Apr 3, 2022
Welcome to episode 115 of Activist #MMT. Today I talk with PhD political scientist, author, and MMTer, Joe Firestone about the many reasons why "printing money causes inflation" is wrong. The original and unedited video of this conversation can be found on YouTube/Kerberos media.
(A list of the audio chapters in this episode can be found at the bottom of this post.)
This conversation was inspired by the middle of episode 95 with Graham Elwood. Graham expresses concern with "all this money printing" during the coronavirus pandemic as the primary cause of "all this inflation". At the same time, he's a strong advocate for helping those who need it most, such as with healthcare, education, and union and worker rights.
These two things are contradictory. The government can only spend by creating more money, and there is little the government can do without spending as part of the process. The assertion that government money creation is inherently and always harmful, is very close to saying that the government doing anything for anyone is inherently and always harmful. When the government does less, who always gets the short end of the stick? The answer, of course, are those who already get the short end of the stick.
(The full segment with Graham, which is about ten-minutes long, can be found in full after today's closing music.)
This conversation with Joe, our sixth episode on my podcast, is, as always, enlightening. My biggest takeaways are the following: the only thing that can be inflationary is:
- money that is created,
- that goes into the hands of citizens (in the real economy),
- who spend it,
- in sectors of the economy that cannot increase production to meet that demand.
Much of the money created by the government never reaches those hands to begin with, such as bank reserves and as through QE (or quantitative easing), or a potential trillion dollar coin.
The money that does reach the real economy may be invested or spent overseas. Since taxes and debts are highly regressive, much of it isn't spent, but rather is used to pay off those debts and taxes. Much of the money that is spent, is done in sectors of the economy that can increase production to match the demand. The amount left over, that is indeed spent in potentially inflationary sectors, is very small.
My second take away from Joe is that the government can do bold things that can greatly reduce inflationary pressures. Some of it requires little-to-no money creation, such as by jailing corrupt CEOs, prosecuting and preventing price gouging, negotiating pharmaceutical prices, and increasing union and worker rights. Some of it may require lots of money creation, such as by providing healthcare, education, and a livable planet for all.
The world is not zero-sum, it's positive sum. Some kinds of government spending is desperately needed and obviously beneficial. Some kinds of current spending is terribly harmful. The idea that government spending can only be harmful is, in addition to being wrong, anti-government, and more precisely anti-poor, propaganda.
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And now, on to my conversation with Joe Firestone. Enjoy.
Resources
- My new introduction to real-world economics, as mentioned at the start: A political introduction to real-world economics
- Fadhel Kaboub’s interviews on inflation with Briahna Grey Joy, Sabby Saabs, and Modern Money Doughnuts
- 2022 paper by Andrés Bernal: Inflationary Pressures in the Time of Covid-19: MMT as a Theory of Inflation
- 2019 Financial Times post by Scott Fullwiler, Rohan Grey, and Nathan Tankus: An MMT Response on What Causes Inflation (alternate)
- 2021 post by Jonathan Wilson, Why the Quantity Theory of Money is Wrong
- 2011 post by John Harvey, Money Growth Does Not Cause Inflation!
Audio chapters
- 6:39 - Hellos
- 8:08 - My new introduction post- A political introduction to real-world economics
- 8:59 - My current understanding of "printing money causes inflation".
- 18:45 - How far can the central bank prop up banks and corporations?
- 24:35 - Mark to market
- 26:05 - "The national government purchases"
- 28:22 - Back to "printing money causes inflation"
- 52:29 - I review what I've learned.
- 53:29 - Government spending can decrease and prevent inflation, and increase productivity and supply.
- 1:00:35 - Goodbyes
- 1:04:17 - Full segment with Graham
- 1:14:14 - Duplicate of introduction, but with no background music