‘Modern Supply-Side Economics’ Will Exacerbate Inflation

Regardless of what Secretary Yellen may say, increasing government deficit spending at this time, will lead to more inflation.

Last year, the Federal Reserve officials said they were basing their shockingly irresponsible monetary policy on Modern Monetary Theory (MMT). On Friday, Treasury Secretary Janet Yellen, said President Biden is basing his fiscal policy on “Modern Supply-Side Economics” (MSSE).

MMT proved to be wrong. MSSE is also wrong.

As I explained in a Newsmax column on March 19, 2020, MMT is wrong and would lead to much higher inflation — which is exactly what happened. Similarly, MSSE is wrong and will lead to more inflation.

In the early 1960s, economists convinced policymakers that economic activity could be strongly influenced by having the government use fiscal policy to affect total demand.

Presidents from John Kennedy to Jimmy Carter followed this theory. Then, in the early 1980s, inflation hit 13% and unemployment peaked near 10%. Demand management couldn’t fix this. Increasing demand would reduce unemployment but would cause more inflation. Decreasing demand would reduce inflation, but would lead to higher unemployment.

But by formulating policy to increase supply, both problems could be solved…