1970s and Monetary Policy Today

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In a recent twitter thread I outlined why I believe the new Reg Q inflation theory can be seen as supporting post-keynesian views. However, there is a meta issue I was not able to address in such a short format.

https://twitter.com/clintballinger/status/1716446321719284216

The DSS paper argues that by putting a ceiling on bank-deposit interest rates, Regulation Q stopped the transmission of interest rate hikes (Fed funds rate), thereby breaking the primary tool of the Fed from 1965~1980 when Q became binding on bank deposit rates.

1970s Inflation Revisited: New Reg Q Theory Supports *Heterodox* Economic Policy

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“we offer a different explanation for the Great Inflation..The explanation is simple, yet so far completely overlooked”

Drechsler, Savov, Schnabl (DSS) #econtwitter cepr.org/voxeu/columns/…
Myths on 1970s inflation sadly still shape the beliefs of the economists who have the ears of policymakers.
The belief interest rates “fixed” the problem rather than worsening it,

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SUPPLY, DEMAND, INVESTMENT & INFLATION

If you lack something you truly need, you are better off figuring out how to get it rather than just deciding to give up and go without. You increase supply rather than reduce your wellbeing by giving up on your demand 1/x When it comes to inflation, oddly, popular opinion is to do the opposite. The primary policy against inflation governments turn to is to raise interest rates with the end goal of reducing the public's consumption of goods and services rather than increase production & capacity 2/

"We use several formal representations of the consumption–investment trade-off in growth theory, found in the Harrod–Domar growth model, the Feldman–Mahalanobis model and Kalecki’s 1963 growth model" #econtwitter @paulkrugman @Noahpinion academic.oup.com/cje/advance-ar… (2018) I would change some things now or say differently, but some basic ideas hold that are relevant to the OP. clintballinger.com/2018/11/08/the…

Imagine this is the world. There are no countries (& no world government). It is full of people making & doing things.
How do people exchange/trade? Now imagine the people in A have carved out a country.
They create a fully chartal system (tax/tax-credits).
The "A" tax-credit unit is used to organize public goods (infrastructure, healthcare, education etc.) as well as for general use

There is a pervasive, annoyingly simplistic, & neverending online debate: Libertarian/free market vs socialism/communism, as if these are stark choices 1/ This scene looks like it works pretty well as a "free" market. Probably don't want the gov running our restaurants. (I used to work in the restaurant scene in this alley in the financial district, San Francisco) 2/

There is a great deal of confused discussion/bad assumptions around what CB interest-rate/monetary policy achieves, why rates are where they are, and why they might be changed. 1/x Currency-issuing countries are always pushing the overnight rate up, never down. If the overnight rate goes down, it is because the government/its CB has pushed it up less. Without CB/Treasury intervention (IOR or other means) the overnight rate will always fall to zero. 2/

With friends like these...
A big source of developing country problems
"Issuing [Eurobonds]: A Guidance Note" World Bank 2019
documents1.worldbank.org/curated/en/491… "African governments are paying interest of 5%-16% on 10-year gov bonds, compared to near 0 to negative rates in Europe/America. On avg, - highest expenditure portion/fastest growth expenditure in sub-Saharan Africa’s fiscal budgets." theconversation.com/african-countr…

Economic Schools as paintings:
Classical Mercantilism

IN DEMOCRACIES, the non-government has its government impose a liability on the non-government and then extend credit for that liability in exchange for goods and services. 1/n The credits are used by the non-government to extinguish the imposed liability. The system this creates is useful for the non-government, and thus its ongoing existence is maintained by ongoing imposed liabilities. 2/n

On Belief that spending occurs from taxing, and public saving (i.e., "deficit spending") from borrowing. First is directly false but indirectly true (the tax-credit must be created; no 1:1 ratio tho). The second is completely false. 1/4 Indirect argument heard against "deficits": that either taxes will rise in future or inflation act as a tax.
Neither holds as long as 1) there are ongoing savings desires, which there always will be and 2) spending doesn't surpass (desired) available real resources. 2/4

Exhibit number 1 of why we have to get rid of treasuries for the public to ever elect representatives who will understand fiscal. The vast majority of public,...

https://twitter.com/kweiner01/status/1412677203276431363?s=19

..& many if their econ "teachers," will always think there is a "debt" problem as long as we have our current rococo system. Smart ppl know all spending by currency issuers shakes out to be direct spending,& the repo/primary dealers/treasuries system is irrelevant. Public doesn't

@Graham_Noblit @Daniel_VonAhlen Well, MMT is about real resources really, not (paradoxically-sounding) "money". Looking for a link for you, moment .... @Graham_Noblit @Daniel_VonAhlen I think this is it: Fadhel, in the first 20 min or so, gives a masterclass in development econ here pileusmmt.libsyn.com/12-fadhel-kabo…

"Raw Materials in the History of Economic Policy; or, Why List (the Protectionist) and Cobden (the Free Trader) Both Agreed on Free Trade in Corn" cambridge.org/core/books/vis… Any correct heterodox theory of international trade must highlight the factors of decreasing vs increasing returns industries (primarily impact on domestic economy). #mmt