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MMT Explains Our 2 Tiered Economy and Inflation

Nov 23, 2021

A novice take on the way Modern Monetary Theory (MMT) explains inflation from a permanent K shaped economy.

Basically, MMT says we get inflation when money policy juices demand and we are at full employment, or we juice just one sector which is at full employment, while the others are constrained. This all follows from the basic rules of supply and demand.

We have a 2 tiered worker economy — wealthy professionals, and everyone else. The wealthy professionals can still afford Nike sneakers, houses, and new cars, but everyone else can’t. It’s telling that Nike stopped even trying to sell sneakers to poor people around a decade ago. That’s the K as measured by either income or ability to spend — one group’s trend is going up, and the other is going down. Some call this a “K shaped recovery” — but it’s permanent, if policy doesn’t change.

So what happens when Nike and car companies choose to produce fewer, much more “premium” (expensive) products, and sell to fewer people with increasing expectations? Inflation! Supply and demand. Pretty simple.

Wealthy professionals, the top of the K, have produced more demand than there is supply. The bottom of the K — their demand is irrelevant, because they can’t afford anything, having negative disposable income.