Sunday, January 21, 2018

Jason Smith — Money is the aether of macroeconomics

So I've never really understood Modern Monetary Theory (MMT). In some sense, I can understand it as a counter to the damaging "household budget" and "hard money" views of government finances. To me, it still cedes the equally damaging "money is all-important" message of monetarism and so-called Austrian school that manifests even today when a "very serious person" tells you it's really the Fed, not Congress or the President that controls the path of the economy and inflation when neither inflation nor recessions are well-understood in academic macroeconomics. People have a hard time giving up talking about money...
Information Transfer Economics
Money is the aether of macroeconomics
Jason Smith

5 comments:

Matt Franko said...

MMTs acceptance of the mainstream concept of “inflation” is its Achilles Heel....

Matt Franko said...

Not even Janet Yellen knows what inflation is....

Ralph Musgrave said...

Jason Smith is like several other people (no names mentioned) who like to be seen writing convoluted stuff about economics. They just tie themselves up in knots.

Matt Franko said...

idk Ralph he is correct within the context of the theory of "inflation" imo...

Tom Hickey said...

I agree with Matt here. Economists don't have a good explanation for inflation. Jason Smith has an interesting theory that is borne out by data.

"Inflation" is a canard used to argue against government "intrusion" in the economy, when there is no evidence that government has anything much to do with inflation.

A great deal of so-called inflation is a result of asset "appreciation," which creates a wealth effect and also provided collateral for bank lending. Most of the money supply is created by private lending, not government issuance.

Those concerned with inflation should look to private lending.

For example, a land value tax would bridle asset appreciation in land that results in a windfall for land owners. It's purely economic rent.

Banks' lend against the increasing nominal value of collateral, which increases M1, the primary determinate of purchasing power in an economy. For example, as housing prices rise, so do second mortgages.

This passes through to a rise in prices, which then is met but higher wage demands. As margins are squeezed, firms raise prices.

This just one way that price level can increase. There are others.