Inflation the Boogeyman has absolutely nothing to do with inflation in reality. You can’t understand what inflation is, until you understand what it’s not. This post:
- describes the basic (and vast) differences between Inflation the Boogeyman and inflation in reality,
- is followed by a section containing many expert-created sources on inflation in reality, and
- ends with a more advanced take on Inflation the Boogeyman.
(Very briefly: Inflationary pressures are caused when, somewhere in the economy, there is excess spending compared to the economy’s capacity to produce goods and services. The definition of inflation in reality is “a continuous rise in the price level.” A one-time price rise is not inflation. A rise in the price of a single product or even a sector of products is not inflation. The rise must be continuous, and for [basically] everything. Hyperinflation is an extreme, rare, and uncontrollable form of inflation. When there’s hyperinflation, the problems are so serious that the value of the nation’s money is the least of your concerns.)
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This post was last updated November 30, 2020.
Disclaimer: I have studied MMT since February of 2018. I’m not an economist or academic and I don’t speak for the MMT project. The information in this post is my best understanding but I don’t assert it to be perfectly accurate. In order to ensure accuracy, you should rely on the expert sources linked throughout. If you have feedback to improve this post, please get in touch.
Very few of us truly understand
- what inflation is,
- how it is caused, or
- what effects it has.
The truth is, we can safely do a whole lot more than we do, and a whole lot more than we’re told. This is MMT’s key insight.
What most of us believe inflation to be is what is actually called hyperinflation. Hyperinflation is truly out of control inflation. It is dangerous precisely because it is out of control. Here is a primer on the reality of hyperinflation from Naked Capitalism and Edward Harrison, from May 4th, 2010.
Major economies such as the United States (like the U.K., Canada, Australia, and Japan) have never experienced anything near hyperinflation, and the chance of it occurring there is remote. Here is a July, 2009 post by Original MMT developer, Bill Mitchell, called Zimbabwe for hyperventilators 101. A related 2019 post by Fadhel Kaboub, Why Government Spending Can’t Turn the U.S. Into Venezuela.
The chances of it occurring because a government chose to “create too much money” is even more remote.
Here is the reality of inflation in the United States since 1960. The only major episode of inflation that’s occurred in the US – in the past sixty years – were the two OPEC oil shocks of the 1970s. OPEC deliberately withheld their product in retaliation for our support of Israel, and that, coupled with our misguided decision to too heavily rely on that one product – that caused big problems.
Other than that, there has been no substantial inflation in the US in the past sixty years. Even though, during this entire time, every dollar of federal spending is and has always been financed with created currency.
Before that, the United States did not experience even high inflation since all the way back to the Civil War. From the Wikipedia entry on hyperinflation:
In 2018 alone, more than $100 trillion in US treasuries matured (were paid back). Paying back the principal didn’t require any money (actually currency) creation, paying back the interest did. Whatever the case: no inflation.
Could hyperinflation be made to happen in economies such as the United States? Sure. It would require a whole lot of stupidity and malice – and the super-wealthy would take themselves down right along with it. Brian Romanchuk elaborates in a 2014 post:
We understand the nature of inflation, and have many tools to prevent, detect, and manage it. First and foremost is the MMT-designed job guarantee (JG), which would prevent most of it from occurring in the first place – and do so in a humane way.
Beyond the JG, there still are many tools available for managing inflation: taxes, price controls, credit controls (limiting bank loans), rationing, increasing efficiency, research and development, and laws and regulations (enforcing those we have, passing better ones, eliminating bad ones). Here’s my conversation with Sam Levey where he gives an overview of these tools.
Expert-created sources to learn more about the reality of inflation
- Here’s TCU economics professor, John Harvey, in a series of three videos (as his alter ego the Cowboy Economist), explaining what doesn’t, and then what does cause inflation: one, two, three. A summary can be found in his 2011 post called Money Growth Does Not Cause Inflation!
- Here’s my September 2020 interview with John on inflation: parts one, two, and three (part one is not about inflation).
- An August 2020 interview with Phil Armstrong on MMT Podcast.
- A March 2019 post on the Financial Times, called “An MMT response on what causes inflation” (archive) by original MMT developer Scott Fullwiler, Cornell Law School Doctoral Fellow and Modern Money Network (MMN) founder Rohan Grey; and Notes on the Crises financial blogger and MMN Research Director Nathan Tankus.
- There is much to be found throughout the quarter-century of MMT academic works.
- The reality of inflation by the U.K.’s Gower Initiative for Modern Money Studies
Managing inflation during full employment
A war is full employment in service of killing millions and destroying things (both yours and theirs). The Green New Deal is full employment in service of saving billions. Read this 2019 paper by Sam Levey, called “Modern Money and the War Treasury.”
No inflation during this health crisis
From former AOC advisor and Outreach Director for The Modern Money Network, Andres Bernal, regarding the below graph during the COVID-19 health crisis:
Trillions in fiscal stimulus and Fed lending and debt purchasing through key strokes on balance sheets without raising “revenue” and yet, inflation is down. Inflation is a political- and resource-based phenomenon and not related to spending sans taxation or “printing” money….
More advanced take on Inflation the Boogeyman
Finally, for the more ambitious, here is a resource to get more into the nitty gritty of inflation: listen to this episode of Money on the Left with Nathan Tankus. Particularly interesting to me is the 15 min segment starting at the one-hour mark, where Inflation the Boogeyman is demonstrated to be rooted in white supremacy. During that segment, Nathan says this:
There are many ways of measuring prices which emphasize stability and administrative processes that preserve their stability even in an adverse envionment. It’s the metaphor of losing control of a sort of Prometheus’ fire: that is what captures people’s imagination and their terror, and what makes inflation such a highly political issue.
…alluding once again to Inflation the Bogeyman and the misunderstanding that what most of us think inflation is, is in actuality, hyperinflation. Again: out of control.