(For those of you about to experience TLDNR mode, the short version of this is: Giving money to rich people probably doesn’t cause bread prices to go through the roof cause rich people can only eat so much bread, but giving money to the poor just might “cuz those folks be hungry.” Enjoy the rest of your day.)
Most people prepare for the apocalypse they want. As for those people who aren’t preparing for any apocalypse; exactly. I include myself in this. I could do some fancy word salad b.s. and obfuscate here, but rather than do that I will be completely honest and admit that I’m about to do that thing which most annoys me about people who claim to want to investigate some concept or idea: start with a conclusion and figure out the means of argumentation most able to get me there.
I want a return to the city, the traditional northern industrial city, but without too too much coal smoke in the air and only enough horse dung on the streets to be, you know, homey. The apocalypse I hope will get us there will be a spiking of energy costs, EROEI and all, which obligates humanity, even in its wealthiest iterations, to focus most of that energy on basics like food, shelter, water, and clothing; like the Good Ol’ Days! I see Springfield, with probably the best and highest quality public water supply in the United States, located on New England’s longest navigable river, in a very productive agricultural valley, not too low in elevation or too close to the coast, blessed with a number of hydropower resources, and with an abundance of walkable communities in its orbit, as well suited to rise to the top of the shrinking garbage heap that will be the industrial world in decline.
The likelihood of that happening as I’ve sketched it is pretty low. I’m ready for the future to be pretty much like the present, only more so as well by the way. I don’t need a crash. If all my worries of economic and social discontinuity turn out to be post millennial hogwash, I am GOLDEN: I’m fully vested in a defined benefit pension, I’m eligible for Social Security benefits (working a second job in the private sector for so long wasn’t so stupid maybe), I have no debt apart from a rapidly declining ridiculously low mortgage, and no need for a car once I retire.
I don’t need a collapse but I’d be lying if I said that a little part of me didn’t want to see one. I’ve got my townhouse/apartment house/trendy urban co-work space in good shape and I’m zoned for anything from multi family and commercial to light industrial…because the zombies are sticklers about zoning from what I’ve heard.
All of this is preface to the real topic of today’s post: an Econ minor (from 35 years ago) tackles MMT. Keep in mind both real geniuses and morons can do an “interesting” job of simplifying things. All of the experts I’ve listened to and read on the right wing conservative side of the argument criticize Modern Monetary Theory as nothing but money printing. And of course, in a way it is. But they go on to argue that the government can’t just print prosperity because the money itself has no value and printing more just inflates the cost of what goods and services already exist in the market.
Only one of these critics has ever honestly addressed, at least of all the critics I’ve read, the underlying skepticism that the left might have with this critique: The government always manages to do just that when it is to fund shit I’m totally against! Endless illegal immoral wars of aggression (7 of those right now)? Bailing out the richest and least productive elements of our economic system because their insatiable appetite to devour the rest of the economy has made them “too big to fail”? We have managed to create trillions upon trillions to do those things, but making sure grandma has soup and paying for Billy to get an Associates Degree?
Well, “The problem with socialism is that eventually you run out of other people’s money.” Oh, how drôle, how very, very drôle you are, Maggie.
The left side of the argument is that demand creates its own supply. If more people can go down to the grocer’s and buy cheese, more dairy farmers will produce cheese, eventually engaging in capital investments to increase production even more and so the end result is only minimally inflationary.
What have we seen with what is, let’s be honest, the MMT experiment we’ve been running since at least 2008, if not well before, with QE and the continued explosion (pun intended) of the military-intelligence budget? Asset prices have blown through the roof with traditional stock valuation tools like “price to earnings ratios” losing almost all meaning. Is the reason stock markets in the U.S. are at or near record highs because so much money has been thrown into the top of the system that it has created a hyperinflation there? Yes, probably. Remember, part of that is super low interest rates for corporate clients who use debt to buy back stock and raise prices. That’s what has also pushed mounds of cash into dubious (on many levels) tech or tech-ish stocks from WeWork and Tesla to Uber and Netflix. If you can’t see that this is just the dot.com bubble/crash part deux then you are being willfully ignorant.
On the Pentagon side, the cost to produce a crappy F-35 going through the roof doesn’t have a direct impact on the family’s monthly budget, but the people who brought you the (I’m not taking the time to look up how much it was) dollar toilet seat have only gotten better at getting less for more as the government has showered them and their defense contractors with money.
The sad thing is that these examples do not bode well for “MMT for the people” being non-inflationary. Of course, demand can create a certain amount of supply, but that is constrained in the short and medium term by actual productive capacity. We have deindustrialized huge swaths of the American landscape. If we can’t produce what we create the demand to consume then prices will need to rise to capture those products from other bidders, including from abroad. The dollar’s reserve currency status, waning but still impactful, can help us to outbid others in the short run, but in the long run we can only consume what has been produced and creating more dollars to chase limited goods must create inflation which erodes the power of the new money to do what it was intended to do.
Making MMT for the people work will require a judicious and cautious attitude that I’m not sure we possess.
I’m skeptical of “renewables” doing anything more than perpetuating the fantasy that we can continue to grow the economy on a finite planet. Wind, solar, hydro, and biomass will each play a role in what I see as our declining total energy future, and making intelligent and strategic investments in them is wise, but conservation should be focus number one and, getting back to my preferred apocalypse, the key to our future is living in ways that require less energy! Walking to work, to school, to shop, or at worst using public transit, eliminates the need for huge amounts of transportation fuels and the embodied energy…the enormous amounts of embodied energy especially in electric cars. Hyper-insulating homes and offices, and only building super-insulated buildings in the future is much more intelligent than producing billions of solar PV panels which will begin to deteriorate shortly after installation and which will need to be fully replaced in 20-30 years. Even in New England we could heat our water with the sun 80% of the time…why are we using fossil fuels to do it?
In transportation we should restrict federal dollars to transportation infrastructure which improves energy efficiency. The physics would dictate that we prioritize walking, biking, water and rail over everything else. Subsidizing air and automobile travel is out in any of its iterations. Make drivers like me pay for every nickel of asphalt. Yes, I’ll say it; make energy hogs squeal. I can’t tell you how many times I’ve heard (just this week!) how it’s unfair to make people who drive more (“A hardship in itself!” oh, yeah, self imposed) pay more to drive.
If it doesn’t hurt enough to change people’s behaviors then it won’t change people’s behaviors. Why does a dog lick his balls…in the suburbs? Because he can.
In education we have to be much more selective in terms of what we subsidize. The huge increases in college costs have come as a direct result of government getting involved incompletely and randomly in the payment process, but not sufficiently limiting costs. When so many “customers” have their price sensitivity diminished by third party intervention, by grants or loans, then costs will skyrocket, it’s as simple as that. Jim Kunstler is right when he says higher education has become a racket. Throwing money at community colleges and state schools with strong oversight makes sense, but there is a much more complicated mess on the private side, especially of the for profit Sally Struthers “of course, we all do” variety.
Health care is a no brainier. Single payer yesterday. 40-60% of our premiums go to paying people to try to keep us from getting care! or at least to make sure our health insurer doesn’t pay for it. Compare that to 4-6% of Medicare costs going to paperwork. We pay the most in the industrialized world and we are, what? # 27 in terms of outcomes? Ridiculous. I’d much rather the tens of thousands of dollars my employer and I give to CIGNA go to the government and that they deal with the hospitals. I’ve lived in Spain, a relatively poor European country with what they consider “m’eh” health care; I liked it, and I was never at risk for going broke because of it. Just like public education, if you want to opt out, go ahead, but yes your tax $ are going to pay for everyone else.
What we will get, I’m afraid, is helicopter money creating hyperinflation. I’m a socialist. A real socialist. Everyone forgets, it seems to me, that there are two parts to even the most simplistic of definitions expressing what that means. Yes, to each according to need. But also, from each according to ability. Giving things away is not socialist. If you want “what you need” you must “do what you can”. Just paying people to consume is a bad idea. Teaching a man to fish is much more expensive in the short run than just giving him a fish, but teaching people that you’ll just give them fish even if they don’t do anything to earn it IS a recipe for social disaster.
It’s no simple task to create a social safety net while at the same time protecting individual freedoms. There are trade-offs. My apocalyptic view sees a future where all hands will be needed at the pump and those who will not work, shall not eat; the earth and its limited resources will require husbandry, not exploitation, and that will require that we all give a little more as we take a whole lot less of what we don’t actually need: a third set of dishes, bagel slicers, salad shooters, vacations to Disney.
What a surprise. I want MMT to pay for the prep work for my preferred apocalypse. I had a feeling that might happen. Everyone else wants that to, of course. There are so many other things to discuss here: the so-called efficiency of the market versus the “waste” that is social spending. Efficiency! The planned obsolescence of an iPhone a year, and even producing iPhones when people are starving; empty homes and homeless people…markets! (Oh, wait, markets “distorted by the gubmint”) My take on this is game theory. There’s some kind of discontinuity coming. Depending on who wins the war of perception the government will lurch stupidly to the right, or stupidly to the left, with the former being stupid in its direction and the latter stupid in its execution.
Strong communities are made up of strong individuals. Focus on food, water, clothing, shelter, and surrounding yourself with people who share your values be they family or friends. I have zero confidence in my ability to predict what will happen, but I am going to be ready for what I think might happen and I’ll take it from there. Good luck to you in doing the same.
“Giving money to rich people probably doesn’t cause bread prices to go through the roof cause rich people can only eat so much bread, but giving money to the poor just might ‘cuz those folks be hungry.'”
If you want society as a whole to make do with what we have, then isn’t raising prices to a level consistent with actual supply and demand a good thing?
In other words, wouldn’t we just be including in the demand side those who can’t currently afford to demand anything?
There is “another post” I want to write which would be essentially what you just communicated in two paragraphs!
An economist would argue that the whole point of price discovery is “discovering” at a given moment where the supply curve(at a lower price fewer producers agree to supply——at a higher price, more) and the demand curve (at a lower price more are willing to buy—-higher, less) so the price IS where the two intersect. Just putting more money into the system makes more people willing to buy at a higher price(I get an extra two grand a month…I’m willing to pay more for cheese…but with MMT, the argument is, everyone gets the $, it’s not a move ALONG the demand curve, it shifts it, which raises the equilibrium price. Do this for enough goods and you have recognizable inflation.)
In that way MMT helicopter money isn’t wealth creation, it is wealth redistribution (which the QE and military and Real Estate “MMT’s” have been) but not wealth creation…unless it stimulates growth(the farmer producing more milk, or more houses getting built, etc)
Response Two: Exactly! The planet is finite, we can’t grow forever. Higher prices for producer inputs eventually shift the SUPPLY curve reducing production which means a slower economy, and less consumption…which is what we need to do and one way it can be done. Overall less will be produced but giving purchasing power to the poorest will make the distribution more equitable…which our society could really use…but a lot of people like me (in terms of their current ability to consume) won’t like it.
And I would add, this is where I agree with Charles Hugh Smith and John Michael Greer: the future is going to be a world of less, making better choices about what we make and how we distribute it would be the best thing…not that we will do that…I don’t think we will. Sadly.
The sad thing is that these examples do not bode well for “MMT for the people” being non-inflationary.
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My only comment is you can’t really speak generically about inflation, as there are different types of inflation with different effects, and you actually recognize this in the first part of your disaster scenario with the ask for energy cost inflation. So declaring MMT inflationary as a weakness isn’t really accurate or correct, and you could do more thinking about that to shore up your thoughts.
For the moment, at least…we appear to be absolutely awash in oil. So your scenarios may not occur during OUR lifetime. 🙂
A nice little war or two could fix that. The conspiracy theorist in me wonders what the neoconservatives or cruise missile liberal that eventually replaces The Mango Menace will do to ensure that? If Trump doesn’t bumble us into one that does the same thing.