Jul 11, 2022
Welcome to episode 126 of Activist #MMT. Today's part two in a six-part series with Texas Christian University (TCU) economics professor and Cowboy Economist, John Harvey. The first three parts are hosted by me, the final three by MMT researcher, Texas lawyer, and my previous guest, Johnathan Wilson. Jonathan and John talk about how MMT can apply to nations outside the US, using Russia as an example, and also some of the core theoretical and ideological differences between MMTers and mainstream economists, focusing on a recent critique of MMT by Drumetz and Pfeister. (You can hear my own interview with Jonathan in episodes 106 and 107.)
(A list of the audio chapters in this episode can be found at the bottom of this post. Here's a link to part one, which contains a link to all six parts in the series. For a link to every Activist #MMT interview with John – plus the full audio of every Cowboy Economist video (!) – go here.)
Today in part two, John and I continue our conversation about his chapter in the upcoming book called Modern Monetary Theory: Key Insights, Leading Thinkers. The book will be published by the UK-based Gower Institute for Modern Money Studies, or GIMMS; it's edited by L. Randall Wray and GIMMS; and is scheduled for January 2023 release. John is one of 15 authors. John's chapter is called "Modern Monetary Theory, the UK, and pound sterling". It addresses the following criticism of MMT (this is a quote from the chapter): "MMT-inspired policies will cause high rates of price inflation which will, in turn, lower the international value of a domestic currency – perhaps catastrophically." This conversation discusses the three major false assumptions underlying this criticism.
Surprisingly, however, my the main insight I take from this conversation with John is a much clearer understanding of inflation in general. As promised in the intro to part one, here's that insight:
Inflation is not a disease or even a symptom, but rather a potential measurement of some problem somewhere. Similarly, a thermometer says you have a fever. A fever means your body is fighting off something. Sure, you could take an ice bath to reduce your fever, but that will do little if anything to cure the underlying sickness.
Further, while a thermometer measures something simple and definitive – your body temperature – the measurement of inflation is, and can only be, socially defines and executed. As John says, if used cars are heavily weighted in the consumer price index (a primary survey used to measure inflation), then the price of used cars skyrocketing (such as for a shortage of microchips) will increase overall inflation. But for the majority who have no plans to buy a used car, this particular inflation means little to them in real terms. However, this same inflation is used to stoke fear in everyone, regardless what they want to buy or not buy.
Further still, inflation is a measurement. The idea of "reducing inflation" (such as by the Fed raising interest rates) is targeting something that serves as nothing more than a distraction from the real world and the underlying problems the measurement is referring to. Targeting low inflation is very similar to targeting a low deficit ("we must reduce deficit!"). This is targeting a measurement and sacrificing those at the bottom, in the real world, in order to do it. This is example of Goodhart's law: when a measurement becomes a target, it ceases to be a good measurement. The difference is that a deficit is never inherently a bad thing, where inflation is generally, genuinely referring to a real problem in real world. However, targeting only the inflation measurements itself, almost always results in the underlying problem(s) being ignored and exacerbated.
Basically, is your goal to lower the temperature on the thermometer, or to not be sick?
And now, let's get right back to my conversation with John Harvey. Enjoy.