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Oliver Davey
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I can explain in 10 minutes to any bright first year student why assets and liabilities need to be adjusted for inflation to get a true picture of wealth. Maybe I'm not so bright, but I'd say the picture is no truer than if you don't adjust for inflation, it's just much easier to follow. A function with one variable suits our (or at least my) limited ability to abstract much better than one with two, god forbid independent, variables. But mapping financial to real is a philosophical, not a mathematical challenge - one that needs to take place in any case, whether there is inflation or not. In the demand led, Keynesian world, this philosophical challenge is left to the individuals who each perform this translation in the privacy of their own preferences, which is of course very convenient for the economists (maybe too convenient?). But aggregating philosophy by mathematizing it, as I see much of economics, doesn't seem to have helped us much either. I think the prior simpletons at least free more of their mental capacity to appreciate the forest in its beauty without getting too bogged down about the trees. Where I find MMTers run in to difficulties in their communication with other schools, is that all their talk about accounting is done with one final aim, namely to stop us thinking about accounting and get us to focus on the real side of things, such as employment etc. It's a bit like telling people not to think about unicorns because, hey, we've studied unicorns in great detail and we can assure you they don't exist. So, whatever you do, don't think about them! And of course we run out and come up with mathematical proofs that show that we can believe them into existence and that therefore they must exist etc.. Anselm of Cantebury comes to mind.
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This book may be of interest: The Persistence of Poverty Why the Economics of the Well-Off Can't Help the Poor
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Printing too much money and increasing demand really did cause inflation. It really didn't make us all richer. It didn't reduce unemployment. Yes, but did inflation make us poorer in real terms and did it worsen unemployment? And would the opposite reaction, i.e. 'printing' less money, have made things better? From observing that one particular policy did not work under one particular circumstance it does not, ever, follow, that the opposite policy would have worked better. Supply constraints or external cost pushes that limit the powers of demand management don't mean that demand should have been ignored and supply measures favoured instead. It means that both sides should have been attended to simultaneously. Demand vs. supply is a false choice. If pushing demand leads to inflation instead of causing unemployment to go down, that is a sign that there are supply-side bottle necks that need attending, not that demand has been pushed too far.
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Jan 26, 2011