Over at National Review, Philip Klein takes in the news that payments on the federal debt have gone up thanks to higher interest rates. Along the way he says:
Under President Biden, massive spending has fueled not only high deficits but also inflation.
Let's take a look!
It looks to me like both Biden and Mitch McConnell spent a big slug of money,¹ and of course they did so for a reason: COVID-19. As the COVID emergency has waned, so has federal spending, which is now back to its longtime trend.
So let's put a cap on the nonsense, OK? If high spending is indeed responsible for our inflation spike, it's as much the responsibility of McConnell as Biden. But if a year of inflation is the price of a spending policy that kept the United States on the path of growth and full employment, it was worth it. As Paul Krugman points out today, COVID emergency spending is the reason that employment took only 37 months to recover compared to the 144 months it took to recover from the Great Recession:
This looks like a pretty good tradeoff to me. It's something to be proud of, not ashamed of.
¹Normally I would have said "Biden and Donald Trump," but I couldn't bring myself to pretend that Trump played any role in this. He was too busy at the time figuring out ways to make sure he didn't take the blame for the pandemic.
Did anyone think money was going to continue to stay cheap indefinitely? Low rates were always going to be, well, transitory.
Did anyone think money was going to continue to stay cheap indefinitely? Low rates were always going to be, well, transitory
Yes, the IMF:
https://www.imf.org/en/Blogs/Articles/2023/04/10/interest-rates-likely-to-return-towards-pre-pandemic-levels-when-inflation-is-tamed
And I expect they're right given what by now has become an utterly massive global trend of aging and rapidly declining population growth:
https://www.economist.com/middle-east-and-africa/2023/04/05/the-worlds-peak-population-may-be-smaller-than-expected
History is driven by demographics. Everything else is just commentary.
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Huh. Another spambot "reply" that's almost relevant. I guess the thing about a stopped clock is right...
Is this validation for MMT?
Not in the least. Rather the contrary.
Do explain.
MMT is not a set of policy prescriptions, it is a description of how money is created, and how its creation and deployment affect economic activity. "Validation" would thus consist of showing that the effects of fiscal operations on economic factors like inflation and unemployment were or were not as predicted by MMT.
MMT is no such thing, it's a fringe economic theory from the Left and and is not a description of how money is created (for which there is a fine body of economic and econometric literature).
Of course it is quite popular with populists and Leftists of most colours as it says what you want to hear.
Paul Krugman was perfectly spot on to call it the cryptocurrency of economic theory (https://www.nytimes.com/2022/02/08/opinion/economic-theory-monetary-policy.html).
Classes I took in economics defined money as "a medium of exchange, unit of account, store of value." This is a list of functions money performs, but it's useless to tell you whether a thing is money or not (salt? cigarettes? Bitcoin? All have been used as a medium of exchange) and therefore is not really a useful definition and has almost nothing to say about modern practice. That's about all mainstream economics has to say about money.
"I think we can all agree that it was McConnell who pushed through the $3.5 trillion COVID rescue package in 2020, right? Donald Trump was busy at the time figuring out ways to make sure he didn't take the blame for the pandemic."
Wasn't Pelosi et al rather heavily involved?
As Speaker of the House with a party majority behind her, yeah, she was likely a little involved.
"Trump and Pelosi Are Very Close to a Stimulus Deal" https://www.motherjones.com/kevin-drum/2020/10/trump-and-pelosi-are-very-close-to-a-stimulus-deal/ among the results of https://www.google.com/search?client=safari&rls=en&q=kevin+drum+covid+pelosi+site%3Amotherjones.com&ie=UTF-8&oe=UTF-8
UN FAO (global) food price index tracker, as a tool for observing the effects of exogenous temporary inflation, if we ignore the profit-taking of grocers/retailers.
In re "If high spending is indeed responsible for our inflation spike, it's as much the responsibility of McConnell as Biden. But if a year of inflation is the price of a spending policy that kept the United States on the path of growth and full employment, it was worth it."
Two years (and counting despite "unskewed trend lines") not one , but leaving that aside: While at some level a partial mistake on over-compensation it was entirely reasonable one to make, and a proper path
The proper response to the overshoot and inflation (which of course is multi-factor and not uniquely explained by over-stimulus from pandemic, mono-causualism is completely wrong in this context, obviously factors like Ukraine invasion are important and perhaps without that one would not have seen the spike that was seen) to it was not Denialism on inflation like Drum has been engaged in, but rather a quick temporary pivot to correct.
That is entirely reasonable - like a driver who has had to push hard on the accelerator to get out of a ditch, it's perfectly understandable given difficulty in prediction of when one gets out, to have overcompensated, for which the proper response is not to deny one overcompensated (and then accelerate into a new ditch), but to ease back
And this is all better than sitting in a ditch piously stating that eventually the ditch will naturally weather away (true enough but stupid to do as one remains unnecessarily stuck in a negative equilibrium).
"Over at National Review, Philip Klein"
Quick reminder. If a conservative says or writes something, they are most likely lying.
I think it's important to distinguish between sane conservatives and Trumpian conservatives. If we ever want to escape our toxic politics, some day there needs to again be a modicum of mutual respect.
(Note: I don't know Philip Klein's specific politics, but NR at least tries to make arguments rather than being about pure partisanship.)
Kev: *posts charts* So let's put a cap on the nonsense, OK?
National Review: No! *publishes lots more nonsense*