Modern Monetary Theory part 3 – underutilized resources

Continuing this critique of Modern Monetary Theory, I now come to the standard explanation of the MMTers as to why inflation will not break out when the Government prints money – they refer to the excess capacity in the economy. According to the theory, if an economy is suffering unemployment, then there is not enough demand to fully use the resources. Printing money is a costless way to increase demand, get the unemployed into work and increase wealth. Inflation will be a risk only if there is no excess capacity, no underutilized resources in the economy.

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Modern Monetary Theory Part 2: inflationary experience

In Part 1 of my criticism of Modern Monetary Theory, I explained currency debasement was a fundamental part of it. In this Part 2, I will explain why the whataboutery that is used by the MMTers can be dismissed.

Whataboutery. A useful noun. It is frequently heard coming from MMTers when a critic of MMT says printing money will lead to inflation – but what about Japan? they say. Over the last 25 years, Japan’s money supply has more than doubled. Yet inflation has not broken out much at all. See?

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Modern Monetary Theory part 1: currency debasement

MMT advocates currency debasement. Proof of this is given by the MMT proponents (the ‘MMTers’) themselves by their proposing the use of taxation to then control inflation.

That is the very first point about MMT that should be grasped. Currency debasement occurs by ‘printing money’. The MMTers say that the Government monopoly on the currency issue means it can print money to finance its own expenditure. Then tax can be used to control inflation.

You may have seen this written as the breakthrough idea – that Governments actually are not bound by the need to finance expenditure via borrowing and/or taxation. The deficit doesn’t matter, they say. This is meant to be the whole new (hence ‘modern’ nomenclature) understanding. I hate to pour cold water on the naming of the theory, but currency debasement is not new or modern. It is as old as currency itself. From shaving off the outer thin layer of the coinage in Roman times to melt down the silver while the coin retained its face value, to printing counterfeit bank notes, to quantitative easing – currency debasement has been a problem ever since day 1.

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Renewable energy – a futile decades long experiment with other peoples’ money

Reliable energy generation from renewable sources (solar, wind and hydro) has proven unattainable. Despite decades of trying, decades of subsidizing renewable energy projects using other peoples’ money, they can never work. Australia has one of the world’s largest supplies of cheap reliable proven energy: coal. Yet Government action is actively killing the coal industry to give a leg up to renewable projects. It may well end up killing the coal industry and smashing the standard of living of Australians. But we can say with certainty, that reliable energy cannot be generated by solar, wind or hydro facilities.

The serious situation of the Three Gorges Dam

In case things were not bad enough already in China, there is a serious situation rapidly turning into the risk of a catastrophe with the Three Gorges Dam. In brief, its structural integrity appears to be compromised. Combined with very high rainfall in the catchment area of the Yangtze River, the Dam is buckling and the authorities are releasing as much water as is possible to take the pressure off. But it might not be enough. Should the dam fail, it would cause a catastrophe in China.

The first impact would be humanitarian. Millions of people live and work downstream of the dam. Casualties would be large in number. The second impact would be local economic wipe out. The third would be international economic consequences. The fourth impact would be political reprisal. This is not looking good.

COVID-19, the economics teacher

COVID-19 is both a virus and a teacher. The virus bit, you know about. The teaching angle is the subject of this post.

We earn a living only by serving somebody else. Everyone in a market economy has a boss, from Company directors to the newly hired casual in the basement, from the small business owner to the freelancer. To do their job, they must organise inputs in some way to deliver outputs to the satisfaction of the end user. COVID-19 restrictions have disrupted those inputs, the production process and sales, drastically so in some cases. It makes not a jot of difference to the principle at stake whether you are the CEO of the world’s largest corporation, or just starting out in the basement on a casual contract. All that varies is the complexity of the process to be restored.

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COVID-19 update

The total number of people that die in any one year across the whole world is currently around 56 million. Of those, around 28 million were over age 70.

The current total number of deaths due to COVID-19 is 56,000 globally. Of those, the proportion aged over 70 appears to be very high, at least 80% based on what scant data is available.

The global workforce is almost entirely aged less than 70 years. Thus COVID-19 has killed around 11,200 people of potential workforce age. In any typical year, the number of deaths globally of potential workers is 28 m. Thus the increase in workforce deaths, so far, is 0.04%.

Source: ourworldindata.org

That’s not a knife

Does anyone remember Crocodile Dundee?

Mick

“That’s not a knife!” Mick said dismissively at the New York punks trying to hold him and his girlfriend up with a small folding penknife. “This is a knife!”

Stop me if I told you this before but COVID-19 is not a pandemic. COVID-19 is a penknife. Spanish flu in 1918-19 was a pandemic. It killed more than 20 million people in the space of 18 months. COVID-19 is entering the northern hemisphere spring with fewer than 10,000 deaths globally, having killed the first in November, ie 4 months ago. The virus will be stopped by the sunshine of the northern summer.

COVID-19 kills those who catch it and who are weak for other reasons – age, infirmity, respiratory weakness etc. But not all who are exposed catch it. Not all who catch it die. This panic is misplaced. In fact the cure, as imagined by panicked politicians, is worse than the virus. This is no reason to kill small businesses and strangle taxpayers to support the barely surviving business.

Then the clueless central bankers add to our misery with their incredibly stupid policy response – “whatever it takes, there are no limits to what we will do” said the pathetic creature Philip Lowe, so-called governor of Australia’s central bank. He is willing to trash the Australian currency for this? He obviously never recovered from his university education.