The skirmishes in the macro wars are getting dirtier. More recently, the debate on inflation has pitted #TeamTransitory and its detractors—I’ve seen the other side described as #TeamPermanent and #TeamSustained—in a mud-slinging and, often emotionally charged, spat. I suspect that #TeamTransitory will win, eventually—whatever that means—though I also think this side of the debate has most to answer for in terms of the deteriorating debate. The rules seem to change as the consensus-beating inflation prints roll in. As I as explained here, it is unreasonable to term all versions of the world in which inflation is not making a new high on a monthly basis, as a transitory. More importantly, however, the checkmate-like rebuttal to anyone arguing that rates could and should go higher that they must be in favour of higher unemployment is particularly odd to me. The question we need to ask it seems is whether there are conditions under which policy tightening—both fiscal and monetary—to rein in demand are optimal or desirable, in an economic sense, even if it means, presumably, unemployment going up. The answer is; yes.
Read MoreThe chancellor of the Exchequer had sobering news for the UK public last month when he unveiled that the Treasury is on track to borrow almost 20% of GDP this year to plug the hole in the economy created by the virus, a move that will see the public debt-to-GDP ratio zoom past 100%. In a world governed by the rules of the now-defunct work by Rogoff and Reinhart—famously discredited by a spreadsheet error—these numbers would send chills down the spine of economists and public policymakers, but we’ve moved from on then, significantly. We now understand that the government does not operate under a budget constraint, and that it can, in fact, create as much (sovereign) money it wants to buy as much debt that it wishes to issue—via primary market purchases by the central bank—to finance whatever level of spending and investment—ostensibly to generate jobs for every able man and woman—that it wants. I treated these issues in a long-form essay on fiscal policy, but the elevator pitch is simple enough. Under the auspice of MMT, governments have the ability and duty to create jobs for everyone and to prevent financial and economic distress and harm. It must do so because the economic costs and constraints hitherto associated with such a policy strategy are figments of Neo-Classical economists’ imagination.
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