Well, it seems you've hit on a hurdle that the MMT economists may have yet to get over. Shall we now defer to the "Behavioral" economists? I try to read Bill Mitchell's blog as regularly as possible. If I understood correctly, the MMT boys (and Girls) will soon be coming out with a basic undergraduate text in economics. This promises to have correct descriptions of Treasury and Central Bank Operations and blow a few myths unwittingly incorporated into traditional standard texts, which are largely revisions of previous additions going back to pre-1971, out of the water. (It happens in every field that errors get incorporated into standard texts that take years to get back out.) In my own field, chemistry, the classic example is the bit about third period elements "expanding the electron octet" via incorporation of 3d-orbitals. You may recall being taught that! In actuality the 3d orbitals lie far too high in energy to by occupied by the third period elements. That's been known for years! The correct explanation of how third period elements "expand their octet" invokes a 3-center bonding model. Yet I don't know of a single standard text that does not still teach the incorrect model for bonding in third period elements! You'll even find a majority of chemist still defending the older model!
In theory it is easy, just index the marginal tax rate to the inflation target rate and similarly spending to the inflation target rate. There are also some stabilizers like Job guarantee. If designed properly, the quantity of workers employed in the program would be allowed to rise and fall counter to the economy’s cycles as some of the workers moved from public to private sector work or vice versa depending upon the state of the economy. Currently the fiscal authority basically handed off all the tough decisions to monetary authority hoping they rescue the economy.
Yes, though there will be situations where it over or undershoots, requiring policy decisions. Plus, there are other little practical issues, like the (a) assumption of unconditional acceptance of currency/debt by your trade partners, no matter what the deficit is, (b) complete lack of tax avoidance, (c) complete civility of interactions between economies etc. Finally, in absence of productivity growth (or in cases of revolutionary growth) you can imagine situations where this attenuation will not work at all. Well, yes. Taxes are a very political issue, while the central bank has the autonomy to make tough decisions (despite what the current president likes to think). Heck, in the 80s Volker raised rates to the 20 handle to manage the high inflation rate at the time, with unemployment going up to double digits ON purpose! Could you imagine any politician (left or right) doing that?
We have undershot the target for many years even in the current regime. Imo, two levers of the authority, with formulaic target is better than one. Other practical issues you mentioned should show up in the inflation numbers. In that case, since the policy is based on inflation target, two levers should be able to manage it. I don't think we will ever see Volker type of central banker again. They are under attack from both left and right and the president. Case in point, meek submission of the current central bank. Not only the taxes are political issue, policy mistake by congress is also has to addressed by central bank. During paul ryan era, he basically squeezed the budget with revenue neutral stance, monetary authority had to make up for the gap. He threw up all that caution, when he suited for him in the current administration with huge tax cut.
To be fair, it's not likely that we will see this type of inflation numbers again either, but if we do it could be disastrous since "credit" quality of the US debt and the Fed credibility are totally linked by now. Rant: It always amazes me how the supposedly fiscally-responsible parties are eager and willing to spend and borrow when it makes sense politically. It even more amazes me that the very same parties are not willing to change their approach when the economic situation demands it.
Mike Maloney has a video series titled "The Hidden Secrets of Money". Each episode is around 30 minutes plus/minus. Although Mike Maloney is a promoter of precious metals, I consider the series to be excellent, as IMO, the videos are comprised mainly of historic and other facts, and minimal, very low-key advocating or promotion for precious metals. Myself, I am a Monetarist, ala Milton Friedman, on the thread topic. But since government is incapable of understanding that they can not control outcomes of things they admittedly do not understand or stated different, facts they choose to ignore, well, fiat in it's current incarnations, will ultimately go to zero. Here are Youtube links... episode 1 from 2013, episodes 9 and 10 from 2018.
I like the back and forth between to well-informed parties here. Sle and Srinir. Thank you guys. What we see manifest in this dialog is that what makes good sense on paper may run headlong into our human nature. When that happens only our intellect and education can bail us out. And that is a rather scary thing to have to fall back on, especially when it comes up against instinct.
At any rate of inflation a currency will asymptotically tend to zero. It's is so by design. In fact, that's what makes it a perfect medium of exchange in the modern economy. When it's a known fact that a unit of exchanges loses value with time, people are going to put it to work. If you can manipulate this desire via whatever means, you can smooth cycles and supposedly prevent catastrophic events. That's the premise but the practical mileage varies a lot, of course.
Ok, just trying to understand what is being said here and its implications. Is this saying: 1. The world needs to buy oil 2. Since oil is sold in US dollars, the whole world needs dollars, thus supporting the dollar currency so we don't have to worry (as much) about loss of faith in the dollar, regardless of the national debt? This is what I have gleaned from similar statements in other threads, but just trying to confirm if I am understanding right. What happens as global demand, and prices, for oil continue falling as they have in recent years? Within a decade, it's not unreasonable to think that half or more of cars will be electric. And Europe especially is doing a lot with wind and solar energy for power generation. That and the use of "fracking". Let's say oil is $5 a barrel (in current dollars) a decade from now. How, if at all, does this affect things?
If there are no profits to be made in producing oil at $5/bbl, production will decline causing demand inflation. If demand declines simultaneously and does not increase to AT LEAST support the cost of production-plus, ring the bell... I still have a few blank betamax tapes laying around. Of course government can always step in and guarantee ASSET inflation with the stroke of a pen. We all know who loses in that case... consumers and taxpayers! Many years too soon IMO, to think how that might affect the constituents of the various equity indexes around the globe! But it's a fun and interesting exercise nonetheless.