Saturday, 10 April 2021

Stephanie Kelton’s flawed ideas on improving the unemployment / inflation trade off.


I’ve supported MMT for about ten years and thus agree with much of SK’s material. However her ideas in the second half of a recent New York Times article on how to minimise the inflationary effect of Biden’s stimulus plan are poor. The title of the article is “Biden Can Go Bigger and Not ‘Pay for It’ the Old Way.”

She starts this section by saying, “These mostly nontax inflation offsets could include industrial policies, like much more aggressively increasing our domestic manufacturing capacity by steering investment back to U.S. shores….”.

Well the first problem there is that Biden’s stimulus plan is very much into infrastructure, while US plants owned in other countries make a huge range of different items. Thus even if the relevant machinery was moved back to the US, it would not for the most part help with meeting demand for infrastructure related items.

Plus in as far as US firms are NOT CONCERNED with infrastructure related stuff, they manufacture in other countries because they regard that as being CHEAPER than manufacturing in the US. Forcing those firms to manufacture in a more expensive way won’t do much to ameliorate inflation, which is what SK aims to do.

Another of her less than brilliant ideas is that “The Biden team could also consider loosening its legal-immigration policies, so that even once America nears full employment there would still be an adequate labor pool to meet the increased demand for workers.”

Well that’s just a repeat of the age old fallacy that imported labour deals with labour shortages: a fallacy the UK fell for when it imported a large amount of labour from the West Indies just after WWII. The flaw in that argument is that (gasps of amazement), immigrants purchase food, housing, electricity and all the consumer items that natives purchase: i.e. immigrants ADD TO demand just as much as they add to aggregate supply.

At least the latter point is certainly as far as labour IN GENERAL goes. In contrast, the inflation / unemployment trade off can certainly be improved by importing SPECIFIC TYPES of skilled labour that are in short supply (and indeed by exporting specific types of labour that are in surplus). But simply importing a more or less random selection of different types of labour is of no help whatever when it comes to dealing with labour shortages.

Indeed, it’s worse than that. Most of the labour currently trying to get into the US is from central and south America is relatively unskilled, and certainly the labour imported to the UK just after WWII was relatively unskilled.

And finally, if her “industrial policies” do in fact bring benefits, shouldn't they be a PERMANENT FEATURE, rather than just some sort of temporary measure to help Biden’s stimulus, which seems to be the objective of said “industrial policies”?

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