Purpose In this paper, the authors examine the causes of 2021–2023 inflation and evaluate whether raising interest rates is the right solution. Design/methodology/approach The authors evaluate both the macroeconomic (too much demand) and microeconomic (monopoly pricing and supply chains) explanations for the causes of inflation. Findings The authors argue that the spike in inflation is due to disrupted supply chains and corporations taking advantage of the situation to raise their prices. The aggregate demand stimulus from fiscal policy had all but played out by the time inflation arose, making it an unlikely cause of said inflation. Originality/value The authors' paper demonstrates that raising interest rates is the wrong solution to tackling the problem of inflation, especially since it's coming from the supply side.

This paper responds to a presentation and paper published by Marc Lavoie that summarizes points of agreement and disagreement between Modern Money Theory (MMT) and Post Keynesians more generally. In particular, we examine MMT's view on the conditions required for monetary sovereignty and apply that to the evolution of the conditions in the Euro area. We conclude that while there was a problem with the original set-up of the Euro system, this has been resolved in the aftermath of the global financial crisis and the more recent COVID pandemic. The Euro area's institutions allow some flexibility, allowing national governments to act as unconstrained currency issuers in times of crisis. The ECB's role of dealer of last resort for government bonds has made this possible, together with the general escape clause in the Stability and Growth Pact that was inserted in 2011 and allows to shut down the excessive deficit procedure which is the major constraint of the fiscal framework. We with Marc Lavoie that the fiscal framework is the real constraining factor explaining the weak macroeconomic performance. Finally, we address a few remaining misunderstandings over the MMT position on so-called 'consolidation' and on external constraints facing monetarily sovereign nations.

We have argued that taxes drive currency. Sovereign government does not need taxes for revenue, but to create a demand for its currency. With that in mind, we need to rethink tax policy. How best to drive the currency? What kinds of taxes are best? Besides driving a currency, what else can taxes be used for? We explore such issues in this chapter.

The previous discussions were quite general and apply to all countries that use a domestic currency. It does not matter whether these currencies are pegged to a foreign currency or to a precious metal, or whether they are freely floating — the principles are the same. In this chapter we will examine the implications of exchange regimes for our analysis.

AbstractIn 1994, we examined the Fed's abandonment of monetary targets in favor of “omens of impending inflation” (Papadimitriou – Wray 1994). Here we are, three decades later, and the Fed is still fumbling around with unobservable indicators of inflation in its quest to target stable prices. In what follows, we examine the evolution of the Fed's thought and practice over the past three decades, a period in which the Fed has increasingly turned to unobservable indicators that are supposed to predict inflation and unobservable tools that are supposed to fight inflation. We will show that our criticisms have also been raised by the Fed's own members and research staff. Moreover, we suggest that the Fed has far less control over inflation than is presumed, and, at worst, might have the whole inflation-fighting strategy backwards. We conclude with an assessment of the latest round of rate hikes.

Tracy Mott was best known as a scholar of the work of Michal Kalecki, but he also made an important contribution to Keynesian liquidity preference theory. In 1983 Tom Asimakopulos generated a firestorm in the Post Keynesian community with a series of articles claiming that while Keynes's argument is that investment creates an equivalent amount of saving, this is true only ex post, after the multiplier has fully operated. Meantime, lack of savings could inhibit investment as the supply of bonds for long-term finance would exceed the supply of savings, driving up interest rates. Several Post Keynesians vociferously responded in defense of Keynes. Mott's contribution to the debate approached the subject from a perspective that was more heavily influenced by Kalecki, Robinson, and Marx. Not only does the outcome of this debate impact our view of investment finance, but it also has implications for our view of financing government deficits. In this piece, I look back at Mott's contribution to our understanding of liquidity preference, taking account of developments in Post Keynesian thought over the past four decades. The two most obvious and relevant are the endogenous money approach and Modern Money Theory.

We begin with an overview of the foundations of MMT, demonstrating that the issue facing sovereign nations is not the availability of finance. This is true for all countries that meet our definition of sovereign currency issuer. We respond to the claim of many critics that MMT can only apply to countries that issue one of the major international reserve currencies. We then turn to the issue of resource constraints - which are faced by sovereign currency issuers whether they are developed or developing countries. Many of our critics have mistaken resource constraints for financial constraints. What small developing countries face are much more binding constraints on access to external resources. What MMT offers to them is an understanding of their ability to mobilize domestic resources, which can help to substitute for, and to lessen, external resource constraints.

This paper examines the recent increase of the measured inflation rate to assess the degree to which the acceleration is due to problems created (largely on the supply side) by the pandemic versus pressures created on the demand side by pandemic relief. Some have attributed the inflation to excess demand, most notably Larry Summers, who had warned that the pandemic relief spending was too great. As evidence, one could point to the quick recovery of GDP and to reportedly tight labor markets. Others have variously blamed supply chain disruptions, shortages of certain inputs, OPEC’s oil price increases, labor market disruptions because of COVID, and rising profit margins obtained through exercise of pricing power. We conclude that there is little evidence that excess demand is the problem, although we agree that in the absence of the relief checks, recovery would have been sufficiently slow to minimize inflation pressure. We closely examine the main contributors to rising overall prices and conclude that tighter monetary policy would not be an effective way to reduce price pressures. We also cast doubt on the expectations theory of inflation control. We present evidence that suggests there is currently little danger that higher inflation will become entrenched. If anything, rate hikes now will make it harder for the economy to adjust to current realities. The potential for lots of pain with little gain is great. The best course of action is to tackle problems on the supply side.

This chapter looks closely at U.S. labor markets to examine secular stagnation in the U.S. We argue against the commonly held view that slow growth in the U.S. results from slow productivity growth and slow growth of inputs to production—especially the labor force. Instead, evidence from U.S. labor markets shows that the main problem is chronic insufficient growth of aggregate demand. We focus on two slow growth episodes experienced by the US economy (early-mid 1970s to mid-1990s, and then post Global Financial Crisis—prior to COVID-19) and conclude that stagnant worker's incomes, falling participation rates of prime-age men, and relatively slow growth of productivity are all indicative of a problem of chronic insufficient aggregate demand. In particular, the slow “recovery” of the employment rate and labor force participation following each recession since the 1990s is ultimately a consequence of insufficient and improper policy response. In our conclusion, we also discuss a way forward and call for a bigger role for government to play in promoting higher aggregate demand through direct job creation and well-targeted government spending.

Click to increase image sizeClick to decrease image size The author thanks Lynn Foster for her help and comments.Notes1 Gladys was briefly married to a fellow DU student, John Myers.

Modern money theory (MMT) describes monetary and fiscal operations in nations that issue a sovereign currency, where the government chooses the money of account and imposes obligations and issues currency in that money of account. This chapter traces the origins and development of MMT, showing that it synthesises several traditions from heterodox economics, including chartalism, endogenous money, financial instability, the sectoral balance approach, and policy to promote full employment. It thus integrates contributions from Knapp, Keynes, Kalecki, Lerner, Minsky, and Godley. MMT uses this integration in policy analysis to address issues such as exchange rate regimes, full employment policy, financial and economic stability, and the diverse current challenges facing modern economies. This chapter focuses particularly on the development of the 'Kansas City' approach to MMT at the University of Missouri-Kansas City (UMKC) and the Levy Economics Institute of Bard College.

In response to the COVID pandemic, the US federal government responded with approximately $5 trillion of relief spending, and the new administration of President Biden proposed an additional $4 trillion to “build back better.” This included huge investments in physical and human infrastructure that would produce environmentally and socially sustainable growth. This chapter discusses the two spending plans and examines how the administration proposes to pay for them through taxes. We introduce an alternative view of taxation, arguing that taxes need not be raised just because spending is going to increase. What matters is mobilizing resources and whether inflation may result from increased government spending. We conclude that the demands on resources will be manageable and argue that in real terms infrastructure spending pays for itself.

This article examines the innocent frauds (J. K. Galbraith) or enabling myths (W. Dugger) that are used to justify capitalism's inexcusable excesses: excessive inequality, exploitation, and war. As Joseph Campbell put it, the sociological purpose of myth is "that of validating and maintaining some specific social order, authorizing its moral code as a construct beyond criticism or human emendation"-a description of conventional economic theory with its focus on the "invisible hand" of the "free market." Combining the socio-anthropological approaches of Campbell, the Institutionalist approach of economists like Dugger, and the literary approach of Kurt Vonnegut, this articles exposes a half dozen of the most important myths used by economists and policy-makers to protect an immoral and unsustainable social order.