How is this different than the neo-Keynesian approach to fiscal policy? What fiscal policy would Krugman prescribe in an inflationary regime?
That article honestly doesn’t sound much different than what Kelton is saying. Here’s Krugman:
A lot of recent inflation will subside when oil and food prices stop rising, when the prices of used cars, which rose 41 percent (!) over the past year during the shortage of new cars, come down, and so on. The big surge in rents also appears to be largely behind us, although the slowdown won’t show up in official numbers for a while. So it probably won’t be necessary to put the economy through an ’80s-style wringer to get inflation down.
That said, the Fed is probably too optimistic in believing that we can get inflation under control without any rise in unemployment. Statistical measures like the unprecedented number of unfilled job openings, anecdotal evidence of labor shortages and, yes, wage increases suggest that the job market is running unsustainably hot. Cooling that market off will probably require accepting an uptick in the unemployment rate, although not a full-on recession.
And for what it’s worth, the Fed’s plan for gradual rate hikes, which has already led to a major rise in mortgage rates, is likely to cause that unfortunately necessary cooling-off, especially combined with the fact that fiscal policy has turned contractionary as the big spending of early 2021 recedes in the rearview mirror.
Anti-seignorage (which I assume is just a way of saying “running a fiscal surplus”) isn’t the only way of pulling money out of the economy. From one of Krugman’s links detailing the drag on GDP growth of fiscal policy over the last year or so:
The drag on economic growth in the fourth quarter was driven by the waning effects on GDP of federal transfer payments like the unemployment insurance benefit expansions and the Paycheck Protection Program, as well as an increase in federal and state non-corporate tax collections. A reduction in combined federal, state and local purchases also contributed to the drag on growth, largely reflecting lower state and local employment (particularly in education) and construction spending, also particularly in education.
While the overall trajectory of the FIM is clear—continued fiscal restraint—the exact magnitude and timing of the effects are not. There is a great deal of uncertainty about behavioral responses to the legislation enacted since the start of the pandemic. For example, it is hard to know how state and local governments will adjust their spending in response to the stimulus. Despite unprecedented support from Washington, employment by state and local governments remains about 3.5% below its pre-pandemic level. We assume that state and local governments will boost spending in coming quarters, but it is possible that the adjustment will be slower than we anticipate in light of the surprisingly weak growth thus far. Similarly, given the unusual nature of this recession, estimates of households’ and firms’ marginal propensities to consume (MPCs) are uncertain.
Sounds like they’re all saying that this inflationary period has many causes and is already correcting itself. Why would any economic advisor suggest tax increases right now, MMT or not?
EDIT: I do want to say I appreciate you providing probably the most succinct and clearly stated critique of MMT I’ve ever read. My primary issue with MMT’s various interlocutors is that most of them seem to not take it seriously enough to actually critique it as it is. And it’s hard not to distrust a critique when it’s mostly made of straw. For years I’ve been waiting for a Nobel Prize winning economist to explain in simple terms why MMT is bullshit. I’ve been ready to disbelieve since first hearing about it. Still waiting.
