New Economic Perspectives has posted the article How Far Can We Push This Thing? Some Optimistic Reflections on the Potential For Economic Experimentation.
I argue that, based on a new framework I’ve developed for measuring the likelihood of sustained, runaway inflation that I call the Worker Bargaining Index (WBI), it is highly unlikely that a sustained inflation will result.
I believe that Modern Money Theory is the correct explanation of how money works, but I am sometimes skeptical about the lack of deeper thinking on some important issues. This article is the type of thing that worries me.
Does the new calculation take into account that we don’t have inflation from the trillions of dollars injected by the Fed because the people who got the money were not consumers? They had nothing productive worth investing in, so they bought Treasury bonds, inflated the stock market, and promoted corporate stock buybacks.
Does this new calculation contemplate what would have happened, and might happen in the future when the trillions of dollars flows into the economy because it looks like the economy is starting to grow?
It is not enough to say that the $29Trillion of liquidity injected by the Fed has not created inflation. You have to look deeply into why it didn’t cause inflation. When you can answer the why question, you might get a clue as to what might unleash that inflation.
A Worker Bargaining Index is one measure of what typically causes inflation, but it doesn’t seem to be worrying about the trillions of dollars sloshing around in the hands of the oligarchs who have kept it out of the productive part of the private sector because there is nothing worth investing there until we start getting some real economic growth.