The horizon is not so far as we can see, but as far as we can imagine

Stopping Deflation? Dead Easy. So Why Isn’t It Being Done?

As with many problems we face today, this is a solved problem.

About half of the New Deal can be summed up as “wage and price supports.” The post-war economic paradigm in the West was also about making sure prices and wages rose.

Avoiding deflation, by the way, is mostly about ordinary people’s income. If you don’t want deflation, make sure ordinary people are getting more money, faster than inflation and that they’re spending it.

Oh, there’s a bunch of other stuff, most of which comes down to: “Don’t let any oligopolies or monopolies form without subjecting their prices to close control.” That means both “not too high” and “not too low.” Think classic regulated utilities.

“You will charge enough to pay your employees well, keep the infrastructure in good shape, and make five percent a year. No more, no less.”

(Five percent is an example, other (lowish) numbers can be used.)

We have, or are flirting with, deflation right now because we refuse to give ordinary people money in a way which makes them think they can afford to spend it.

We allow inflation in the worst possible areas, like housing and rental prices in cities with jobs, and luxury goods, but that’s pretty much it.

If you let fixed costs have inflation above income increases, then everything else is going to have to suffer deflation, because it is discretionary. Gotta eat and have a warm place to sleep, first.

If a government wanted to end inflation, it could be done easily enough.

First, you go back to progressive taxation on corporations and rich people, without loopholes, based on, “If you earn the money in our country you pay tax on it here.” Yes, there will be attempts at dodging (especially by multinationals); yes, there are ways to deal with them.

Then you spend the money in a way that produces local jobs and creates a tight market.

Here’s your dead simple idea: Every building in your country must be at least energy neutral, and all the energy infrastructure must be made “smart” so this can be done properly.

Financially, your central bank says, “We will accept “energy savings bonds at 98 percent,” thus creating a market for it.  Your government offers the loans. Your mortgage guarantee authority says, “We won’t guarantee any mortgage for a building which is not, at least, energy neutral.”

If you can grow some big ones, larger industrial countries must even slap a tariff on things like solar panels, so the manufacturing is done at home. The actual refitting of buildings, of course, can’t be offshored.

Lots and lots of jobs. A tight market. Raises for people in the building trades. A boom.

There are plenty of other ideas like this, because there are plenty of other things that need to be done.

The direction must be long term. It would take a long time to refit all of America’s building stock. Companies can invest in that, because they know it will still be going on in ten years. Likely longer.

Now, for this stuff to work, you must understand that high, progressive taxation is necessary. All that money will end up in a corporation or rich person’s pocket eventually. The government then takes it back and recirculates it. (Yes, MMT people, we could just print the money and forget the wealth effect, but that’s a terrible idea because oligarchies are terrible societies in which to lie.)

You should also go hard on monopolies and oligopolies (start with the app stores, which charge 30 percent–but that’s another article).

The point is simple enough: there’s a lot of stuff we should be doing, and doing that stuff would end deflation if we were serious about it. It would also make the economy a lot better for ordinary people.

This has been another episode of “how to do policy.” I remind readers that good policy is easy, and that I don’t write about it often because the problem is not good policy ideas, or how to fix our problems (we know how to fix most of them), but that our current political-economic organization does not want to implement policy that helps the majority of people if doing so will upset current concentrations of money and power.

Some sectors can die, yes (coal now, oil in the next 15 years), but the structure cannot change.

So, if you’re British, figure out how to get Corbyn elected in the face of the endless propaganda against him. If you’re in the US, Bernie is your (current) best bet. In general, figure out how to overthrow your current systems, which includes the people running them, and how to do it in such a way that there isn’t a counter coup. (This is a larger question than just electing a leader, as the UK’s Labor Party and media are currently at pains to teach Britons.)

We’ve blown the incremental change chance. Revolution will now be necessary. In some countries, it will be largely peaceful. In others, it will be stopped and stagnation will continue until destruction.

And in still others, it will be the guillotine.

Those who make peaceful rev…well, you know the rest.

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  1. reslez

    > We allow inflation in the worst possible areas, like housing and rental prices in cities with jobs, and luxury goods, but that’s pretty much it.

    Inflation + protected monopolies are what price First World workers out of the international market. Graft, basically. We can’t survive on Third World wages because half our pay goes to rentier income, non-productive Jabba the Hutts lording it over a fat revenue stream. Even when the revenue stream is from housing and health care. The current tier of self-proclaimed elite have no interest in productive industry, only shuffling paper and collecting a percentage while cutting workers loose to starve on “gig” labor. Their goal is to hook into everything necessary to life, so we have no alternative but to pay.

    This is also the goal of unicorn startups. Their game plan is to leverage venture capital to break the law and establish a monopoly. Whoever reaches monopoly status first, wins (think Facebook and Google). As they say on NC, when you hear the word “innovation”, hold on to your wallet.

  2. Tom

    Bernie is unlikely to win now, he blew it two weeks ago, and failed to rally blacks to him. He has to really win landslides in New York, Indiana, Pennsylvania, and California.

    He did pick up Alaska, Hawaii, and Washington State so he still has a chance. But he needs to win New York and get Blacks to rally to his banner and do it now before April 19. He also needs to get the Youth Vote out to the polls, if necessary get them absentee ballots or driving them to the polls.

    If he keeps fucking up on those fields, he is out.

  3. Dan Lynch

    Ian is right, it would be easy to fix the economy (though carbon emissions would go up in the process so we’re probably doomed in that respect).
    Michal Kalecki spelled out the dilemna in 1943: we could have a good economy if we wanted it, but the powers that be don’t want it. They’d rather keep us groveling and fighting among ourselves. And we oblige them.

  4. Ché Pasa

    Answer: because deflation further enriches the Have-Mores.

    Nothing is more important, no?

  5. Jeff Wegerson

    I assume that the MMTers are fellow travelers and that your differences with them are strategies and tactics. I assume that their goals are to enrich society as a whole rather than the neo-liberal goal of enriching a narrow slice of society, yes?

    @Tom – And Bernie supporters need to educate their supporters on the ins and outs of closed primaries and voter suppression as in Arizona. The other hurdle for Bernie supporters is the woeful lack of media presence. Primaries require a lot more media presence than caucuses.

    @Dan Lynch – I assume that Ian’s approaches would invest at a world war sense of urgency in clean energy manufacture.

  6. Ian Welsh

    I am not a fan of MMT, and I am not going into it. Not worth the fight.

    The reason I suggested specifically what I suggested is that it would reduce carbon emissions.

    There are other things which can be done to reduce carbon emissions as well.

    (Though, at this point, it’s methane that’s going to put the nails in our coffin.)

  7. Mel

    The MMT quip is a bit of a strawman. MMT founders say that government has two sovereign monetary powers:
    – to spend money into the economy
    – to tax money out of the economy.

    Indeed, the canonical MMT creation myth says that the need to pay their taxes is the only thing that keeps people from ignoring money altogether, and thus the power to tax is what creates the value of money. This seems excessively abstract to me, and I can see other Geldspielen going on that aren’t accounted for by the creation myth, but I can’t say it isn’t true. You can see it in cases where the imperium is wrapping up a freshly-caught colony, happening right out in the open.

  8. Tom

    Think MMT is hard, try explaining why a Flat Tax is not a good ideal.

    Personally, fuck incomes taxes and tax wealth instead. Warren Buffet has no income, he makes money off investments and thus pays no income taxes. Taxing his wealth would get the government a billion dollars a year out of him compared to just a couple million.

  9. Jeff Wegerson

    @Ian – So in your interpretation at least some MMTers think that high taxation is optional? That large growing pools of narrowly owned money wealth can be tolerated? That there will not be any dysfunctional economic distortions deriving from their existence?

    I guess I ask because I credit MMT with liberating my thinking about money. So like the homage one pays to ones parents I feel a psychic debt to them. Yet I get that one is expected to grow and become independent of ones parents too.

    Before MMT I struggled to understand the myriad of economic terms and concepts. But, for me at least, MMT was like the sword thru the Gordian knot.

    I am puzzled too by your generally enlightened approach to intellectual struggle, your ability to stand aside and observe without getting caught in ego-turmoils. But maybe I give you too much credit. You are careful to self efface your skills. My puzzlement arises here from your stand-offishness from MMT. I get that some discussions can become mired in time and energy wasting back and forths. You certainly don’t need that.

    I apologize but I seem to be pushing you towards an entire article on your philosophical differences with MMT. And maybe there is no there there. Maybe your simple statement about wealth effects really says all. Me, I assume that any large concentration of power narrowly controlled is by definition dysfunctional, and that money is a proxy for power.

    My difficulty, or perhaps simple curiosity, here may simply be that I have too little exposure to MMT arguments.

  10. Some Guy

    At the risk of furthering an MMT digression, one point you may be overlooking Ian is that printing more money (a logical conclusion of MMT thinking) has a very powerful anti-plutocratic effect (note by their words and actions that money printing is the thing they fear above all else).

    The impact is three-fold. One, printing more money dilutes the existing stock. Two, it destroys the basis for austerity. Three, it pushes up interest rates which destroys the pile of debt claims the plutocrats hold over our heads. I am skeptical that there is a way out of the current impasse that does not involve printing money and spending it into the economy.

    With respect to your main point, I agree, naturally, although I prefer Laurier’s quote on rebellion to the American version,

    “What is hateful…is not rebellion but the despotism which induces the rebellion; what is hateful are not rebels but the men, who, having the enjoyment of power, do not discharge the duties of power; they are the men who, having the power to redress wrongs, refuse to listen to the petitioners that are sent to them; they are the men who, when they are asked for a loaf, give a stone.”

  11. Ian Welsh

    What matters in printing money is who winds up with the control it embodies. We’ve printed trillions (they don’t call it that, but that’s what it is) in the last 8 years and the rich have just gotten richer.

    But, as noted, I’ve avoided an MMT critique for reasons. People seriously freak out, it’s not an easy/obvious argument and it’s not important enough to me to make enemies. There are people in the left-economic blogosphere who will cut you dead for criticizing MMT.

    Cutting up MMT is a job I will do when someone offers real people + ick pay, and not before, which probably means never. (aka. hundreds of dollars – an hour. Which, btw, is not high wages to real people.)

  12. Daize

    I assume one of your problems with MMT (and mine), is that it really does not deal properly with the scarcity of raw materials. This has obvious consequences, especially if you are concerned with the environment.

  13. Lisa

    Whar deflation Kemo Sabe?

    No deflation for assets, well until recently but they will fix that even if they have to extract gold fillings from pensioners.

    No deflaton for the rentiers….

    There has been no deflation for those that matter….

    Japan writ large…asset prices MUST remain high…. and grow rapidly.
    If they have to sell your children into slavery to achieve that then they will…oh they have already done that ..called education loans.

    They know MMT real well, been doing it for years now, just they are applying it to their class only. The rest of us can go and die. Surplus to requirements.

  14. Some Guy

    “What matters in printing money is who winds up with the control it embodies. We’ve printed trillions (they don’t call it that, but that’s what it is) in the last 8 years and the rich have just gotten richer.”

    Yes, of course, to make the difference I described, the money has to be printed to the debtor side of the equation (I should have stated that explicitly) – as you say, the last few years have been an interesting exercise in finding out what happens when you print money to the creditor side of the balance sheet, which is entirely different in its implications and obviously more acceptable to the creditors that rule us.

  15. jsn

    (Yes, MMT people, we could just print the money and forget the wealth effect, but that’s a terrible idea because oligarchies are terrible societies in which to lie.)

    And lying is the only way to make a good living in oligarchies!

    At its base MMT is nothing more than a description of how actual fiat monetary operations work: it is a description of the functions of a system/tool. It is a strictly “economic” view of money. Ian/Sterlings’ position on money, as permission, is an equally useful and clear description of money as a strictly “political” tool. Classical economics conception of Political Economy as a coherent whole was limited by their failure to envision what Keynes explained in the General Theory about failures of aggregate demand.

    Add in Keynes to the Classical cannon of Political Economy and it looks to me like you bridge effectively between Ian’s position and MMT: Abba Lerner’s “Functional Finance” was Treasury’s operational guide for its application of MMT in post war Great Brittain.

  16. karenjj2

    Ian & commenters: This is the best economics post EVER:

    (in order) Tom: Tax wealth, not income
    Some Guy: Laurier quote, “what is hateful is not rebellion but despotism which induces the rebellion.”
    Ian: We’ve printed trillions past 8 years … debating MMT = serious freak out & make enemies (on left)
    Daize: MMT does not deal with scarce, physical resources nor environmental damage and detrimental effects on humans

    My illustration of extraordinary inflation for everyone is on their bathroom wall: the toilet paper holder. designed to hold fat (used to be hard to insert new roll) 5″ x 5″ roll. Today, it’s easy to put in skinny “huge” 4″ x 4″ roll. Fact: all products today are less quantity at higher 2016 price. Have you purchased a 10-ounce “pound” of coffee lately? Last example from grocery store shelves: look at miniscule print on all tuna products: foreign origin — especially Vietnam.

  17. karenjj2

    p.s. look at toilet paper core, too. my mother discovered the incredibly shrinking candy bar while volunteer at hospital gift shop: approximately 1.5″ x 4″ wrapper with minuscule 2-bite contents. She did see that “market profiteers” did recognize customers were not finding contents in wrapper when new candy bar wrappers “25% more” appeared — with 25% wrapper size increase, of course. (this is another paragraph from kj’s “reality economics”)

  18. subgenius


    Scale that to “economic theories” and you get my vote, too…

  19. S Brennan

    OT, from FBook AM post, riffing from Phil Ebersole’s Blog:

    Neoliberal; An Ideology that dominates Republican & Democratic thinking since 1978. Hillary-Bill Clinton & Obama are ardent devotees to this cult. Here’s a typical example of the radical extremism that results from their belief system.

    “Last year, Carrier produced $2.9 billion profits of $7.6 billion for its parent company, United Technologies, just under 40% of the corporations total profit…by growth and profits, it was far and away UT’s best-performing division…So why would a profitable, growing business ship jobs to Mexico?…Wall Street demands a 17 percent increase in earnings even though sales are expected to rise only 8% for United Technologies”

    Note: Mexico’s ruling elites have maintained a $5.00/day minimum wage for decades. NAFTA [see Bill Clinton] destroyed the agrarian corn economy. Any attempt by peasants to demand wage increases have led to brutal repression by the ruling regime. Wages are artificially repressed by Mexican government oppression.

    It is fair to say that “neoliberalism” requires substantial & sustained government intervention into markets and an outright government oppression of labor markets. Neoliberalism in essence is, a form of internationalized fascism.

  20. cgordon

    Inflation is a tax on wealth. Deflation, therefore, is an enhancement to wealth. The question “So why isn’t it being done?” is answered.

  21. cgordon

    Sorry, Che Pasa, didn’t notice you up there.

  22. res publica

    What does MMT mean? It’s not quite a house hold acronym, not even this site offers an explanation that fits into the context of the discussion.

  23. CMike

    res publica,


  24. CMike

    Money: Whence it came, where it went (1975) by John Kenneth Galbraith, Pages 111 to 112

    [QUOTE] There can never have been a time when it was as good to be rich as in the late years of the last century, the first decade of the present one. There was no income tax, the Civil War impost having been obliterated soon after the war. There was the rewarding contrast with the vast majority, which was still very poor.

    Writing in 1899, Thorstein Veblen observed that property was then “the most easily recognized evidence of a reputable degree of success as distinguished from heroic or signal achievement. It therefore becomes the conventional basis of esteem.”

    With sound instinct, historians refer to these years at the Gilded Age. They might as accurately be called the age of gold. For some, and perhaps much, of the esteem ascribed by Veblen to wealth was given by the nature of money. If money is weak and wasting in value, even the rich lack something in certainty as to their worth.

    Their minds, like those of others, leap forward to the day when their money will be disintegrated, as did the Continental notes or the reichsmark. They have a strategy for protecting themselves but maybe it will not work, and for what then does money count? No such question arises either in the mind of its possessor or of those who would denigrate him if money is hard and eternal.

    The ability of the rich and their acolytes to see social virtue in what serves their interest and convenience, and to depict as ridiculous or foolish what does not was never better manifested than in the support of gold and their condemnation of paper money.

    The parallel tendency of economists to find virtue in what the reputable and affluent applaud was similarly evident. But there were also a precision and harmony and a unifying tendency in the operation of the gold standard that commended themselves even to those who were neither consciously nor wittingly servants of the rich.

    It did make simple and certain the relations between the currencies of different countries and gave the industrial countries and their empires a single money. It was sad that it also had serious, even fatal, flaws, that it could inflict heavy punishment on the ordinary person and, as time passed, also on the affluent themselves…. [END QUOTE]

  25. Jeff Wegerson

    @res publica See @Mel above for a start.

    Anyone (even you and me) can create a money, it is trust by others it that counts.
    Nationally created monies are usually trusted by enough others for everyday use.
    U.S. privatized money creation to banks then borrows it back to cover tax shortfalls.
    Banks crashed the economy in 2008, held it hostage and demanded the nation pay ransom to them.
    The problem with banks is that they channel money to unproductive parts of economy (the already rich).
    MMTers (Modern Monetary Theory) (and others) remind everyone that a nationally created money can be channeled directly to productive users (industry/consumers etc.)
    MMTers remind everyone that the debts to banks can always be paid back by a nation taking back money creation.
    Ian reminds the MMTers (and us) “why bother to further enrich the lenders” by national money creation when you can either nationalize them or tax them.

    It boils down to our problems are political/social not economic.

    That’s my attempt at a moderately sophisticated take at the moment.

  26. Quite so. Increasing welfare is certain to go stright into consumer demand since the poor save very little. And the cost of welfare will come down as unemployment comes down as a result.

    To control inflation just restrict mortgage availability, for example by setting and reducing a maximum proportion of the house equity you can borrow.

    However, if you are British do NOT vote for for Corbyn. He hasn’t a clue. Vote UKIP!

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