‘Modern Supply-Side Economics’ Will Exacerbate Inflation

Michael Busler
4 min readJan 24, 2022

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. Increasing supply would reduce unemployment. Increasing supply would also put downward pressure on prices, thereby reducing inflation.

Congress passed, across the board, tax cuts and significantly reduced regulations. That led to a 25-year expansion from 1982 to 2007, except for small hiccups in 1991 and 2001. Inflation stayed under 3%, and the unemployment steadily fell.

Inflation Problem Very Severe

Today, we have a very severe inflation problem. For 2021, the inflation rate was 7% — which was the worst since 1982. Considering that producer prices rose nearly 10% at the end of last year, inflation looks like it will get worse. That seems to be the case considering the current inflation is being fueled by rising energy costs and rising labor costs, both of which will continue to increase.

Today we do not have a problem with growth since last year, gross domestic product (GDP) grew by…

--

--

Michael Busler

Dr. Busler is an economist and a public policy analyst. He is a Professor of Finance at Stockton University. His op-ed columns appear in Townhall, Newsmax.