The Economist has published an article on the so-called Phillips Curve. The article was noted to have:
appeared in the Schools brief section of the print edition under the headline "A flattened curve"
If anything that increases the significance of what it says.
They summarise the Phillips Curve very simply, noting that when first published in 1958 it highlighted:
a striking, decades-long relationship between British wage inflation and unemployment: the one tended to be high when the other was low. A downward-sloping curve ... illustrated the point.
What follows is a rather long and not very exciting discussion of the disappearance of inflation as a phenomenon, and the near-absence of the curve as a consequence. It's only when the end of the article is reached that something more interesting happens. They then note:
The neutral interest rate has fallen, according to some observers, because of global capital flows. Heavy saving by the world's ageing populations has resulted in too much money chasing too few investments. By lowering the neutral rate, this “global savings glut” has left central banks closer to the floor on interest rates than they would like. That has made it harder for them to offset any additional downward pressures on prices.
What this fails to note is that the ‘savings glut‘ has been fuelled by conventional QE. Instead they note:
Friedman thought central banks could prevent inflation if sufficiently determined to do so. “There is no technical problem about how to end inflation,” he wrote in 1974. “The real obstacles are political.” Is reviving inflation any different? Central banks face two technical limits. First, they cannot lower interest rates much below zero. And they can only purchase financial assets, not consumer goods. Central banks can create unlimited amounts of money. But they cannot force anyone to spend it.
Which is, of course, entirely wrong. They could spend it themselves. And thankfully, this is the conclusion that they then reach, saying:
One solution is to work in tandem with the government, which can spend any money the central bank creates.
Not only can, but always does, it should add, since all government spending is funded in this way, but they go on:
Before covid-19, such dalliances were rare. But an increasing number of central banks, in both the rich and emerging world, are changing course. These partnerships will try to stop pandemic-related unemployment turning low inflation into outright deflation. If they fail it will be an economic disaster: mass joblessness coupled with negative inflation. And it will be no consolation to students of economics that this combination will remove the flatness from one of their discipline's most famous curves.
So what do we really have here? In effect, this is The Economist saying MMT works, and the processes it describes should, it says, be used to prevent mass joblessness linked to deflation, which it sees as the new risk (with which I agree).
I don't care about the Phillips Curve. I do care about real people. And I do care that there should be people-centred economic policy making, in which context it is good that The Economist is proposing this.
It's just a shame that they could not say they were describing a job guarantee through a national investment bank and the processes are described by modern monetary theory. That would have really been useful to the educational goal of the article, but somehow it still seems to be the case that to utter the three letters ‘MMT' with a positive connotation attached is to ask too much. But that will change.
Hat tip: Phil Summerton at Cambridge Econometrics
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Is the reference to Friedman and inflation to be taken seriously? I am presently reading Naomi Klein’s book “The Shock Doctrine” If this book is a correct representation of Chicago School Economics surely it should have been discredited a long time ago.
Pentlander
I have read the book. It may be discredited in some people’s eyes but it represents the ideology of the vested interests of international finance and political leadership of much of the western world. Ideologies are not just supported by reason but also by emotions and claims to power.
I am content that economists are now describing MMT and perhaps job guarantee, without specifically mentioning them by name. For me it is the direction of travel that is important: are we doing things that will improve outcomes for the many.
I agree with you Richard; people matter.
If discrediting Milton Friedman’s “Monetarism” consists of Margaret Thatcher caught out lying her little cotton socks off that her government ever subscribed to “Monetarism” that’s good enough for me!
https://www.youtube.com/watch?v=LEWcTEfFurA&feature=player_embedded
From Philip Pilkington’s excellent series of articles about the devastating effect of “Monetarism” on the British economy during the 80’s:-
http://www.nakedcapitalism.com/2012/07/philip-pilkington-the-new-monetarism-part-i-the-british-experience.html
The films you link to above are all in an Adam Curtis documentary – I forget its name – that Pilkington is using as a back drop to his writing.
I like Curtis’ work because his take on history is more than just revisionist – he points out things that were in my view purposefully looked over.
I still think that one of the reason’s that Tory monetarism did not work is quite simple: you cannot control money supply without taxation. The Tories cut top rates and more and their ideological blindness prevented them from seeing that what should have been taxed and taken out of circulation was now swilling about the economy and causing problems.
Aaaaaah………………the Tories. Bless them – they’re a bit dumb aren’t they?
Was that Curtis’s Hypernormalisation? His documentaries are excellent
On a different front, and having just finished Deficit Myth (every good and highly readable) I was reflecting on the extent to which the Soviet Union and its satellites were an example of MMT in practice together with the job guarantee, and what one might learn from that, both good and bad. After a bit of research, its certainly an angle that some critics of MMT are pursuing so it would be worth being prepared for those lines of argument.
(And no Im very definitely not a fan of that Soviet era, having had a first hand view of the consequences)
But MMT assumes a private sector
And private sector banks
So no alignment, I would suggest
The Economist has had quite a few articles recently indicating their impending realignment with economic ideas they would previously treated with contempt.
Here’s a fascinating video on the magazine’s history, and influence on the world;
https://youtu.be/HFmVYLJpQno
From a progressive viewpoint, of course!