Ep. 149: The Connection Between Government Budget Deficits & Inflation

Bob uses a recent tweet from Steve Keen to weigh in on an old controversy. Government deficits don't cause price inflation per se, but they often encourage the central bank to create more money, which is inflationary. The distinction matters: a deficit is a fiscal phenomenon, but the inflation mechanism requires monetary policy—specifically, central bank accommodation of government borrowing. Bob unpacks why Keynesians, Austrians, and MMT economists talk past each other on this question, and where each school gets the causation right and wrong.

Related:

- https://x.com/ProfSteveKeen/status/2083718398119166163

- https://cdn.mises.org/Making%20Economic%20Sense_3.pdf

- https://mises.org/quarterly-journal-austrian-economics/deficit-myth-modern-monetary-theory-and-birth-peoples-economy

- https://www.youtube.com/watch?v=oaUlKM1z4kI

- https://link.springer.com/article/10.1023/A:1027301323209

Chapters:

0:00 — Intro

0:20 — Steve Keen's tweets on deficits + What deficits are (and are NOT)

6:00 — The role of the central bank: monetizing the deficit

9:40 — Why "deficits cause inflation" is imprecise