

This is not an answer but a (series of) question(s). Massive communal effort is necessary to understand, plan and innovate. MMT may become an important tool in this process, but it is not enough to simply estimate money costs, figure out how to manage inflation and then use MMT to pay them. The real world is wild, unpredictable and magical. The results of any policy are going to mysterious, but aware of what we are up against, utilizing pedantic analysis and creative thinking and trusting in spirit, it can be done.

Gwen Dyer says, “Male domination is right at the heart of what is wrong with civilization” Neil Turock’s thesis of the cyclical nature of the universe’ existence may be important to understand as well.