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Once more into the fray - taxes, deficits, and MMT

by Zwackus Mon Nov 12th, 2012 at 03:57:24 AM EST

I posted a diary a while ago on my understanding of what exactly taxes, deficits, and the national debt are, and it provoked a wonderful discussion.  I've been busy lately, and there was an election or something recently, so I never returned to the topic as I'd planned.

But a couple of days ago, I got a burst of inspiration, and wrote a long diary on the topic on Kos,  Why deficits don't matter

Thinking about it, I should have posted this here first, to get expert commentary and criticism before preaching to the unwashed masses.  Nonetheless, the reception was reasonable.  So take a look and let me know what you think.

As should be clear from the start, I was going for persuasive and readable over detailed and wonky, and got a bit over the top towards the end.  Next time.

front-paged by afew



There's been a lot of talk about the fiscal cliff, a "deficit crisis," and what Obama should do for the economy given the impossibility of working with the Republican House.   I think that it's important in times like this to think about how government finance really works.

1 - The government creates money by spending it.  Every time the Treasury writes a check to a government supplier or employee, it is creating money.

2 - The government destroys money by taxation.  Every dollar that is collected by the IRS and the other various tax-collecting agencies of the United States of America is destroyed.  It simply disappears.

3 - The government subsidizes savers by creating interest-bearing Treasury Bonds.  These bonds give private savers a safe place to put their money, and the interest rate paid on these bonds makes them more or less attractive to savers.  Higher interest rates means a higher rate of government subsidy to lazy investors.  By doing this, the government can encourage them to take their private money out of the economy, and thus discourage inflation by destroying demand.  Or, by lowering interest rates, it can encourage them to find other, better-paying investments, and thus hopefully encourage economic activity by stimulating demand.

4 - There is no direct connection between these three activities.  Tax revenues do not fund spending any more than Treasury Bonds fund government spending, because the Treasury of the United States is infinitely solvent in US Dollars and can create as many of them as it wants, at any time, for any reason.  

5 - The real purpose of taxation is to give value to the US Dollar.  People need dollars to pay their tax liabilities.  A secondary purpose of taxation is to destroy money in the hands of private persons, thereby destroying demand and discouraging a variety of activities.

6 - A common argument against deficit spending is that it will cause inflation.  But what is inflation, anyway?  Current measures of inflation almost exclusively define it in terms of wages and prices - that is, the evil and bad inflation is almost exclusively defined as a rise in wages. Asset price inflation - that is, the rise in stock prices, investment values, and real estate value - somehow is not included in the common measures of inflation.  Strangely enough, those are the kinds of things the 1% happen to own.

7 - Government spending (that is, monetary creation) creates wage/price inflation if those government dollars are being used to buy things that are in short supply. If it's being used to buy up things that are sitting around idle, such as the labor of teachers, then it's not going to be inflationary.

8 - The destruction of money via taxation should never be thought of as "funding" the government in any way, but rather as a way to reduce inflationary pressures and to manage economic actions. Taxation should really be targeted at those areas of the economy where too much money has built up, and thus which might be able to create inflationary economic distortions. For example, massive inherited incomes and ridiculous CEO pay that, in the search for easy returns, fuels the Wall Street casinos and thus creates asset price inflation.

9 - The National Debt, that is, the total of all outstanding Treasury Bonds, is a tool to manage the behaviors of savers and investors.  As the Treasury is infinitely solvent, all decisions about the size of the National Debt should be made with particular economic and behavioral goals in mind.  There is no reason at all to connect the rate at which Treasury Bonds are created to either tax rates or spending levels, except in terms of the larger economic goals of the government as a whole.

The upshot of all this is that all this talk of government deficits and a ballooning national debt is pure delusion.  Too many people think of money as if we were still on the Gold Standard, and it was possible in some way to "run out" of money.  The only real limit on government spending is the capacity of the American economy and American workers to produce the goods and services the government and the private sector wish to consume.  So long as there is mass unemployment, we are nowhere close to reaching the limit of that capacity.

Given all that, what would the best possible solution to another standoff over the debt ceiling?  Honor it, stop issuing Treasury Bonds, but keep on spending just like before.  

Think about it another way - if the government really ran a budget surplus, that would mean that the government is draining money out of the private economy every year, and destroying it.  What possible purpose could that serve?  How would a vampire state such as this be desirable in any way, shape or form?  It is much better to think of the government as the life-giving sun, providing an endless supply of energy for human activity.

If all this is true, then why are so many people so committed to the false and destructive idea of a balanced budget?  Part of it, of course, is pure ignorance.  Many people simply don't realize the difference between a government with a sovereign currency and a household on a fixed income.  However, in my opinion, at least a few people out there don't want the government to add money to the system unless it's going to them.  They want to have all the money, and to maximize their relative position in comparison to the ordinary citizen.  It's not enough to be rich - they want to be a new class of feudal lords, and to use their total monopoly over private money and private credit to make everyone else grovel before them.  But they can't do that if the government is out there, creating money and giving it to the people who need it, and thereby stimulating economic independence.  They don't want an independent and healthy private economy - they want their own bank account to be the sum total of the economy, and the people to be a mass of indentured servants.

These are not my ideas, but rather my understanding of a new and exciting branch of economics, called Modern Monetary Theory.  Instead of creating abstract models based on assumptions of human behavior that are obviously false, the leading scholars of Modern Monetary Theory have studied what banks and the government actually do.  Look it up on Google for yourself if you're interested.  I learned by reading and participating in years of discussion at one of the smartest places on the internet, the European Tribune.

Display:
Thinking about it, I should have posted this here first, to get expert commentary and criticism before preaching to the unwashed masses.


The good news ... it's only a life sentence. You eventually leave this planet of idiots.
by THE Twank (yatta blah blah @ blah.com) on Sun Nov 11th, 2012 at 08:20:30 AM EST
by das monde on Sun Nov 11th, 2012 at 09:20:41 AM EST
An excerpt from the link:
In the 2012 edition of Occupy Money released last week, Professor Margrit Kennedy writes that a stunning 35% to 40% of everything we buy goes to interest. This interest goes to bankers, financiers, and bondholders, who take a 35% to 40% cut of our GDP. That helps explain how wealth is systematically transferred from Main Street to Wall Street. The rich get progressively richer at the expense of the poor, not just because of "Wall Street greed" but because of the inexorable mathematics of our private banking system.

"the inexorable mathematics of our private banking system" is doing exactly what it was intended to do. The present highly unequal sistribution of wealth is not a bug but a feature.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Nov 12th, 2012 at 04:46:16 PM EST
[ Parent ]
The hidden interest is a big reason why developed countries  and cities are more expensive. The surpluses of location go to renters, as Henry George said.
by das monde on Mon Nov 12th, 2012 at 07:41:59 PM EST
[ Parent ]
Really, this amount of interest paid is just a finding that 30%-40% of most people's expenditures are on housing, the bulk of which is in interest to pay the longer term mortgages for construction or purchase, regardless of whether housing is rented, owned, or public.  Add in vehicle loans and leases, and it's really not a very surprising or alarming figure at all.
by santiago on Tue Nov 13th, 2012 at 02:13:56 PM EST
[ Parent ]
That may or may not be true - I suspect in macro terms that argument is nonsense.

But even if it is true, isn't it an unreasonable drain on resources if workers are spending a third of their pay just to have a roof over their heads?

If nothing else it makes the economy overdependent on housing, and prone to the explosions we've seen over the last few years.

Alarm seems entirely justified, on that basis alone.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Tue Nov 13th, 2012 at 02:40:10 PM EST
[ Parent ]
Well, if workers spend a third or more of their lives in their house, including many of the most important parts of their lives (love, family, entertainment, etc.), spending 1/3 of one's income on housing may not be be an unreasonable drain at all.
by santiago on Tue Nov 13th, 2012 at 02:50:16 PM EST
[ Parent ]
Lovely example of narrative logic there.

Meanwhile in the real world - London, for example - the cost of renting or buying in many working class areas far exceeds the median wage, never mind a third of it.

Presumably you think this is a bad thing, as cost should be directly related to hours of occupancy - a bit like hiring a taxi which doesn't move and has nice carpets.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Tue Nov 13th, 2012 at 03:06:12 PM EST
[ Parent ]
No, I don't claim to know how much of a person's income should be devoted to housing. I'm just not convinced that 1/3 of it is unreasonable.
by santiago on Tue Nov 13th, 2012 at 03:38:54 PM EST
[ Parent ]
And then we have to consider that a major reason for the existing price of housing in G.B. is the artificial shortage that is encouraged by refusing to tax large landholders at anything like the appropriate value for their holdings, especially near metropolitan areas. This amounts to a rent subsidy for the 'rent' earned by existing landlords.

A more sensible policy might be a rezoning of some areas for development combined with a significant property tax increase on those areas, up to the rate they would generate if built out to the limits of the zoning, perhaps with a delay in effect for property that is under development until it is saleable. And that tax revaluation could be combined with government backed low interest loans for construction and purchase of new, energy efficient homes. A similar approach could subsequently be taken for areas with old and substandard housing - either for upgrade or replacement with of existing housing with effective measures to mitigate any deleterious impacts on those currently living in that housing.

Such a plan would also create demand for extensions of transit systems, new schools, etc. which would further boost economic activity and be self liquidating. Given the inadequacy of the existing British housing supply and stock, an increase of 20 or 30% over ten years should be sustainable. But this cannot be done with the current set of received opinions regarding economics and the economy. Henry George's specter would be about in broad daylight.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Tue Nov 13th, 2012 at 05:24:23 PM EST
[ Parent ]
yes, and it was only a few years ago that a person's house, which may have taken a third or a half a working life to pay off, left you with an asset which had more than kept pace with monetary inflation. those days seem long gone now... more likely to make money selling the back 40 to the chinese to grow food on!

"We can all be prosperous but we can't all be rich." Ian Welsh
by melo (melometa4(at)gmail.com) on Sun Nov 18th, 2012 at 06:27:26 PM EST
[ Parent ]
I find no errors in the presentation. There are always interpretations and choices of formulations, but I think you stuck well to the central themes.

A note. When Galbraith in The Affluent Society argues for the federal state to handle his proposed top-up unemployment benefit (increasing with total unemployment) he spends not many words on arguing that the federal state can - it has the printing press. He instead spends his words on arguing that it should.

This is interesting because The Affluent Society is directed both at economists and laymen - he takes the time to deconstruct many a myth both within the economists framework and outside it - implying that in his view neither group would (in late 1950ies) argue against him on the grounds of the federal state lacking money.

A vote for PES is a vote for EPP! A vote for EPP is a vote for PES! Support the coalition, vote EPP-PES in 2009!

by A swedish kind of death on Sun Nov 11th, 2012 at 10:05:30 AM EST
Some points for discussion:

I also like a lot of the ideas that MMT is bringing forward, but there are few big holes that shouldn't be overlooked, especially since those holes are related to why people have a hard time disconnecting from the balanced budget narrative of public finance.  

First, the idea of government's infinite power is patently false, even in the case of the US government.  Not only does it conflict with the popular notions of the decline of the US empire which are frequently posted on this site, but it conflicts the existential fact of mortality.  Governments, like any organization and like the people who create and maintain them, are limited by time and real resource constraints, so, no, they cannot do anything just by willing cash into existence, even in periods of high unemployment of labor and capital. There are limits, and therefore there are needs for metrics to determine what those limits are.

Unemployment is not an objectively measurable phenomenon.  It is not merely the number of people who aren't working divided by the number of people who can work. The unobservable part is that at any point in time there are people who don't want to work, and this population may change depending on many factors.  So, if at a given period of high unemployment you print money to exchange for their labor, you could just end up running up wages -- and therefore inflation -- just to convince a few marginal holdouts to go to work.  Is this the case now?  I don't think so, but many central bankers do because research on their part seems to indicate that lots of people would rather not work now, and not invest their capital now, compared to a few years ago.

Thirdly, even if it is true, as I think it is, that government creates money by spending and not by taxation, it is not true that there is any intentionality on the part of government actors to do this.  Rather, everyone believes that you DO need to collect taxes first in order to spend it -- you create a budget which includes sources of income explicitly.  So, if it turns out that taxation is truly independent of spending, it is an accidental discovery.  That's why it's very hard to convince people of it.  Most people, especially most of those in government and including even Nobel-winning economists, operate with the understanding that you should manage a government's finances pretty much the same way you would manage your household's finances, and there so many examples of both households and governments becoming bankrupt by too much debt relative to income that it's not very compelling to argue against such self-evident experience.

Finally, the concept of power is central to MMT's conception of money, but power is a very ambiguous concept so it needs to be well defined in order to know exactly what is being talked about, and MMT has not done this yet.  Why does a government have such power to create money, but other organizations do not, or do they have such power too? What kind of power is needed to provide value to money through taxation and how is this accomplished?  Are the cases where governments do not have such power, and how can we identify them?  Etc.

by santiago on Sun Nov 11th, 2012 at 12:36:57 PM EST
So, if at a given period of high unemployment you print money to exchange for their labor, you could just end up running up wages -- and therefore inflation -- just to convince a few marginal holdouts to go to work.  Is this the case now?  I don't think so, but many central bankers do because research on their part seems to indicate that lots of people would rather not work now, and not invest their capital now, compared to a few years ago.

Over the ages a lot of policy-makers have found good reasons to blame their victims for their suffering. Those Great Vacation theories are one of the sillier examples.
More importantly MMT's main suggestion for dealing with unemployment is a job guarantee. Everyone who wants to gets hired by the state at a fixed wage, the now effective minimum wage. How that should lead to significant inflation is beyond me.

Finally, the concept of power is central to MMT's conception of money, but power is a very ambiguous concept so it needs to be well defined in order to know exactly what is being talked about, and MMT has not done this yet.Why does a government have such power to create money, but other organizations do not, or do they have such power too?

I don't see how there is any ambiguity here. An organization has the ability to get its money accepted if it can reliably enforce taxation.

Von überall könnte das Volk, Urbrut alles Undemokratischen, Zelle des Terrors, über die gewählten Hüter von Wachstum und Wohlstand® kommen. - flatter

by generic on Sun Nov 11th, 2012 at 01:58:16 PM EST
[ Parent ]
santiago:
the idea of government's infinite power is patently false... There are limits...

No doubt. But reading Zwackus I see that he says only that the Treasury of a sovereign nation is infinitely solvent in its own currency. He defines limits: "the capacity of the American economy and American workers to produce the goods and services the government and the private sector wish to consume".

santiago:

there are people who don't want to work... if at a given period of high unemployment you print money to exchange for their labor, you could just end up running up wages -- and therefore inflation -- just to convince a few marginal holdouts to go to work.

People out of work will appreciate the "few marginal holdouts". But apparently you are seriously suggesting that the unemployed are withholding their labour because wages are not high enough to tempt them from sitting on their arse. Oh but no:

Is this the case now? I don't think so, but many central bankers do because research on their part seems to indicate that lots of people would rather not work now

You don't agree with all those central bankers, but they have "research" to back them up. At the very least, <citation needed>. Your phrasing further suggests a similarity of means and power between those who sell their labour with those who may or may not "invest their capital now". Wage workers, capitalists, all one in the great neoliberal "rational choice" market. If only the unemployed knew.

santiago:

even if it is true, as I think it is, that government creates money by spending and not by taxation, it is not true that there is any intentionality on the part of government actors to do this

Well, of course MMT doesn't say taxation creates money. As for "intentionality", in what way is that relevant to the description of a system?

santiago:

Most people, especially most of those in government and including even Nobel-winning economists, operate with the understanding that you should manage a government's finances pretty much the same way you would manage your household's finances

That "most of those in government", and, God help us (and pardon santiago for the argument from authority), "even Nobel-winning economists", work with the understanding that a sovereign state needs managing like a household, implies that they believe that the equivalence state=household is exact. That is in fact a problem. A household cannot create money. Apparently, this is not obvious to these potentates.

there so many examples of both households and governments becoming bankrupt by too much debt relative to income, that it's not very compelling to argue against such self-evident experience.

Having launched the paragraph on government spending creating money, you're now treating taxation as the "income" that allows government to spend. And having claimed that it is people's belief in taxation=income that explains the difficulty of convincing them otherwise, you now posit that it is not just a belief, it is factual. Not only factual, "self-evident experience".

So you really "like a lot of the ideas that MMT is bringing forward", or you're just practising sophistry on behalf of neoclassical views?

by afew (afew(a in a circle)eurotrib_dot_com) on Sun Nov 11th, 2012 at 03:44:56 PM EST
[ Parent ]
"But reading Zwackus I see that he says only that the Treasury of a sovereign nation is infinitely solvent in its own currency."

This is where you have to be careful about the meaning of words.
Is it "its" own currency when the Central Bank is not directly controlled by the Government?

I am not trying to defend the idea of an independent central bank. But there are some countries claiming to have one. In that case, it's not patently obvious that the Treasury would be infinitely solvent, unless then you'd say that the nation is not sovereign, but we may quickly end in a no true Scotsman situation if we're not careful.

In practice, though, it is, if not infinitely, solvent for a very long time at least, even with those caveats.

Trouble is, if you remove the extraordinary claims (such as infinity with no caveats whatsoever), I find it difficult to see why MMT would want to be in a fight with Keynesian economics. They seem to end up saying much the same things, yet many of the followers call the Keynesians names, which I find puzzling.

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi

by Cyrille (cyrillev domain yahoo.fr) on Mon Nov 12th, 2012 at 07:22:17 AM EST
[ Parent ]
There are no independent central banks. Any central bank which comes into conflict with its government will lose. Hard. Even the Greek government could instruct its central bank to simply monetize its bonds, although so doing would be a de facto (and possibly de jure) exit from the Eurozone.

The ECBuBa and the original BuBa may be exceptions (and we know how well that worked out...). But I would not want to bet money on their (continued) independence if they try to stage the same coup d'etat in Germany or France that they have staged in Greece and Spain. The last time the Reichsbank tried a putch in Germany, it didn't end well for the gold bugs.

The name-calling between MMT'ers and other Keynesians on one side and the saltwater neo-classicals on the other is indeed unfortunate and counterproductive. But probably inevitable, given that the saltwater neo-classicals tend to side with the freshwater neo-classicals against the Keynesians when it comes to tenure decisions. That's the sort of thing that creates really bad blood.

But while their policy prescriptions in the present depression are similar almost to the point of identity, there are very substantial differences both "under the hood" of their models, and in their economic prescriptions for "normal times." The saltwater neo-classicals, having accepted the doctrine of "sound finance," will prescribe policies that stop short of securing permanent full employment. So while the difference between the prescriptions is not great during a major depression, the choice between Keynesians and saltwater neoclassicals is the choice between full employment and perpetual semi-depression, with unemployment figures even in comparatively good times hovering around 5-6 %.

And of course this doesn't even get into the microeconomics, where the neoclassical (and in microeconomics there is no distinction between fresh- and saltwater) models and policy prescriptions go beyond crazy and clear into the wide new world of make-believe.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Nov 12th, 2012 at 10:18:52 AM EST
[ Parent ]
The ECBuBa and the original BuBa may be exceptions (and we know how well that worked out...). But I would not want to bet money on their (continued) independence if they try to stage the same coup d'etat in Germany or France that they have staged in Greece and Spain. The last time the Reichsbank tried a putch in Germany, it didn't end well for the gold bugs.

Well, I don't know. The Bundesbank already crashed the Exchange Rate Mechanism in 1992/3 in order to punish Kohl for absorbing East Germany with the Eastern Mark at parity with the DM.

I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS

by Migeru (migeru at eurotrib dot com) on Mon Nov 12th, 2012 at 11:45:57 AM EST
[ Parent ]
First, the idea of government's infinite power is patently false, even in the case of the US government.

Then it is fortuitous that MMT does not, in fact, make that claim. MMT simply notes that the government cannot go bankrupt in its own currency (unless it decides to do so to make a political point).

Governments, like any organization and like the people who create and maintain them, are limited by time and real resource constraints, so, no, they cannot do anything just by willing cash into existence, even in periods of high unemployment of labor and capital. There are limits, and therefore there are needs for metrics to determine what those limits are.

But Keynes' central insight is that during high unemployment of raw materials, men and machines, the economy is not close to any such limit.

Yes, you may see inflation due to a change in the relative prices between different sectors when the government defends employment under general underutilization of resources (if you have bottlenecks which must be expanded or bypassed in order to utilize the unemployed resources). But that does not mean that resources are scarce.

It means that contractual obligations, which are fixed in nominal terms prevent downward nominal price adjustment. Which in turn means that relative price adjustments are inflationary, and the faster you want relative prices to adjust, the more inflation will you need to accept.

Unemployment is not an objectively measurable phenomenon.  It is not merely the number of people who aren't working divided by the number of people who can work. The unobservable part is that at any point in time there are people who don't want to work, and this population may change depending on many factors.  So, if at a given period of high unemployment you print money to exchange for their labor, you could just end up running up wages -- and therefore inflation -- just to convince a few marginal holdouts to go to work.

This is known as the Real Business Cycle Theory (the term "theory" is used loosely here).

It is a failure on the level of the underlying assumptions, which are ludicrous; on the level of empirical support, which is an exercise in statistical contortionism, where it is not simply absent; and on the level of practical policy, where it has no fruitful contributions, aside from some Lysenkoist apologetics for the laizzes-faire doctrine.

Is this the case now?  I don't think so, but many central bankers do because research on their part seems to indicate that lots of people would rather not work now, and not invest their capital now, compared to a few years ago.

The "research" which "shows" that people do not want to work is, to put it in plain English, utter and complete garbage.

The research which shows that people do not wish to invest today is, of course, correct, but that is not relevant to the public policy question of whether to intervene in defense of employment. If government policy is dependent on "investor confidence," Then You're Doing It Wrong.

Required reading on the subject of "market confidence."

Thirdly, even if it is true, as I think it is, that government creates money by spending and not by taxation, it is not true that there is any intentionality on the part of government actors to do this. Rather, everyone believes that you DO need to collect taxes first in order to spend it -- you create a budget which includes sources of income explicitly.

And this is why economists have a duty to write expositions such as the above diary, to dispel such misapprehensions on part of policymakers. "The incumbent policymakers disagree with you" may be an excuse for not implementing sane and sober policy, but it is not an excuse for not developing and disseminating such policies.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Nov 11th, 2012 at 03:45:45 PM EST
[ Parent ]
Is this the case now?  I don't think so, but many central bankers do because research on their part seems to indicate that lots of people would rather not work now, and not invest their capital now, compared to a few years ago.

This is just ridiculous. Is there no way to find out if people not having jobs want jobs? How about asking them? Or check how many applications unqualified jobs get. If central bankers do not know, it is because they do not want to and live in refined circles where they and their friends and relatives can avoid the consequences of unemployment.

Why does a government have such power to create money, but other organizations do not, or do they have such power too?

I think Chris Cook will argue that other organisations not only have that power but uses it. I suspect this will depend on the exact definition of money.

Of course the government ordinary reserves the exclusive right to legislate and by executive power enforce its currency as valid money for all debts.

What kind of power is needed to provide value to money through taxation and how is this accomplished?

Violent power. Employ tax collectors, cops and repo men.

Are the cases where governments do not have such power, and how can we identify them?

Identify by checking history. During revolutions and war on own terrain the government lacks effective control and the future value of its money is in jeopardy. If the tax collectors, cops and repo men start accepting or even demanding payment in something other then the governments currency, the government is really loosing that power.

IIRC, the metric expeditions during the French revolution noted that the revolutionary governments dropped with the distance the travelled from Paris. Otherwise, most sides were pretty acceptive of their expeditions.

A vote for PES is a vote for EPP! A vote for EPP is a vote for PES! Support the coalition, vote EPP-PES in 2009!

by A swedish kind of death on Sun Nov 11th, 2012 at 03:51:29 PM EST
[ Parent ]
As the others noted, I'm not arguing for the omnipotence of government.  What I'm arguing here is that there are a variety of ideological shackles on government that prevent it from using the power that it does have.

I think the key insight that I want to emphasize is that the deficit, the debt, taxes, and inflation are all tools that can be used to direct the economy.  Each tool can be used independently of the other, so long as the way in which they are used is coordinated towards a single, coherent plan.

Now, not all plans are well thought out, and not all plans are a good match for the times.  Obviously a degree of good will and competence are required to properly deploy the full set of resources that the government has at its disposal in a productive fashion.  But that's pretty well acknowledged by everyone.

The way I see it, the limiting factor when designing government budgets ought to be the total amount of money the government estimates it should pump into the economy every year.  This amount should then be directed towards programs and activities according to the actual need in that sector, and the perceived level of inflationary pressure existing in that sector.
From the accounts I've read, it seems as if the macroeconomic data exists to do this with a fair bit of accuracy.

As for unemployment . . . well, I could take offense at your statements, but I'll leave those issues aside.  Past a certain point, any policy may have trouble reducing unemployment.  That's fine.  It would be nice if that were the primary problem of government policy.  I don't see that becoming the primary problem of government policy anytime soon.

The way I see it, the goal of government should be to use money to do stuff that needs to get done, and in the process employ enough people that long-term involuntary unemployment is not a problem that anyone has to worry about.  Workers are not homogenous, of course, and at any particular time the private sector may end up not needed a lot of workers with particular skill sets or in particular industries.  The government should use this as a guide for the kind of projects it follows.

Example - the software industry collapses, and thousands of programmers are out of work.  That would be the time to begin a project to build a truly secure national information architecture, a universal library, or any of the other various large-scale utopian-sounding CS and IT projects that are occasionally suggested.

The WPA under Roosevelt was pretty good about this, identifying categories of skilled workers and finding stuff for them to do - even in the arts.

As for defining power, good luck.  That is one of the biggest questions in philosophy and social science.  But since when have we had to wait on the work of philosophers to start doing things in the real world?

by Zwackus on Sun Nov 11th, 2012 at 06:54:22 PM EST
[ Parent ]
Hey, I'm not arguing with you.  I'm just pointing out where MMT has thus far been unable to compel people who think about money for a living to accept it as true. The idea that money gets its value from taxes (or some other source, coerced by someone, government or not) is pretty easily accepted and not very controversial among economists, even if it is an alternative way of thinking about it.  But the idea that there are no dire consequences to giving government, or any organization, the power to do more when times are bad is troublesome for the same reason that giving government the power to declare martial law or use drone aircraft to murder people thought to be terrorists is problematic.  Too much power is too great a threat and MMT comes very close to advocating no checks on government power by not addressing that aspect of the theory directly.

Power isn't so difficult to understand at all in this narrow frame, and it is necessary to be clear about what it is regarding money because MMT invokes so many assumptions about it without specifying them.  Useful definitions for power in this context have been pretty well defined in political science already as the act of gaining cooperation in group projects, whether implicitly, explicitly, intentional or unintentional. That still needs to be fit into MMT somehow so that we can understand precisely what is going on when some people try to organize others to get back to work through printing money or retiring it with taxes.

What MMT proposes is that no real resources are needed to put people to work, just some way of organizing people to do so when labor markets fail. Money, in the MMT framework, is an organizing tool, not a source of physical wealth.  This seems true and almost self-evident, but only because you assume something about the power of government to compel people to work by printing money and bribing them to work in exchange for it.  But what if a government isn't very compelling -- if it's weak, like Argentina a few years ago and maybe now again, or Venezuela, or any number of other countries in the last several decades where unemployment has been high and inflation in their own currency has also skyrocketed. You have to be able to identify specific, measurable conditions that cause such breakdowns before you'll convince anyone that MMT can succeed where mainstream conceptions of money and public finance have not.  This is especially hard because for all its faults, mainstream economics does do a pretty good job of explaining why government needs to spend more and tax less during times of high unemployment already, as can be read daily in the commentary of people like Paul Krugman and Brad Delong.

by santiago on Mon Nov 12th, 2012 at 01:55:50 AM EST
[ Parent ]
But the idea that there are no dire consequences to giving government, or any organization, the power to do more when times are bad is troublesome for the same reason that giving government the power to declare martial law or use drone aircraft to murder people thought to be terrorists is problematic.

But the people for whom unshackling  the printing press is a problem are different from the people for whom extralegal assassinations or martial law is a problem.

Basically, if you do not care about bondholders - and I, for the record, do not - then this is not a compelling argument.

Too much power is too great a threat and MMT comes very close to advocating no checks on government power by not addressing that aspect of the theory directly.

That is because it is not a relevant problem in the contemporary political economy. We are very far from government being sufficiently heavy-handed and overbearing in its interventions into the private sector; let alone too heavy-handed and overbearing.

What MMT proposes is that no real resources are needed to put people to work, just some way of organizing people to do so when labor markets fail.

No, what MMT points out is that under a rational policy, these real resource constraints are the only binding ones. And that we are currently not directing our policy rationally, because these constraints are currently not the binding constraints on economic activity.

But what if a government isn't very compelling -- if it's weak, like Argentina a few years ago and maybe now again, or Venezuela, or any number of other countries in the last several decades where unemployment has been high and inflation in their own currency has also skyrocketed.

If you are not the hegemon of your trade bloc, you cannot control your terms of trade. This is, one should hope, not news, and will not be ameliorated by adopting a different domestic economic policy.

If you are dependent on foreign trade and you experience adverse changes to your terms of trade, you will experience rising consumer prices - whether this is properly classified as "inflation" depends to a large extent on your policy objectives and the way you build your macroeconomic models. This, likewise, should not be news, and likewise has nothing to do with domestic policy.

The only thing you get to decide with your domestic policy is whether your failure mode will be inflation and (eventually) breakdown of the monetary system or deflation and industrial depression, (eventually) followed by a fascist coup or communist revolution.

You have to be able to identify specific, measurable conditions that cause such breakdowns

In fact, Mosler (I think) does have a (perhaps not exhaustive) list of such conditions. I don't recall his list off-hand, but assembling such a list is not difficult. Here is my own, off-the-cuff:
  • Great dependence on foreign trade makes your economy vulnerable to adverse movements of your terms of trade.
  • Foreign trade with countries higher up on the geopolitical totem pole is more vulnerable to adverse movements of your terms of trade.
  • Import dependency on goods with low elasticity of demand (read: Food and fuel) makes you particularly vulnerable to adverse movements of the terms of trade.
  • Hard currency debts increase the risk that sudden adverse movements in the terms of trade happen.
  • Being on your trade bloc's hegemon's shit list is Very Bad for your terms of trade (and general political stability).
  • Loss of internal political cohesion removes the ability of the state to organize the economy (this is pretty much the economist's definition of "internal political cohesion").

This is especially hard because for all its faults, mainstream economics does do a pretty good job of explaining why government needs to spend more and tax less during times of high unemployment already, as can be read daily in the commentary of people like Paul Krugman and Brad Delong.

The problem with those explanations is that they are still based on the basic assumption of mean reversion to a long-run trend, and implicitly buys into a nominal long-run government budget constrain.

This means that (a) the output gap will be systematically underestimated, due to the assumption of automatical mean reversion perverting historical analysis of econometric data; (b) spending will be desultory compared to the magnitude of the output gap, both the actual and the (under)estimated; (c) because spending programs informed by the neoclassical models will be desultory, and because the assumed mean reversion will, obviously, fail to automagically materialize, the spending will fail to generate a robust recover; (d) the absence of a robust recovery following spending will discredit the policy intervention, and fuel the emergence of crackpot theories, like the NAIRU, the gold standard, "expansionary austerity," "structural reform," and so on and so forth.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Nov 12th, 2012 at 05:38:36 AM EST
[ Parent ]
No, what MMT points out is that under a rational policy, these real resource constraints are the only binding ones. And that we are currently not directing our policy rationally, because these constraints are currently not the binding constraints on economic activity.

Here's the problem:  MMT does NOT actually account for real resource constraints in any specific way that is different from mainstream Keynesian accounts.  Rather it assumes, or reasons, that in a depressed economy the constraints must not be close to being reached, just like Keynes reasoned.  

This sounds like a safe bet to me, but it is not compelling to the austerity crowd because they believe that the reason unemployment exists is that resource constraints are being reached -- that people are unemployed because there is some missing real resource -- energy, minerals, goods, etc. -- that people need to be able to work and lacking it people won't work regardless of how much money is printed and thrown at them.  

But classic Keynesian theories of political economy already provide volumes of data and arguments for why the resource constraint explanation of unemployment is wrong in a deep recession, so what does MMT bring to the table that mainstream Keynesian theory does not?  It can't just quote people like Mosler and his ideas, or one's own assertions about why the world is such, because no one in the austerity crowd is listening to those ideas.  So, it comes down to a question of whether MMT is just another way of preaching to the same choir or whether it is, in fact, a comprehensive and better way to go about organizing facts in a compelling way to change policy discourse.  Until it addresses the skeptics in the austerity crowd better than mainstream Keynesians do, it really doesn't bring any new arguments to the forum.

by santiago on Mon Nov 12th, 2012 at 07:47:13 AM EST
[ Parent ]
I am also under the general impression that Keynsian economics and MMT share quite a bit in terms of their general recommendations for government action.  I believe the key difference comes about from their opinion on deficits and debt.  Keynsians tend to see them as necessary evils, while MMT sees them as tools.

I would like to hear a resource-constraint argument that can explain why exactly "tax revenue falls, government cuts budget, teachers and nurses get fired" is somehow due to resource constraints.  Explain how running the same school for the same number of students, but with 10 teachers instead of 50, is any any way a response to resource constraints - especially given the fact that store shelves are overloaded with uneaten food and houses sit vacant.

by Zwackus on Mon Nov 12th, 2012 at 09:15:46 AM EST
[ Parent ]
There's no necessary link between material resource austerity and monetary austerity. In the service sector expecially (as in your school example).

It's like saying that somehow our ability to put up theatre plays, give each other haircuts or massages, or hold a seminar or lecture, is critically dependent on the availability of oil. You're asking for an argument for it, and there cannot be any rational, physical argument for it.

I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS

by Migeru (migeru at eurotrib dot com) on Mon Nov 12th, 2012 at 09:22:29 AM EST
[ Parent ]
That's my opinion as well, but in the spirit of discussion I was asking if there was, perhaps, an argument for such floating around out there.  
by Zwackus on Mon Nov 12th, 2012 at 07:21:55 PM EST
[ Parent ]
I would like to hear a resource-constraint argument that can explain why exactly "tax revenue falls, government cuts budget, teachers and nurses get fired" is somehow due to resource constraints.  Explain how running the same school for the same number of students, but with 10 teachers instead of 50, is any any way a response to resource constraints - especially given the fact that store shelves are overloaded with uneaten food and houses sit vacant.

Employing all the teachers would mean that they could spend their pay laying claim to scarce resources, thereby driving up the price of scarce resources. This would make fewer scarce resources available to owners of lazy money, reducing the purchasing power of lazy money.

In other words, the argument is not "we cannot afford the resources required to get the job done." The argument is "holders of voluntarily idle money do not wish to share resources with teachers and nurses."

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Nov 13th, 2012 at 03:22:07 AM EST
[ Parent ]
The argument is "holders of voluntarily idle money do not wish to share resources with teachers and nurses."

More baldly put, "the goal is to maximize wealth extraction while coming out favorably positioned in the differential accumulation race and what happens to those unable or unwilling to compete on the highest level is of no concern. The game must continue to total collapse."

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Tue Nov 13th, 2012 at 11:16:28 AM EST
[ Parent ]
This sounds like a safe bet to me, but it is not compelling to the austerity crowd because they believe that the reason unemployment exists is that resource constraints are being reached -- that people are unemployed because there is some missing real resource -- energy, minerals, goods, etc. -- that people need to be able to work and lacking it people won't work regardless of how much money is printed and thrown at them.

That is not what the austerity crowd believes. It may be the excuse they use this week, but if it were actually what they believed, they would be looking for ways in which we can reduce raw material consumption and substitute man-hours for raw materials. Most of those ways, however, entail running a (substantial) government deficit. In other words, this is a problem which actually can be solved by throwing sufficient money at it.

The fact that the austerity crowd is opposed to deficit-funded measures to conserve real resources (and, for that matter, in favor of deficit-funded tax reductions for lazy money) should tell you everything you need to know about what the austerity crowd actually believe in. And about their intellectual honesty and general political habitus.

But classic Keynesian theories of political economy already provide volumes of data and arguments for why the resource constraint explanation of unemployment is wrong in a deep recession, so what does MMT bring to the table that mainstream Keynesian theory does not?

Theoretically, it brings the insight that the government budget constraint is instantaneous rather than intertemporal, and the observation that the output gap can never be negative (that is, to speak of an economy producing at >100 % capacity is to admit that one has defined "capacity" in a nonsense manner).

Empirically, it brings the insight that if you condition your models of the economy on automagical mean-reversion of macroeconomic indicators, you are going to understate the magnitude of the output gap.

Politically, it brings the argument that bondholders are economically irrelevant and nobody who cares about the general welfare should ever listen to their apologists.

In terms of financial regulation, it brings the insight that the central bank can, at will and without repercussions, fix the risk-free (i.e. the Treasury) yield curve in any damn shape it likes (although some shapes are more sensible than others). And the argument that the central bank should, in fact, do this, because it is supremely silly to rely on bondholders to determine your interest rate policy (that would be akin to letting your millionaires determine your top bracket tax rates... oh, wait...).

It can't just quote people like Mosler and his ideas, or one's own assertions about why the world is such,

You asked for "specific, measurable conditions that cause such breakdowns." I provided a list of empirically testable claims, culled from the historical experience of the 20th century.

because no one in the austerity crowd is listening to those ideas.

The austerity crowd are Lysenkoists who will never be swayed by scientific argument - they are fundamentally dishonest and set on imposing their predetermined agenda whatever the data says. Thus, the way to engage the austerity crowd is not to engage with their silly excuse of the week, it is to build a political coalition that can prevent them from prosecuting politics against us. One part of this, in the context of an intellectual environment saturated with the austerity crowd's lies, is to articulate an alternative view which can be latched on to by those who are not in the austerity crowd, but have accepted that the austerity crowd is the only one with an explanation of how the world works, however distasteful that explanation may be.

Until it addresses the skeptics in the austerity crowd better than mainstream Keynesians do, it really doesn't bring any new arguments to the forum.

MMTers not need to (and should not waste their time) attempting to convince the denialists in the austerity crowd, in the same way that climate scientists do not need to (and should not) attempt to convince the paid liars at the American Enterprise Institute.

The intellectual discussion was settled in the 1930s, and the empirical discussion in the 1940s. This is settled science, and the problem at hand is communicating it to the public and to policymakers. The purpose of engaging with Austrians, New Classicals, RBC "theorists," or like crackpots is not to convince them of the error of their ways, it is to expose those errors to third parties.

If such exchanges happen to convince a New Keynesian here and there, well that's cool. But it's not the point.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Nov 12th, 2012 at 09:54:37 AM EST
[ Parent ]
MMTers not need to (and should not waste their time) attempting to convince the denialists in the austerity crowd, in the same way that climate scientists do not need to (and should not) attempt to convince the paid liars at the American Enterprise Institute.

That's my point. If what you say is true, MMT is essentially still useless then for anything except preaching to the choir. If you're not going to use it for discourse with the dominant coalition of economic policymakers to negotiate an alternative policy framework, then you have to use other, non-discursive tools to overthrow them, and MMT is just a distraction at that point from the actual organizing for such a contest. In order for MMT to be useful for planning and analyzing policy, it has to get beyond mere word and identity games regarding what is meant by terms like taxes, inflation, money, budgets, and power and provide actual models for predicting quantifiable outcomes based on policy actions -- things like interest rates, employment rates, prices, transactions, production, etc. Work is being done in these areas as we chat here, but it's not even close yet to being able to provide the kind of compelling answers to policymakers' questions that mainstream Keynesian frameworks do.

by santiago on Mon Nov 12th, 2012 at 01:21:00 PM EST
[ Parent ]
If what you say is true, MMT is essentially still useless then for anything except preaching to the choir.

And providing more accurate models of the real world. Which does have some value, at least to a coalition which is concerned about policy outcomes, rather than the pecking order among pundits.

In order for MMT to be useful for planning and analyzing policy, it has to get beyond mere word and identity games regarding what is meant by terms like taxes, inflation, money, budgets, and power and provide actual models for predicting quantifiable outcomes based on policy actions -- things like interest rates, employment rates, prices, transactions, production, etc. Work is being done in these areas as we chat here, but it's not even close yet to being able to provide the kind of compelling answers to policymakers' questions that mainstream Keynesian frameworks do.

Yes, that is a known drawback of being unwilling to pull results out of your ass and then fit a model around them.

But of course, a core point of MMT is that for several of the variables that politicians ask about - the "national debt" and the "national deficit" primarily, but to some extent also inflation - the answer is "it ends up where it ends up. There is no compelling reason to care about it." Or even "set a target, let this other variable float freely, and you get there. Constrain that other variable, and you get an analytically and numerically intractable system." And that several other variables that should be of great interest to politicians are not tracked, let alone ever asked about.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Nov 12th, 2012 at 01:45:22 PM EST
[ Parent ]
JakeS:
But of course, a core point of MMT is that for several of the variables that politicians ask about - the "national debt" and the "national deficit" primarily, but to some extent also inflation - the answer is "it ends up where it ends up. There is no compelling reason to care about it." Or even "set a target, let this other variable float freely, and you get there. Constrain that other variable, and you get an analytically and numerically intractable system."

European Tribune - Galbraith, the Conventional Wisdom and the current mess

If the ruler pulls policy lever A: what will happen? If his advisors can not tell him, they are no good. If he himself admits that he does not know the consequences of this actions, then what good is having a ruler?

So you have a ruler that demands something that can not at the time be constructed. Enter the snake oil salesmen that will claim to have it to get a high and mighty job as advisor. Alchemy and astrology was at a time based on the best of science plus a bunch of stuff that made them attractive to hire as advisors, like the ability to predict the future.

So anyone who wants to get a new framework in there either a) needs to be hired as advisor by ruler or prospective ruler, or b) influence those hired as advisors by rulers or prospective rulers. Option a is not really something the MMTers can execute as a strategy. If they spread their predictions far enough and they get noticed by rulers or prospective rulers that sees the opportunity it will happen, otherwise it won't. I don't think sending resumes to ECB will do anything and having choosen not to operate within the dominant framework implies that they are not really cut out for court anyway.

Option b is more interesting. Influencing serving advisors is hard as they are bound by what they have said earlier (they must appear consistent and confident) and as everyone is going to want to influence them anyway. Influencing future advisors on the other hand should be possible. And for that there are options of doing it focused by establishing structures to educate the leaders of tomorrow and all that, and/or doing it broadly by disseminating ideas.

Advisors being advisors would in all likelihood bastardise MMT so that it can answer all questions the leaders want answered. Or if some actual MMTers were hired as advisors, people making a career as trainers of the leaders of tomorrow would do the bastardising.

So, in conclusion I don't think the current MMTers need so much make their theory answer everything as they need it to answer important stuff for future rulers and advisors. They are also from what I see doing what they can to spread the ideas (though they can use some popularisation to reach a wider audience, like this diary does). I do not know if educating the leaders of tomorrow is something they could do. Maybe they could ask Soros if he wants to finance something like that.

A vote for PES is a vote for EPP! A vote for EPP is a vote for PES! Support the coalition, vote EPP-PES in 2009!

by A swedish kind of death on Mon Nov 12th, 2012 at 05:01:07 PM EST
[ Parent ]
A big part of the fight is about which variables are interesting to forecast in the first place. It is not a law of nature that politicians should wish to know the answer to the question "by how much will this increase our 'national debt?'"

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Nov 13th, 2012 at 02:39:01 AM EST
[ Parent ]
Of course, but for example inflation has social consequences. Galbraith is quite worried in The Affluent Society. Not having any control over a variable that is socially important is a hard sell. Grafting on a Philips curve and telling the ruler it is a trade-off is probably an easier sell.

But filling in unpredictable holes will probably not be a problem as bastardized MMT will consist of the parts of MMT that has proved necessary for ruling plus everything that those necessary parts does not contradict in the existing Conventional Wisdom. Which is why Keynesianism is not just Keynes and can contradict Keynes. Or at least that is how I understand Galbraith's model.

A vote for PES is a vote for EPP! A vote for EPP is a vote for PES! Support the coalition, vote EPP-PES in 2009!

by A swedish kind of death on Tue Nov 13th, 2012 at 08:35:23 AM EST
[ Parent ]
Samuelson bastardized Keynes and, subsequently, the failings of that bastardization were used to discredit Keynes on 'stagflation' where he would likely have had a very different analysis and recommendations

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Tue Nov 13th, 2012 at 11:26:34 AM EST
[ Parent ]
Politics typically consists of damage control.  Inflation can be a problem, but not much of one compared to declining employment and income.  Economic policy should address the greater problem, not the lesser.
by rifek on Thu Nov 22nd, 2012 at 11:18:04 AM EST
[ Parent ]
Of course, it should. But my point is that given two advisors who seems to have working solutions on the larger problem, the one will be employed that appears to have a working solution to the lesser problem too. And damn the intellectual honesty.

A vote for PES is a vote for EPP! A vote for EPP is a vote for PES! Support the coalition, vote EPP-PES in 2009!
by A swedish kind of death on Fri Nov 23rd, 2012 at 04:46:13 AM EST
[ Parent ]
As an aside, which are the variables that MMT is interested in that are currently ignored?
by Metatone (metatone [a|t] gmail (dot) com) on Tue Nov 13th, 2012 at 12:56:14 PM EST
[ Parent ]
Mostly financial stocks and flows. But it's not that these variables are unknown to the mainstream. It's that the mainstream doesn't use them sensibly.
That table is just a disaggregation of GDP. Given that most if not all of the entries on the matrix are in the US Fed's flow of funds data series, the variable themselves are all very mainstream. It's the behavioural relations (Keynesian 'adaptive expectations' rather than Samuelsonian optimization) and the explicit system-wide stock-flow consistency that makes the difference.

I can't see why you couldn't do 'neoclassical stock-flow consistent models', it's just that neoclassicals (e.g, Krugman) don't see the point of tracking the flow of funds at this level of detail.

I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS

by Migeru (migeru at eurotrib dot com) on Tue Nov 13th, 2012 at 01:07:36 PM EST
[ Parent ]
Thanks!
by Metatone (metatone [a|t] gmail (dot) com) on Tue Nov 13th, 2012 at 01:36:07 PM EST
[ Parent ]
You can't do stock-flow consistent neoclassical models because the distinction between stocks and flows only makes sense if you assume that payments at different points in time are incommensurate or (inclusive) that people do not use model-consistent forecasts. Otherwise, you can just treat the (uniquely determined) discounted values of the flows as stocks, and do stock-only comparative statics.

And if you assume that cash flows are incommensurate or people do not avail themselves of model-consistent forecasts, then you are by definition no longer inside the neoclassical paradigm.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Nov 14th, 2012 at 06:38:19 AM EST
[ Parent ]
... you can just treat the (uniquely determined) discounted values of the flows as stocks, and do stock-only comparative statics.

IOW, assume a spherical cow, therefore ...

Skepticism is the first step on the road to truth. -- Denis Diderot

by ATinNM on Wed Nov 14th, 2012 at 02:52:28 PM EST
[ Parent ]
Simpler still, you cannot have a flow without time. The whole point of equilibrium analysis is to avoid dealing with time.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Nov 16th, 2012 at 11:15:02 AM EST
[ Parent ]
How many economic models actually predict squat?  And of the ones that do, how many are actually used to create policy?  Austerity has neither models nor data to create them but is still the basis for current policy.  Which basically means economic policy is being pumped out of a septic tank and sprayed on the 99% to grow the 1%.  Whatever its present deficiencies, MMT has more going for it.
by rifek on Thu Nov 22nd, 2012 at 10:57:55 AM EST
[ Parent ]
There are a lot of economic models which both predict things accurately enough and are used to direct policy.

Those are just not very interesting to anybody outside a few narrow civil service functions, in the same way that metallurgy isn't very interesting to anybody who isn't involved in the metal industry.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Nov 22nd, 2012 at 11:20:40 AM EST
[ Parent ]
My experience has shown me there are three kinds of predictive economic models: ones that are so simple they predict nothing my wife's cat couldn't predict; ones so severely warped to preserve the axioms and make the data fit that they are of no use outside theoretical topology; and ones that are predictive only in hindsight.  I think that LTCM's models, which everyone relied on in the mid and late 90s and were the product of the smartest guys in the room, fell into all three categories.
by rifek on Thu Nov 22nd, 2012 at 11:59:01 AM EST
[ Parent ]
There are models to predict the seasonal variation of employment in the tourist industry, which, while simple, I doubt your wife's cat could formulate and apply, and which are none the less interesting, informative and usually mostly correct.

There are models to predict the relative impact of recessions on different industries and demographics, which range from the simple to the decidedly non-trivial, and are usually reliable.

What these have in common is that they are almost purely black empiricism with next to no theoretical justification, or with theoretical justifications culled from bodies of theory that will not be found in the liturgy being taught to economics students.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Nov 22nd, 2012 at 12:12:47 PM EST
[ Parent ]
Can't have a predictive model until the hole between macroeconomics and microeconomics is filled.  

Second problem is our current computation systems crap out after about 8 iterations when processing dynamic Models and 'static' Models don't model the phenomena.

Third problem is the majority of economists have a superficial understanding of, call it, the Epistemology of Mathematics.  

Fourth problem is their abductive understanding of psychology, e.g., human decision making, is straight out of La-La Land.  

And so on, and so forth.

Skepticism is the first step on the road to truth. -- Denis Diderot

by ATinNM on Thu Nov 22nd, 2012 at 12:42:59 PM EST
[ Parent ]
Can't have a predictive model until the hole between macroeconomics and microeconomics is filled.

That's the Lucas Critique.

I don't agree with it. It should be perfectly possible to develop population-level behavioral heuristics to a level that will let you predict macroeconomic behavior, without needing to have individual-level heuristics advanced enough to let you predict microeconomic behavior (and vice versa). In the same way that psychology needs not wait for neuroscience to map the whole of the human central nervous system's response to all imaginable stimuli before it can progress.

Rather, the problem is that macroeconomics has been infested with microeconomic models which yield reasonable heuristics at the micro level, but whose cause-and-effect stories are arrant nonsense. When those cause-and-effect stories are then applied to the macro level, you get arrant nonsense without the redeeming virtue of yielding plausible behavioral heuristics.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Nov 23rd, 2012 at 07:58:30 AM EST
[ Parent ]
I'll remind you of the Harvard Law of Animal Behavior:

Under carefully controlled experimental circumstances, an animal will behave as it damned well pleases.

Under this Law quantifying "shoulds" gets damn tricky.  I'm (still) enough of a Logical Positivist to think there is a way to do it: IFF the, or some, Copulas of the analytical statements have freedom of movement - so to speak - matching, to some degree, the freedom of movement of the Terms of the statements.

At the moment that's a pipe dream.  We can't Formally assign quantitative values to the Terms (variables) in Catastrophe Theory, which is as well worked out as anything can be.    

Skepticism is the first step on the road to truth. -- Denis Diderot

by ATinNM on Fri Nov 23rd, 2012 at 01:33:02 PM EST
[ Parent ]
But none of the purposes to which economic theory is put requires precision of such nicety as is routinely expected in engineering. Having a baseline and a rough idea of the magnitude and sign of the expected deviation from baseline is usually perfectly sufficient for policy purposes.

If economics wants to take itself seriously as a social science, it needs to abandon the preference for mock precision and analytical tractability over empirical relevance.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Nov 23rd, 2012 at 07:34:19 PM EST
[ Parent ]
If economics wants to take itself seriously as a social science, it needs to abandon the preference for mock precision and analytical tractability over empirical relevance.
Not unrelated: Econ grad students and the Macro Wars (Noahpinion, NOVEMBER 21, 2012)


I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS
by Migeru (migeru at eurotrib dot com) on Sat Nov 24th, 2012 at 02:50:24 AM EST
[ Parent ]


Austerity can only be implemented in the shadow of a concentration camp.
by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Nov 24th, 2012 at 11:25:23 AM EST
[ Parent ]
Years ago I read The Golem at Large with a chapter that looked into the accuracy of the predictions of John Major's Treasury's Panel of Independent Forecasters, or Seven Wise Men. They issued individual forecasts on different variables (like GDP, inflation and unemployment). Checking against the result there was no correlation betweening being closest on one variable and how close an advisor was on another variable. Neither was averages or medians more accurate then individual forecasts. The only correlation they found was between forecasts and time until forecasted situation. The forecasts were better in forecasting the situation in three months then the situation next year.

The Golem series is about history of science and technology.

So yes, predictions are made. And yes, they are crap. Since the EU and IMF has been quarreling about how much GDP is destroyed by austerity, presumably somebody is crunching numbers at ECB to explain to the Council why austerity is not only necessary but also working (just needs more).

A vote for PES is a vote for EPP! A vote for EPP is a vote for PES! Support the coalition, vote EPP-PES in 2009!

by A swedish kind of death on Fri Nov 23rd, 2012 at 05:08:56 AM EST
[ Parent ]
The one thing one can be sure of is:  

Prediction based on extrapolation of current trends, bounded by the state and condition variables and constants of current trends, is wrong.

;-)

Skepticism is the first step on the road to truth. -- Denis Diderot

by ATinNM on Fri Nov 23rd, 2012 at 01:35:16 PM EST
[ Parent ]
But usually more useful than having no forecast at all, and more tractable than developing ab initio models.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Nov 23rd, 2012 at 07:35:39 PM EST
[ Parent ]
I'm not an economist, I'm a history teacher and an amateur demagog.  It's not my intent, with this article, to change the minds of any economists on basic tenets of economics.  That is the job of someone else, if it's anyone's job at all.

What I am hoping to do is develop arguments and tools to influence the political left, and perhaps the popular consciousness, so at the very least they stop caring about the deficit, and stop supporting politicians promising austerity.

It's a sort of dirty end-run around entrenched theoretical elites, I suppose - defeat them by putting people in power who won't listen to them, and will de-fund their institutes and kick them out of academia.

by Zwackus on Mon Nov 12th, 2012 at 07:29:29 PM EST
[ Parent ]
MMT is not simply for preaching to the choir.  It's just that it is futile to argue with a mob of pseudo-intellectual whores who are paid to hold the austerity line regardless of evidence.
by rifek on Thu Nov 22nd, 2012 at 10:41:48 AM EST
[ Parent ]
Here's the problem:  MMT does NOT actually account for real resource constraints in any specific way that is different from mainstream Keynesian accounts.  Rather it assumes, or reasons, that in a depressed economy the constraints must not be close to being reached, just like Keynes reasoned.  

This sounds like a safe bet to me, but it is not compelling to the austerity crowd because they believe that the reason unemployment exists is that resource constraints are being reached...


I would say that this is what the austerity crown claims to believe. Some may well believe it. It is always easier to convince onesself of the truth of something that benefits your balance sheet, especially when the size of your balance sheet is the paramount value in your life.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Nov 16th, 2012 at 11:10:36 AM EST
[ Parent ]
Too much power is too great a threat and MMT comes very close to advocating no checks on government power by not addressing that aspect of the theory directly.

MMT could be more explicit about power. But its analysis and recommendations are pretty much on target for the problem that we really face - GOVERNMENT CAPTURE BY WEALTHY INTERESTS. If the government is, effectively, captured by various groups of powerful interests in various areas there is no alternative but to fight the captors. What we have are a group of well dressed individuals pretending to do the public's business on behalf of the 'people' while actually being far more concerned about the desires of what is, effectively, a cabal of pirates interested in continued looting and/or rent extraction. But such views are not widely acceptable as normative in academia. When they appear it is as an example of criticism which students should learn to counter. Those with the unwisdom to openly embrace such views may only find out much later, if ever, about the content of letters of 'recomendation' or, even, that what they thought was the top grade in courses was, in fact, the second to top grade - given to those with 'unsound views'.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Tue Nov 13th, 2012 at 10:52:55 AM EST
[ Parent ]
MMT could be more explicit about power.

MMT is a monetary theory. It is not a theory of the production sector, or of technological innovation, or of political economy power relations.

Not being a theory of everything is not a bad thing. It means you can adapt its tools to other partial economic/social theories.

I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS

by Migeru (migeru at eurotrib dot com) on Tue Nov 13th, 2012 at 01:11:26 PM EST
[ Parent ]
It means you can adapt its tools to other partial economic/social theories.

Which is a very good thing, given that the willful blindness about the role of money and debt which 'mainstream economics' embraces can be lit up with organized thinking and observation about crucial relationships. Let us see how long 'the mainstream' will continue to wander around blind while surrounded by those who can see clearly simple relationships. Who was on your dissertation  will be less relevant if, by clinging to their formulations, you increasingly appear to be ridiculous to the informed public.  

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Tue Nov 13th, 2012 at 05:33:32 PM EST
[ Parent ]
On the obligation side, the government functions like a bank, no?! It just assumes financial obligations to bond holders and citizen. We can only discuss how justified are it's obligations of this or that kind.

I have a quip about the dollar getting its value (only or primarily) from taxation. Most of Romneys 53% (let's settle for that) earn dollars not to pay taxes but to upgrade their wealth status. It is not hard to pay less taxes. The dollar value is even more enhanced by the other 47%, desperately seeking to have decent food, shelter, and raise kids - even if they do not directly pay federal taxes. The basic fact in this modern world is that that people without private homes and investment positions have to work a lot to earn enough money just to have basic living, basic social status. They are not working for the government directly, thus basically, someone else has the power to maintain the value of money. Those others apparently have the power to control taxation as well. Who are the souvereigns, actually?

by das monde on Sun Nov 11th, 2012 at 07:43:36 PM EST
[ Parent ]
almost every USian pays federal taxes: various excise taxes that are part of the cost of purchased items; Social Security and Medicare taxes if they have any income at all other than SSI or SSD. Plus, effectively, we all pay the corporate income taxes of all of the businesses that have net profit after taxes. That is, the largest (most monopolistic) corporations have priced their products to include such taxes.

paul spencer
by paul spencer (spencerinthegorge AT yahoo DOT com) on Mon Nov 12th, 2012 at 10:59:43 AM EST
[ Parent ]
More directly, prices are increased by sales or VAT taxes.

The article It's the Interest, Stupid! makes almost the same point. The missing part is that the prices are perhaps up to 40% higher not just because of federal taxes included, but also the "costs of doing business" (aka, debt servicing taxes to bankers) are included.

by das monde on Mon Nov 12th, 2012 at 02:27:38 PM EST
[ Parent ]
MMT doesn't allege infinite power.  It simply says that, if the constraining resource is cash, that constraint is false in the case of a sovereign issuing its own currency.
by rifek on Mon Nov 12th, 2012 at 12:11:30 PM EST
[ Parent ]
...research on their part seems to indicate that lots of people would rather not work now...

In order to hold any significant position in a Central Bank it is necessary to have appropriate attitudes and views. The view that 'lots of people would rather not work now' view is one of those. From a class bound 1% point of view it is quite true. None of these worthies would consider the average minimum wage job. That they would be forced to do so is a staple of cinema comedies.

For the typical 1%er holding that view, or, at a minimum, not openly contradicting that view, is very close to a requirement for remaining employable in the financial sector. Of course if one is independently wealthy and can live off of 'investments', or, if need be, off of accumulated capital, one has freedom of conscience and speech. Buffet and Mosler, both Warrens, come to mind as examples of the latter.

But for an unemployed husband and father, let alone a single mother, who was making $25/hr in their previous job the problem remains that $8/hr will not pay the bills, even if they work two jobs and 16hrs per day, which most husbands will attempt. (For a single mother working 16 hours a day is likely not compatible with a minimum level of child care, so they are damned it they do and damned if they don't.) Nor will they have health insurance when fatigue and stress result in illness or their children get sick.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Nov 12th, 2012 at 12:22:43 PM EST
[ Parent ]
No, it can be shown in lots of areas to be true.  Surveys that central banks do with their armies of economists and statisticians and even sociologists find this problem frequently but usually in context-specific areas.  For example, right now in the US, although unemployment is really high, many kinds of employers are unable to find the skilled workers they need, at any price. This is also true of rural areas, where most manufacturing and food/agricultural employers are still found to be dependent on undocumented immigrant labor because the unemployed non-immigrants literally don't show up for work after being hired. For central bankers, it is actually an argument for fiscal actions rather than monetary actions.  It says that you need to specifically target where government spends money rather than just provide cash for everyone to spend if they like, in the form of lower interest rates.  But central bankers are far from agreement on this.
by santiago on Mon Nov 12th, 2012 at 01:31:40 PM EST
[ Parent ]
This is also true of rural areas, where most manufacturing and food/agricultural employers are still found to be dependent on undocumented immigrant labor because the unemployed non-immigrants literally don't show up for work after being hired.

One is forced to wonder whether the surveyors in question surveyed the employers or the prospective employees.

One is also forced to wonder what sort of wage elasticity those results might have.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Nov 12th, 2012 at 01:50:33 PM EST
[ Parent ]
They survey employers systematically, as well as lenders (the lender surveys are published regularly), and they use the quite comprehensive information collected by others such as the Department of Labor, but they also engage in a lot of qualitative analysis with sociologists and ethnographers who verify the surveys with visits and studies of workers, residents, and others.  In addition they have regular councils of various stakeholder groups from across the population that meet regularly and discuss the business environments people are experiencing.  Labor representatives are included in these.  In reality, there are few organizations anywhere that spares as much expense to make sure the data is right and the questions are relevant as an American central bank.  Can they be wrong or biased by ideology?  Of course, but it isn't for lack of trying to do the right research.
by santiago on Mon Nov 12th, 2012 at 02:09:40 PM EST
[ Parent ]
Presumably you are talking about the Federal Reserve Banks. They publish a good deal of research. Do you have links to any of the surveys you have now mentioned several times?
by afew (afew(a in a circle)eurotrib_dot_com) on Tue Nov 13th, 2012 at 01:54:58 PM EST
[ Parent ]
Apparently you don't.
by afew (afew(a in a circle)eurotrib_dot_com) on Fri Nov 16th, 2012 at 04:05:54 AM EST
[ Parent ]
the unemployed non-immigrants literally don't show up for work after being hired

And that makes sense because..?

I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS

by Migeru (migeru at eurotrib dot com) on Mon Nov 12th, 2012 at 02:42:08 PM EST
[ Parent ]
People have better things to do with their lives than show up for work in factory somewhere.  They could stay home and sleep in.  Go shoot at crap in the woods. Sign a stupid petition to secede if Obama is elected.  Whatever.  Their wife or sister will bring home some money, and watching TV sounds a lot more fun than working alongside some Hispanic guy who doesn't know when to lighten up and stop making everyone look lazy by comparison.
by santiago on Mon Nov 12th, 2012 at 02:57:44 PM EST
[ Parent ]
Um, and undocumented migrants don't have anything better to do that work?

I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS
by Migeru (migeru at eurotrib dot com) on Mon Nov 12th, 2012 at 03:22:51 PM EST
[ Parent ]
Apparently not.  This isn't stuff that's being conjectured.  I've just reported some of the actual interview results from my own fieldwork, since I happen to be doing a paper on immigrant labor for a foundation regarding at the moment.  What the immigrant advocacy crowd has been saying for years is true.  There are, in fact, lots of jobs that "native-born citizens" refuse to do. And many of them pay pretty well too. It's pretty amazing, really.
by santiago on Mon Nov 12th, 2012 at 03:34:19 PM EST
[ Parent ]
Now that is pretty amazing.

It must have something to do with status attached to jobs, such as how in pre-industrial societies certain 'unclean' jobs were assigned to certain low castes, or religious minorities, or foreigners.

I have this theory that you can characterise a 3rd world country by the fact that domestic service is done by domestic rather than foreign workers. By that definition, Spain graduated to '1st world country' some time in the 1980s.

I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS

by Migeru (migeru at eurotrib dot com) on Mon Nov 12th, 2012 at 03:41:23 PM EST
[ Parent ]
Not a bad theory.  Incidentally, in US economic development textbooks in the 1980's, Spain was indeed included among the developing, or 3rd world, nations.  South Africa, on the other hand, was included among the 1st world countries.
by santiago on Mon Nov 12th, 2012 at 04:20:30 PM EST
[ Parent ]
Yeah, that sounds about right.
by Zwackus on Mon Nov 12th, 2012 at 07:31:35 PM EST
[ Parent ]
Migeru:
status attached to jobs

That includes wages.

by afew (afew(a in a circle)eurotrib_dot_com) on Tue Nov 13th, 2012 at 01:56:37 PM EST
[ Parent ]
Drones for Padrones has been the status quo for hundreds of years around here.  People haven't been able to receive the wealth of their labor.  So they don't.

"They pretend to pay us and we pretend to work" is as applicable to the authoritarian, predatory, MBA run corporation as it was to the authoritarian, predatory, Commissar run People's Factory #27.

Skepticism is the first step on the road to truth. -- Denis Diderot

by ATinNM on Mon Nov 12th, 2012 at 08:47:11 PM EST
[ Parent ]
santiago:
Their wife or sister will bring home some money

This conveniently explains why the males don't feel obliged to work. Do you have evidence that women are more in employment than men?

by afew (afew(a in a circle)eurotrib_dot_com) on Tue Nov 13th, 2012 at 02:01:31 PM EST
[ Parent ]
Apparently you don't.
by afew (afew(a in a circle)eurotrib_dot_com) on Fri Nov 16th, 2012 at 04:06:44 AM EST
[ Parent ]
No, it can be shown in lots of areas to be true.

No it can't.

For example, right now in the US, although unemployment is really high, many kinds of employers are unable to find the skilled workers they need, at any price.

The point there is skilled workers, and the problem is two-fold.  First, we have two and maybe three generations wholly brainwashed that desk jobs are the only honorable form of work and that no one worthwhile would want to be a machinist or pattern maker or pipe fitter.  Second, our training programs for skilled trades are so pathetic they can't even be called inadequate.  The problem isn't that there are skilled tradesmen who won't work; the problem is that we haven't brought, and aren't brining, anyone up to fill these positions.

This is also true of rural areas, where most manufacturing and food/agricultural employers are still found to be dependent on undocumented immigrant labor because the unemployed non-immigrants literally don't show up for work after being hired.

Um, bollocks, and I'd lay odds I know more about rural America than all the central bank wonks combined.  For 65 years we've had farm policies that ran people out of rural areas.  The bulk of those left are elderly, unskilled, or transient.  The companies move in to capture cheap land, cheap labor, and lack of regulation.  As has always been the case in food production, the vast majority of the jobs are stoop labor and filled by transients.  Further, effectively all of the hires who "don't show up for work after being hired" (more accurately "stop showing up for work at some point after being hired") are part of this transient force and have simply moved on down the road, a factor built into the company's labor cost calculations.  Typically, they leave for better pay, better conditions, a chance to move out of the transient force, or other such non-lazy reasons, but it's a convenient fake statistic for the 1% to throw out in support of Rmoney's 47% Myth.
by rifek on Thu Nov 22nd, 2012 at 01:41:33 PM EST
[ Parent ]
In order to hold any significant position in a Central Bank it is necessary to have appropriate attitudes and views.

A prostitute who won't service the clientele doesn't stay in the brothel long.

by rifek on Thu Nov 22nd, 2012 at 11:31:51 AM EST
[ Parent ]
Many prostitutes are competent professionals with high ethical standards.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Nov 22nd, 2012 at 12:15:20 PM EST
[ Parent ]
Nitzan and Bichler devote a book to this subject: Capital as Power. A Study of Order and Creorder 438 pages(Free 2mb PDF) They describe the essence of capital as the ability of the elite of a society to creatively reorder the society to achieve desired goals of production. Money and finance are optional. The Pharaohs built the pyramids with only a system of account based in the temples that recorded what each household gave and received from the state. But this is stating things far too baldly. Most of the 438 pages are devoted to working though all of the far more confusing ways we have chosen to discuss such arrangements.  

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Nov 12th, 2012 at 05:00:42 PM EST
[ Parent ]
To #8, I would add that taxation should be used to limit the amount of wealth that can be hoarded by any single person or entity in society. Above and beyond the damaging economic consequences of subsidizing idle money, great concentrations and inequalities of wealth are incompatible with popular democracy.

Because those who hold too greatly disproportionate wealth can command so large a share of society's resources as to effectively become a law unto themselves. This is, of course, unacceptable to a system of government which holds the citizenry to be sovereign, and that sovereignty to be delegated according to the principle of one man, one vote (as opposed to one dollar, one vote).

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Nov 11th, 2012 at 03:45:06 PM EST
So is this an example of the UK government acting from a MMT basis?

Twitter / JohnHigginson: Hidden in plain view: Osborne ...

Hidden in plain view: Osborne created £35bn through QE on Friday and used it to pay Treasury debt. Only FT weekend noticed.


Any idiot can face a crisis - it's day to day living that wears you out.
by ceebs (ceebs (at) eurotrib (dot) com) on Mon Nov 12th, 2012 at 08:51:17 AM EST
Yes, QE is a sort of operation which is much better explained in chartalist terminology.

The MMT crowd (at least the part that hangs out on the mailing lists I'm on) hasn't really re-cast the problem in those terms yet, though, preferring instead to poke holes in the neoclassical fairie tales about how it ought to work. This is mostly because MMT'ers are largely indifferent to monetary policy, due to the total impotence of interest rate policy as a tool of macroeconomic planning. That attitude is, in my view, unfortunate, but understandable in light of how common it is in the economics profession to neglect non interest rate based monetary policy.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Nov 12th, 2012 at 10:27:45 AM EST
[ Parent ]
Well the question that I would ask is if you can use quantatative easing to write off some of the governments debts, why cant you do it for all of it. and if so, why is austerity necessary?

Any idiot can face a crisis - it's day to day living that wears you out.
by ceebs (ceebs (at) eurotrib (dot) com) on Tue Nov 13th, 2012 at 09:44:36 AM EST
[ Parent ]
Osborne's £35 billion Bank raid to meet his Treasury debt rule - Politics - News - London Evening Standard
The Treasury today unveiled the change to the way money from the Quantitative Easing scheme (modern-day money printing) will be handled, with the £35 billion of interest -- borrowed by the Government and paid into the bank's coffers -- now being shifted to the Treasury.

The CB creates money which is directly or indirectly borrowed by the government, which pays interest that (all or some) ends up in the CB. Government grabs interest form CB showing that the true cost of the debt was nothing (if direct) or at least substantially lower then reported.

So I think the retohrical question that is posed should be "Why can't the Government borrow everything from its own CB at no cost?". And the answer is of course that it can and should (if subsidising banks is necessary I much prefer an open subsidy).

A vote for PES is a vote for EPP! A vote for EPP is a vote for PES! Support the coalition, vote EPP-PES in 2009!

by A swedish kind of death on Tue Nov 13th, 2012 at 10:05:35 AM EST
[ Parent ]
It can and should but 'investors' - including private bankers - won't let it.

Public subsidy of banks is perfectly acceptable. Public subsidy of the - er - public is a recipe for inflation and economic disaster.

And what's happening in Spain etc is 'reform' and not economic disaster at all.

Etc.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Tue Nov 13th, 2012 at 10:47:18 AM EST
[ Parent ]
Unfortunately this used to be true - and it is a representation of reality that one can argue about still - but alas not anymore.

The hitch, the fly in the ointment, the catch:

E-N-E-R-G-Y

unfortunately, without energy the economic system has no value so yes you can print as much money as you want but this money is pure inflation if they cannot buy you anything useful. And as we run up to energetic limits we realize that the amount of useful things we can make and build is suddenly limited. In fact we had reached the EROEI limits a couple of decades or so earlier but the debt/financial printing machine allowed us to continue spending (running in the air) for a little longer. As we are looking at the energy cliff at our feet there are limited ways to get out of - and certainly printing money is NOT one of them.

On the contrary, if we want to make informed decisions about our collective future one way to do so that circumvents a technocratic dictatorship or a complete collapse is to revert to an "energy standard" - an energy currency system. I think there are a lot to be discussed about the merits of such an approach so I will be posting a diary soon.

Orthodoxy is not a religion.

by BalkanIdentity (balkanid _ at _ google.com) on Mon Nov 12th, 2012 at 08:58:19 AM EST
You're confusing resource austerity with monetary austerity. You're confusing GDP with energy use. You're confusing extraction and production with services. You're confusing money with a thing.

Please don't do that.

The point is that you can mobilize idle resources by printing money. If that drives up the price of the existing non-idle resources, too bad.

There's no reason why perfectly good teachers and nurses have to be unemployed because energy is expensive, or rather to depress the demand for energy so that energy remains affordable at the same price for the reduced number of employed teachers or nurses.

Money is no more a gold ingot laboriously shat by a central banker than it is a vial of stone oil. Money is a token of political power used to mobilize the available resources. Scarcity of one material resource is no excuse for immobilizing other non-material resources.

Plus, monetary austerity is used as an excuse not to develop alternative energy sources that might supplement the scarcity of fossil E-N-E-R-G-Y.

I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS

by Migeru (migeru at eurotrib dot com) on Mon Nov 12th, 2012 at 09:28:16 AM EST
[ Parent ]
You're confusing resource austerity with monetary austerity.

And confounding. Confound it all!

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Nov 12th, 2012 at 12:26:33 PM EST
[ Parent ]
Migeru:
Plus, monetary austerity is used as an excuse not to develop alternative energy sources that might supplement the scarcity of fossil E-N-E-R-G-Y.

this is the nub of it... alternative energy signifies reduced income streams for the utility companies, all in cahoots with the fossilised status quo.

every year they can block/delay alternatives, the longer they have to jack up rates moaning about resource peaks, foreign ownership of 'our' oil, etc etc.

superscam, pure and simple.

"We can all be prosperous but we can't all be rich." Ian Welsh

by melo (melometa4(at)gmail.com) on Mon Nov 12th, 2012 at 12:31:08 PM EST
[ Parent ]
unfortunately, without energy the economic system has no value so yes you can print as much money as you want but this money is pure inflation if they cannot buy you anything useful.

If we accept that the economy can no longer grow (and may, in fact, have to shrink) in real terms, then inflation is not a bug, it is a feature.

The financial system organizing modern industrial production requires, judging by historical experience, between 5 and 7 per cent annual nominal growth. But financial stability does not care whether this growth comes from inflation or from increased production (so long as inflation remains below 10-12 per cent pro annum, above which you start getting other sorts of dysfunctions). All it cares about is that there are enough pieces of paper to pay back the loans. So if growth in real output is gonna go away, you need to get used to 5-7 % inflation.

And no, lenders will not then simply mark up interest rates by the rate of inflation. That's the loanable funds fallacy. Lenders lend at whatever non-negative interest rate the central bank rediscounts at, plus the markup required to cover their cost and profits. Their profit requirement will increase in lockstep with inflation, of course, but the central bank's policy rate does not have to.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Nov 12th, 2012 at 10:39:10 AM EST
[ Parent ]
Problem 2 is there's no useful definition of growth.

Not all economic activity is useful or productive in any non-theological sense. So simply lumping everything everyone does - excluding the things that don't count for political reasons - is entirely useless.

Taxes, deficits, inflation, growth, etc are muddled and misleading terms and concepts largely invented by bankers and monetarists for their own benefit.

Democratic economics would have to start by redefining what gets measured and how it gets measured, and move from there to policy that maximises the economic and political benefits for the majority of the population.

As things stand now it's entirely possible to have positive growth which destroys the political power earning potential of the vast majority of the population.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Mon Nov 12th, 2012 at 11:04:29 AM EST
[ Parent ]
there's no useful definition of growth

As Keynes once said:

The fact that two incommensurable collections of miscellaneous objects cannot in themselves provide the material for a quantitative analysis need not, of course, prevent us from making approximate statistical comparisons, depending on some broad element of judgement rather than of strict calculation,  which may possess significance and validity within certain limits. But the proper place for such things as net real output  and the general level of prices lies within the field of historical and statistical description, and their purpose should be to satisfy historical or social curiosity, a purpose for which perfect precision--such as our causal analysis requires, whether or not our knowledge of the actual values of the relative quantities is complete or exact--is neither usual nor necessary. To say that net output to-day is greater, but the price-level lower, than ten years ago or one year ago, is a proposition of a similar character to the statement that Quess Victoria was a better queen but not a happier woman than Queen Elizabeth--a proposition not without meaning and not without interest, but unsuitable as material for differential calculus. Our precision will be a mock precision if we try to use such partly vague and non-quantitative concepts as the basis of a quantitative analysis.


I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS
by Migeru (migeru at eurotrib dot com) on Mon Nov 12th, 2012 at 11:26:38 AM EST
[ Parent ]
True enough, but for the stability of the financial system, what matters is nominal growth in the circulation of the accounting tokens that can be used to extinguish financial claims. Which corresponds very closely to the definition of nominal GDP.

And this result holds under very general assumptions about the structure of credit relations.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Nov 12th, 2012 at 01:50:45 PM EST
[ Parent ]
for the stability of the one particular kind of financial system

FTFY.

Really, how much research has been done into alternative financial and accounting systems?

My prediction is that a few centuries from now the current system will seem as sophisticated and relevant as cannibalism and alchemy do today.

And besides, there are interesting hints of entire bank sponsored shadow economy based on tax evasion, money laundering, and other persistent forms of false accounting, with a reasonable probability that there's far more wealth (although possibly not official cash) in that system than in the official one.

Even if that isn't true, the system as a whole seems to have a few trillion in unicorn-poop nominal derivatives on its books. So how can it be said to be stable?

by ThatBritGuy (thatbritguy (at) googlemail.com) on Mon Nov 12th, 2012 at 03:12:23 PM EST
[ Parent ]
ThatBritGuy:
So how can it be said to be stable?

More stable then when someone tries to run it in reverse with nominal decrease of the accounting tokens that can be used to extinguish financial claims. Because then it reliably breaks down quickly.

Riding a bike isn't perfectly stable either, but a riding a bike forward is a miracle of stability compared to trying running it backwards.

A vote for PES is a vote for EPP! A vote for EPP is a vote for PES! Support the coalition, vote EPP-PES in 2009!

by A swedish kind of death on Mon Nov 12th, 2012 at 03:19:29 PM EST
[ Parent ]
It is a very general property of credit relationships that you need to be able to extinguish them - in nominal terms - faster tomorrow than you can today, in order to permit stochastic fluctuations to dissipate. The alternative form of dissipation is a more or less controlled erasure of outstanding credit obligations. This can take the form of bankruptcy (ultimately giving rise to the sort of cascading insolvencies to which we have become accustomed of late). It can also take the form of regular jubilees (as in the Code of Hammurabi). Or it can take the form of shooting all the creditors (that's Lenin's solution). But it has to happen with some regularity, unless you build automatic dissipation, in the form of nominal growth, into the system.

This sort of fluctuation-dissipation argument works on any sort of credit system under which actors lack perfect foresight and which does not grant the debtor full discretionary authority over the schedule and terms of repayment.

A credit system in which debtors have full discretion over terms and schedules of repayment is a gift exchange economy. There has been some anthropological research into those. But it is not obvious that they are capable of sustaining advanced industrial production (and in fact I would argue that they likely are not).

(As should be obvious to present company, a credit system in which all agents have perfect foresight is called "a fairie tale.")

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Nov 13th, 2012 at 02:41:32 AM EST
[ Parent ]
JakeS identifies three routes to extinguishing credit:  cascading insolvencies (the debt-deflation spiral); regular jubilees; or shooting the creditors.

There is another: a prolonged bout of sufficiently high and sufficiently unanticipated inflation, wso that nominal wages outstrip nominal debts.

Of these, the jubilee is the cleanest and fastest.

by LondonAnalytics (Andrew Smith) on Tue Nov 13th, 2012 at 08:01:29 AM EST
[ Parent ]
I do mention inflation - that's what "high nominal growth" means: In good times, the high nominal growth will have a large real component; in bad times, a smaller (or even negative) real component. But because the fiscal policy ensures a steadily growing NGDP (and this has to be a fiscal policy objective rather than a monetary policy one, because monetary policy cannot create GDP, only destroy less of it), bad times have a compensating inflation write-off of outstanding obligations.

Whether the inflation is expected or unexpected is immaterial - both denude extant credit relationships, and it is possible to design the financial system such that inflation only has a minor impact on interest rates. It is also possible to design the financial system such that inflation carries over directly into interest rates. But it is always possible to do stupid things - the space of stupid policy options is vastly greater than the space of smart policy options.

I disagree, by the way, with the notion that regular jubilees is the cleanest way to dissipate debt buildups. You will get people wasting a lot of time and effort gaming such a system. High and predictable nominal growth, with inflation as the buffer stock, is preferable by far. Although not quite as fast, for rates of inflation consistent with maintaining an orderly monetary system.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Nov 14th, 2012 at 06:48:04 AM EST
[ Parent ]
 LondonAnalytics:
Of these, the jubilee is the cleanest and fastest.

I would suggest that a targeted jubilee that writes off all debts based on fraudulent processes would be the fastest, the fairest and the most responsible resolution to the current problems. These would range from MBSs with nominal values over twice what the underlying assets could yield at sale to various vendor finance schemes for purchases which the purchaser could not afford. We are not doing this because the system is controlled by the fraudsters and those who they have benefited.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Nov 16th, 2012 at 08:40:25 PM EST
[ Parent ]
here for some years. Are you familiar with Chris Cook and his discussion of energy-based currency? I think that we are generally 'up' for that conversation.

I think that the 'tone' of your comment is a bit shrill - suggests that, if we don't see the "energy cliff", then we're just not paying attention. More to the point, we all understand EROI, and we all agree that fossil-fuels-based power generation will be more expensive - perhaps prohibitively so - in the future.

I think that we find it to be part of a corporatist system to ignore costs that only (seem to) affect us huddled masses - which brings us back to one of the main themes of Zwackus' diary: given a role for government in a national economy, what are the effects of several different interventions?

Migeru's point is that some choices can be made without much concern about energy issues - more or less strictly a political decision. His additional comment concerning "alternative energy sources" is even more relevant to your issue, and I'm guessing that you would agree with him.

paul spencer

by paul spencer (spencerinthegorge AT yahoo DOT com) on Mon Nov 12th, 2012 at 12:01:03 PM EST
[ Parent ]
This is a famous quotation by Keynes on what we'd today call austerity:
Thus we are so sensible, have schooled ourselves to so close a semblant of prudent financiers, taking careful thought before we add to the 'financial' burdens of posterity by building them houses to live in, that we have no such easy escape from the sufferings of unemployment. We have to accept them as inevitable results of applying to the conduct of the State the maxims which are best calculated to 'enrich' an individual by enabling him to pile up claims to enjoyment which he does not intend to exercise at any definite time.
What I would say is that energy-standard money, being just another commodity money, is just as deflationary as a gold standard. I'd paraphrase Keynes thus:

We have to accept them as inevitable results of applying to the conduct of the State the maxims which are best calculated to 'enrich' an individual by enabling him to pile up claims to enjoymentenergy which he does not intend to exerciseturn into work at any definite time.

Debt-deflation cycles happen when people are allowed to accumulate claims to real resources, "cornering the market" for economic activity, so to speak. Commodity or energy standard money would surely lead to more money being created than there are commodities or energy units available. And then you'd have a debt crisis, a deflation, and a scramble to make good on your claims to real resources at the expense of society's continued functioning. This is, in addition, why I remain unconvinced about Chris Cook's "units" based on monetizing the use value of something (say, residential property). The question "what prevents more rental units being issued than there are dwelling-months of occupation?" was never satisfactorily answered, because there is no satisfactory answer.

I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS

by Migeru (migeru at eurotrib dot com) on Mon Nov 12th, 2012 at 12:12:17 PM EST
[ Parent ]
In fact there is a very good argument to be made that allowing actors in the financial sector to 'invest' in oil still in the ground allows producers to charge a premium to the consumer for what is consumed.


As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Nov 12th, 2012 at 12:32:37 PM EST
[ Parent ]
The question "what prevents more rental units being issued than there are dwelling-months of occupation?" was never satisfactorily answered, because there is no satisfactory answer.

That's the easy part.  We have computers to do the number crunching, the comparisons, and keep track.  I suggest having the owners of an apartment building directly issuing money backed by dwelling-months is no more or less silly than issuing money indirectly through a bank loan.

Skepticism is the first step on the road to truth. -- Denis Diderot

by ATinNM on Mon Nov 12th, 2012 at 12:35:09 PM EST
[ Parent ]
Mulling it over ...

Superficially, dwelling-months backed money would mean doing the Henry George Single Tax Thing to prevent the ground owner from squeezing the building owner.  Or just make every bit of urban land Fee Simple and occupier-owner.

Skepticism is the first step on the road to truth. -- Denis Diderot

by ATinNM on Mon Nov 12th, 2012 at 12:45:52 PM EST
[ Parent ]
we would be 'up' for the conversation.

The essence of any argument that I would make for almost all economic activity involving commodities is that it should include planning - how centralized or decentralized would be influenced by its universality. Wheat would be international (UN agency?); steel might be national; insurance could perhaps be partly national and partly regional.

I'm, as you know, Marxist enough to believe that value comes from human activity - nothing else. Relative value, however, has demand dimensions. Currency is of small concern to me in that I see it as secondary at best. Our primary concerns are essentially the political dimension, and I side with the 99% (or perhaps the 90%).

paul spencer

by paul spencer (spencerinthegorge AT yahoo DOT com) on Mon Nov 12th, 2012 at 12:46:55 PM EST
[ Parent ]
Money is not a thing: it is a relationship.

There is a distinction to be made between energy currency, which may come in many different varieties - such as carbon-fuel based units, electricity-based units and heat-based units - and the absolute energy unit of account by reference to which they may be priced in exchange.

You can no more have a scarcity of units of account than you can have a scarcity of metres or kilogrammes.

As for currency based upon the use value of location, I am not looking at the use value of dwellings - which are essentially a combination of energy in material form, and embedded intellectual value - but rather the use value of the bare location in terms of 3D space.

The crucial attribute of energy is that even though it may cost nothing (eg wind and other renewables) it is nevertheless valuable in use.

If the economy were to be flooded with equitably distributed cheap energy this would not lead to inflation (as it would with gold and fiat currency) but rather to an economics of abundance, since with sufficient energy you can create virtually anything.

One way of looking at this is that you can't produce gold without energy, but you can produce energy without gold.

To answer your point re currency production, there will always be a need for:

(a) transparency of issue;

(b) quality control (the mint function) by a monetary authority.

It's not that difficult to record and manage issuance of 'prepaid' rental units or 'stock' (as undated IOUs were was originally called in the days of tallies).

As I have long said, the State is as obsolete as an intermediary as are rent-seeking private intermediaries.

I'm busy working on several prototype projects (real property projects take years), and now that I have cracked the tax and regulatory problems through revisiting the legal structures, it's full speed ahead internationally.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Mon Nov 12th, 2012 at 05:04:41 PM EST
[ Parent ]
You can no more have a scarcity of units of account than you can have a scarcity of metres or kilogrammes.

Oh, but abstract units of account are very different from physical units of account. As you well know, a nonredeemable dollar is very different from a dollar redeemable in gold. You need a potentially unlimited supply of dollars but there cannot be an unlimited supply of gold (or metres, or kilogrammes).

You cannot run out out "the kilogramme" but there's a finite number of kilogrammes out there. What happens if you issue more kilogramme currency than there are kilogrammes of 'stuff'? Can you corner the market for kilogrammes of 'stuff'?

This is very different from the argument that 'as scorekeeper, you cannot run out of points'.

So I have to insist on rejecting any physically based or denominated units of account.

If the economy were to be flooded with equitably distributed cheap energy this would not lead to inflation (as it would with gold and fiat currency) but rather to an economics of abundance, since with sufficient energy you can create virtually anything.

Here you're claiming that gold is limited, energy is unlimited, and fiat currency is more like gold than it is like energy. Totally backwards as far as I can see, regarding energy and fiat currency.

I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS

by Migeru (migeru at eurotrib dot com) on Mon Nov 12th, 2012 at 06:26:25 PM EST
[ Parent ]
Since the only thing money actually measures is confidence, faith, and the lowest kinds of Darwinian animal status, tying it to energy only works if you have faith in your energy sources.

(Whether or not that faith is justified is a different issue.)

More useful would be politics based on explicit organisation and approximately consensus goal setting - in contrast to the current econo-politics which uses finance and money to organise society implicitly, limiting policy power to a tiny minority.

Converting money to energy units, cow units, sand units, gold units, or Galt Tokens will do exactly nothing to change that.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Mon Nov 12th, 2012 at 10:05:23 PM EST
[ Parent ]
ThatBritGuy:
tying it to energy only works if you have faith in your energy sources.

if you can't have faith in sun and wind, then what can you trust? having infinite supply vaccinates a market against market-cornering, which is obviously it's being resisted by hook and by crook, literally! _they won't be able to blame rising prices on resource limits... there's no greater social paradigm shift than that.

as the tech gets better, the prices will come down, and anything that doesn't conform will be exposed as the inefficient EROI it is.

how they have fooled so many for so long will go into the history books as poster child example of the effects of propaganda on societies.  

"We can all be prosperous but we can't all be rich." Ian Welsh

by melo (melometa4(at)gmail.com) on Thu Nov 15th, 2012 at 04:15:09 PM EST
[ Parent ]
how they have fooled so many for so long will go into the history books as poster child example of the effects of propaganda on societies.

Optimist!    

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Nov 16th, 2012 at 11:54:38 AM EST
[ Parent ]
haha, that there will be a human future at all, or that level of brainwashing will not be topped?

"We can all be prosperous but we can't all be rich." Ian Welsh
by melo (melometa4(at)gmail.com) on Fri Nov 16th, 2012 at 03:24:36 PM EST
[ Parent ]
Both.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Nov 16th, 2012 at 08:20:10 PM EST
[ Parent ]
A kilogramme is a standard unit of measure for length, and an absolute energy unit is a standard unit of measure for value.

I'm not sure what you mean by 'physical unit of account'. Do you mean by this a unit returnable in exchange for (say) 10 KwH of electricity or a unit returnable in exchange for (say) an ounce of gold?

If so, I prefer to describe these as generally acceptable units of currency.

Of course, when issued by central banks as fiscal agent for the Treasury or fabricated as look-alikes of central bank credits by private banks then the currency is also the unit of account.

But that need not necessarily be the case. For instance the Swiss WIR (or any proprietary barter system) credit clearing system where goods and services change hands not in exchange for CHF as a currency, but by reference to it as an abstract unit of account.

You are missing the difference between an energy unit of account and the many different types of energy currency which may change hands by reference to it.

 

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Fri Nov 16th, 2012 at 07:23:09 PM EST
[ Parent ]
What is the point of denominating the currency in KWh if you don't mean the currency is redeemable for the face value of energy? Just to be cute?

Let's call the unit of currency the Lux, and engrave the coins with 'fiat lux'.

I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS

by Migeru (migeru at eurotrib dot com) on Fri Nov 16th, 2012 at 07:35:49 PM EST
[ Parent ]
If the economy were to be flooded with equitably distributed cheap energy this would not lead to inflation (as it would with gold and fiat currency) but rather to an economics of abundance, since with sufficient energy you can create virtually anything.

Yes, in any meaningful frame of reference, energy demand is wholly elastic, so supply increases are readily absorbed.
by rifek on Thu Nov 22nd, 2012 at 01:51:43 PM EST
[ Parent ]
But the problem with an energy currency is not inflation in the event of energy abundance. It is deflation in the face of energy scarcity - in which case an energy standard would combine the real problems of scarcity with the fake problem of honoring contractual commitments to provide the newly scarce resource in settlement.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Nov 23rd, 2012 at 07:51:30 AM EST
[ Parent ]
I'm not sure that's an unmitigated evil.  If we had the real problem of energy shortage, I would expect the fake problems of contract commitments and currency valuation to be flushed away quite readily, so the currency wouldn't exacerbate the problem.  Further, it is currently too easy to mask energy supply and demand, but if we had currency speculators in play, we might have ourselves a canary in the coal mine.
by rifek on Fri Nov 23rd, 2012 at 12:02:42 PM EST
[ Parent ]
If we had the real problem of energy shortage, I would expect the fake problems of contract commitments and currency valuation to be flushed away quite readily,

The present depression argues the contrary point.

Further, it is currently too easy to mask energy supply and demand, but if we had currency speculators in play, we might have ourselves a canary in the coal mine.

I'm not totally clear on how adding more noise traders to the market is supposed to improve the signal-to-noise ratio...

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Nov 23rd, 2012 at 07:33:28 PM EST
[ Parent ]
I'm not totally clear on how adding more noise traders to the market is supposed to improve the signal-to-noise ratio...

I suppose hoping that stochastic resonance will help is not a sound way to design your monetary system.

I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS

by Migeru (migeru at eurotrib dot com) on Sat Nov 24th, 2012 at 02:43:50 AM EST
[ Parent ]
Debt-deflation cycles happen when people are allowed to accumulate claims to real resources, "cornering the market" for economic activity, so to speak.

In Neo Classical Economics as a Strategem Against Henry George Mason Gaffney noted that this was precisely the problem that arose from land grant universities. Generations later there were large areas that were largely undeveloped because they were part of, or had been traded for land granted to finance the construction of universities. Given the almost zero carrying cost of these lands, due to absurdly low real estate taxes, grantees and their heirs kept them undeveloped, as other development proceeded, until they could be sold at a very large profit. This was why the opposed Henry George's Single (land) Tax and sponsored the economists, (and the universities at which they worked), in their project to 'recast Economics' so as to confound those who would quote the classical economists in favor of taxing such wealth. Gaffney cited areas in Wisconsin and Michigan where the few who had settled areas now surrounded by land obtained by such means were complaining of the stagnation that ensued while the owners of that land waited for timber to become more scarce and cited similar conditions for land that had been thriving in the first half of the 19th century in the Pennsylvania-Delaware region that was now idle for a similar reason - waiting for urban growth to envelop that area. The same logic applied to those who got land granted along transcontinental railroads. Prior to the last round of railroad mergers Southern Pacific, Union, etc. may not have been generating stunning cash flows but they, or corporate real estate subsidiaries were major holders of now valuable real estate other than rights of way.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Nov 16th, 2012 at 11:50:41 AM EST
[ Parent ]
Migeru:
This is, in addition, why I remain unconvinced about Chris Cook's "units" based on monetizing the use value of something (say, residential property). The question "what prevents more rental units being issued than there are dwelling-months of occupation?" was never satisfactorily answered, because there is no satisfactory answer.

but once you have alternate energy powering solar panel and wind turbine factories and the loans to create them are paid off, you have the equivalent of a license to print (keystroke) more energy-capital-backed energy credits, no?

as for the gamblers, they can bet on the sun running out of fuel early, or planetary doldrums.

short that baby!

"We can all be prosperous but we can't all be rich." Ian Welsh

by melo (melometa4(at)gmail.com) on Sun Nov 18th, 2012 at 06:21:14 PM EST
[ Parent ]
Yes, I was one of the early people to discuss this idea with Chris Cook. I'm not convinced of energy-based currency, for the same reasons that I am convinced of the MMT ideas.  

My point is that the austerity crowd contends that markets tell us when real resources are limited by their high prices.  If true, however, it means that printing money and trying to spend it on workers will just drive the prices of such limited resources up further, which is exactly what they are arguing.  So we need a comprehensive theory about how to determine what resources, including labor, are in short supply, if we don't want to believe what market prices are telling us.  MMT doesn't do that yet, so you can't use it to argue with an austerity advocate.

by santiago on Mon Nov 12th, 2012 at 03:15:12 PM EST
[ Parent ]
We don't need a theory to tell us that labour is in short supply. There are droves of unemployed people.

One thing you could do is institute an employment guarantee programme at a set minimum wage. The employment guarantee would act as a 'buffer'. Instead of a 'reserve army of unemployed labour' you would have a 'buffer stock of job guarantee workers' for the private sector to hire from.

There's another argument: when there is at least one job vacancy per jobseeker you can begin to talk about labour shortages. That is almost never the case.

I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS

by Migeru (migeru at eurotrib dot com) on Mon Nov 12th, 2012 at 03:21:58 PM EST
[ Parent ]
Not quite.  The fallacy, as with all neoclassical generalizations, is to conceive of a labor market as a single, homogenous market.  In reality there are many tiny labor markets for people who skills, interests, and geographical preferences to do particular kinds of work.  One reason that rural employers have difficulty finding workers is that people don't want to move to rural areas.  They would rather live in the city, unemployed than move to a small rural town where a job that they might not end up liking in a few months awaits them.  

The unemployment problem in the US today (Europe might be different) is almost entirely city-focused.  Rural unemployment rates are actually pretty low, so the mystery is why don't people who have been laid off from city jobs move to the country to take those jobs.  

The same holds true for various occupations within a city.  A airline pilot who lost his job just isn't going to start working at a meatpacking plant, even in an office. So this makes the idea of a job guarantee much less workable, although I agree with it in principle.  There really are labor shortages even in times of high unemployment.  

by santiago on Mon Nov 12th, 2012 at 04:14:44 PM EST
[ Parent ]
Yes, that makes sense, and it's something that I've heard of from a few different sources.  The radical class-warrior populist in me assumes that it must be largely attributable to the miserable conditions on offer, but I know damn well that hardly a one of my old friends in the US would really consider moving to North Dakota for oil work, or to work in agriculture in Alabama.

You are entirely right that any employment strategy must be designed with the various micro-labor markets in mind, both so that money spent will actually get people in jobs, and so that markets that are already hard-up for workers are not needlessly bothered.  I see no real conflict between this idea and the more general idea of using debt, deficits, and taxation as flexible tools to deal with the economic problems of the moment - it's all about doing what needs to be done now, based on the reality of the situation on the ground, and matching the proper fiscal and monetary tools to the job.

by Zwackus on Mon Nov 12th, 2012 at 07:48:55 PM EST
[ Parent ]
Zwackus:
Yes, that makes sense, and it's something that I've heard of from a few different sources.  The radical class-warrior populist in me assumes that it must be largely attributable to the miserable conditions on offer, but I know damn well that hardly a one of my old friends in the US would really consider moving to North Dakota for oil work, or to work in agriculture in Alabama.

Galbraith notes that during the second world war there was media stories about grade school teachers quiting to work in the industry instead. This was news worthy as school teachers are not supposed to go work at a factory line (they are supposed to anjoy their work as grade school teachers). But of course there is a wage level at which school teachers at least temporary can consider working in at a factory line. In normal circumstances high-status jobs are highly paid and in addition are more free, and have more satisfying tasks. But WWII was not normal.

A vote for PES is a vote for EPP! A vote for EPP is a vote for PES! Support the coalition, vote EPP-PES in 2009!

by A swedish kind of death on Tue Nov 13th, 2012 at 08:15:42 AM EST
[ Parent ]
Not quite.  The fallacy, as with all neoclassical generalizations, is to conceive of a labor market as a single, homogenous market. In reality there are many tiny labor markets for people who skills, interests, and geographical preferences to do particular kinds of work.

Obviously, yes. And sometimes the composition of the labor supply will not match the composition of the labor demand as specified by the existing productive plant.

In a market economy, such disparities are inflationary, because they necessitate relative price movements (I bet I could find a wage level that would get you all the strawberry pickers you need), and relative price movements are inflationary due to downward price stickiness. Attempting to suppress this inflation will cause relative prices to fail to adjust, or adjust in a deflationary manner (causing a general glut, because that's what deflation does for you).

Both those outcomes lock in the structural pathologies rather than overcoming them. This does not mean that the pathologies are fundamental to the contemporary economic reality. It means that policies have been pursued which obstruct resolution of those pathologies. It is, of course, possible that those pathologies are fundamental - that not even paying strawberry pickers at the level of Wall Street hedge fundies will move unemployed people to fill those vacancies. But that is improbable.

One reason that rural employers have difficulty finding workers is that people don't want to move to rural areas. They would rather live in the city, unemployed than move to a small rural town where a job that they might not end up liking in a few months awaits them.

Or where they know that the job will go away in the off season, leaving them in Podunk, Alabama with no income, no personal patronage and support network, the social services of a 19th century frontier village, and barely enough savings to buy a ticket back to the city...

If you want people to move to Podunk, Alabama, you need to offer them enough money that they can get the Hell out of Podunk, Alabama. Both to visit family and friends - at least for the major holidays - and to do materially better than just breaking even when the job ends and they have to move somewhere else for a new job. All that traveling isn't cheap. If they have kids, you need to make sure that the public schooling in Podunk, Alabama is at least up to the standard you can expect in a major city - most people would rather be poor and unemployed but have their kid in an adequate school than be comfortable and employed but have their kid go to a bad school. You also need to make sure that the public attitude in Podunk, Alabama isn't one of generalized hostility to gay single mothers with brown skin.

An alternative solution would be to treat farm jobs in much the same manner as jobs on drilling rigs or embassies - you don't intend to take up permanent residence on an offshore drilling rig just because you happen to live there for three months of the year while you drill. Just like you don't necessarily intend to take up permanent residence in Belarus just because you work at the consulate there. Yet somehow those manage to find qualified employees.

Yes, that means that rural employers will need to provide local employee housing and biannual transportation to the nearby major urban centers. It also means that they must be remunerated at a level that compensates people for being unavailable to the city's labor market and their families (and having the city's amenities and their families be unavailable to them) for a quarter or half the year. My heart bleeds for them.

Of course, it's cheaper and easier to employ migrant labor from a conveniently located third world country whose industrialization your government has busied itself sabotaging for the last two hundred years. But can we please be spared the whining of rural employers who don't want to pay the full economic cost of their labor?

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Nov 13th, 2012 at 03:12:14 AM EST
[ Parent ]
One of the rural businesses I've investigated personally was a manufacturer of metal grain silos, one of the products that the US still exports in large quantities around the world and a growing industry, located in South Dakota.  The wages paid were higher than other wages in the area and comparable to wages in nearby cities for unionized sheet metal workers.

The business had a very liberal attendance policy: If you're going to be late for your shift or miss your shift entirely and you call in to notify someone, for any reason at all, no penalty.  If you don't call in, you get one point against you.  If you accumulate six points in a three month period, you get fired.  

How did this work out?  Almost inevitably, most of the non-Hispanic workers, mostly white people who live in the area but also some native americans, would still manage to accumulate six points and lose their jobs within three months of hiring, but the mostly immigrant Hispanic workers would remain employed. (Or at least until they saved up enough cash to return to their home country and buy a business or a farm and live easy.)

Talking to the workers themselves, it became clear that many, if not all, of the Hispanic workers were  undocumented, and they thought the job was a great opportunity for them -- they loved it.  So did the minority of non-Hispanic workers who were   The non-Hispanic workers that had lost their jobs due to absences mostly expressed that they felt that the job was beneath them and just had other things going on with the lives that prevented them from calling in for absences six times in three months.  Low wages were not one of the complaints they expressed about working there. Rather, it was mostly a drag to go to work in general or there were other domestic or personal issues involved. This situation is common among rural employers and may have to do with the reasons people choose to live in rural areas to begin with, but it shows that the rural labor market is almost certainly distinct from the urban market and an example of a space where further injections of cash may have only inflationary effects with no increases in employment.

The policy implication, from either an MMT or mainstream Keynesian framework, is that injecting cash in general into the economy, such as through lower interest rates or lower tax rates, is unlikely to lead to the desired, non-inflationary employment responses. Rather, targeted projects funded by government to organize specific workers in specific places back to work are needed.

by santiago on Tue Nov 13th, 2012 at 11:10:21 AM EST
[ Parent ]
Is this research going to be published soon?

I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS
by Migeru (migeru at eurotrib dot com) on Tue Nov 13th, 2012 at 01:14:35 PM EST
[ Parent ]
It depends whether the foundation that's sponsoring it want to or not. Whether they do or not is probably dependent on the outcome and how they want to use it.
by santiago on Tue Nov 13th, 2012 at 02:00:12 PM EST
[ Parent ]
Are there a lot of people in South Dakota who have extra time outside farming season but who don't need or can't have a regular job for the whole year.
by Jute on Wed Nov 14th, 2012 at 05:23:56 AM EST
[ Parent ]
There aren't a lot of people is South Dakota, period. But that's a good question.  Outside of farming, I don't know.  The other main employer competing for skilled, non-immigrant, but also immigrant, labor is gas fracking and the oil boom in nearby North Dakota, which tends to want to hire people with a farming background when they can.
by santiago on Thu Nov 15th, 2012 at 10:55:37 AM EST
[ Parent ]
Segmented labor markets is only a problem for the Hicks-Samuelson synthesis, not for Keynesian economics.

The Keynesian solution would be to put a work relief office at every major rail station, and then say "all unemployed who are able of mind and body and show up here between 7 and 8 AM get put into work crews and shipped to where they need to be today. First come, first dibs on where you want to be on the roster. You'll be back on the train station by 4 PM, and paid 8 hours of minimum wage. People with mental or physical disabilities should show up the day before, and we'll figure out what we can do for them."

If you cannot transport them to worthwhile employment in time to get a 5-6 hours effective work out of the 8 hour workday, then you obviously need to transport them to the closest railhead and start laying more track, because then your rail infrastructure sucks. (NB: This estimate based on European population density. Results may vary in Montana and Utah.)

People who won't show up and work 8 hours, including transport time from the rail station and a paid lunch break, for a € 120 or so minimum wage, requiring no prior commitments, are probably not the work relief office's problem.

That won't resolve rural labor shortages. You won't resolve rural labor shortages until people can either commute from the cities or you make rural life attractive to people who are active in the labor force. But that's hardly an argument for failing to do something about urban unemployment.

But labor shortages are not the work relief office's problem.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Nov 14th, 2012 at 06:26:56 AM EST
[ Parent ]
Yes, I agree. But a segmented rural urban labor market is just evidence that labor market segmentation exists, not that the only segmentation is urban-rural.  Since urban economies are at least as complex as rural ones it is likely that segmentation also exists along non-geographical axes in the urban economies.  
by santiago on Thu Nov 15th, 2012 at 11:02:37 AM EST
[ Parent ]
Yes, but the work relief office should be in the business of providing gainful employment to the unemployed, not in the business of providing qualified labor to employers. Employers can do their own recruiting (or not, as the case may be).

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Nov 15th, 2012 at 11:14:14 AM EST
[ Parent ]
The pure Keynsian solution, from the mouth of Keynes himself, is to pay people to dig holes and to fill them up again.  In other words, you just need to give unemployed people transfer payments of money so that they can spend it and thereby generate demand for others' labor.  

A work assistance office of the kind you describe, then, seems an unnecessary hoop to go through for that payment.  Such an office only makes sense if government is instead in the business of trying to match employers with employees.

by santiago on Thu Nov 15th, 2012 at 12:03:26 PM EST
[ Parent ]
The pure Keynsian solution, from the mouth of Keynes himself, is to pay people to dig holes and to fill them up again.

That's the kind of 1970s let's-kill-Keynes paraphrase. You surely know better :)

It is curious how common sense, wriggling for an escape from absurd conclusions, has been apt to reach a preference for wholly 'wasteful' forms of loan expenditure rather than for partly wasteful forms, which, because they are not wholly wasteful, tend to be judged on strict 'business' principles. For example, unemployment relief financed by loans is more readily accepted than the financing of improvements at a charge below the current rate of interest; whilst the form of digging holes in the ground known as gold-mining, which not only adds nothing whatever to the real wealth of  the world but involved the disutility of labour, is the most acceptable of all solutions.

If the Treasury were to fill old bottles with banknotes, bury them at suitable depths in disused coalmines, which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again (the right to do so being obtained, of course, by tendering for leases of the note-bearing territory), there need be no more unemployment and, with the help of the repercussions, the real income of the community, and its capital wealth also, would probably become a good deal greater than it actually is. It would, indeed, be more sensible to build houses and the like; but if there are political and practical difficulties in the way of this, the above would be better than nothing.

...

Ancient Egypt was doubly fortunate, and doubtless owed to this its fabled wealth, in that it possessed two activities, namely pyramid-building as well as the search for the precious metals, the fruits of which, since they could not serve the needs of man by being consumed, did not stale with abundance. The Middle Ages built cathedrals and sang dirges. Two pyramids, two masses for the dead, are twice as good as one; but not so two railways from London to York. Thus we are so sensible, have schooled ourselves to so close a semblant of prudent financiers, taking careful thought before we add to the 'financial' burdens of posterity by building them houses to live in, that we have no such easy escape from the sufferings of unemployment. We have to accept them as inevitable results of applying to the conduct of the State the maxims which are best calculated to 'enrich' an individual by enabling him to pile up claims to enjoyment which he does not intend to exercise at any definite time.

(full quote)

I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS
by Migeru (migeru at eurotrib dot com) on Thu Nov 15th, 2012 at 12:18:14 PM EST
[ Parent ]
But it doesn't kill Keynes.  It supports him.  All Keynes meant by that is that when in a severe recession, it just spending period is better than nothing.  Therefore, if the political coalitions of the day won't provide for anything better, a tax cut that benefits mostly the wealthy is better than nothing at all. And this is true and was particularly relevant in 2008-2009.  But argument today has gone well beyond that and doesn't have the same sense of urgency, so it's not helpful anymore.
by santiago on Thu Nov 15th, 2012 at 03:29:17 PM EST
[ Parent ]
santiago:
All Keynes meant by that is that when in a severe recession, it just spending period is better than nothing.  

thanks, i have been waiting for someone to say this, i think he was partly joking, but the joke had a vital point, ergo, do what it takes to keep people working, or there is a whole momentum-drop syndrome, and the results will be more expensive than not doing such an intervention.

where i find the joke has an extra twist is that if the government got people to plant fruit and nut trees in those holes once well dug and composted, one could do a lot do bring down food costs for coming generations, and possibly lower our balance of payments.

digging holes is just the first part...

a massive eco-repristination project is what is needed, instead of giving welfare recipients just enough to starve in parents' basement and rot their young brains reading disempowering conspiracy theories, instead tree-planting and other land improvements could be set in motion. young people are growing up without any sense of accomplishment in something tangible, it would have great results in promoting better mental health too.

much more socially beneficial than the two historically traditional methods of channeling excess unharnessed young-male energy, building ziggurats and making wars.

"We can all be prosperous but we can't all be rich." Ian Welsh

by melo (melometa4(at)gmail.com) on Thu Nov 15th, 2012 at 04:03:36 PM EST
[ Parent ]
A more subtle version is that the state 'spends' until the private sector recovers and the spend is neutralized by tax income. This kind of spending is an 'investment', not a cost.

You can't be me, I'm taken
by Sven Triloqvist on Thu Nov 15th, 2012 at 04:53:04 PM EST
[ Parent ]
it's like priming a pump, yes, once the flow starts again a natural momentum can establish itself.

but to avoid the crises happening in the first place? during booms/bubbles nuts have to be squirreled away, or taxes must go up, yet there's the rub... no-one wants to spoil the 'confidence', and remind the treasury of that. 'it'll never end this time' becomes the mantra and no-one wants to be cassandra, so the successful business leaders capture government, the media economists blow their usual smoke, what was it, 'DOW projected to grow 1000%' and other such crack-ferret food, so it's party hearty and burn up the furniture.

till light dawns and fuzzy minds reach for another hit off the bottle...

but once the economy is sick, digging holes may be all you have left, but at least it's a tried and true remedy. unfortunately its successful track record includes arming for war, which it would be nice to avoid, (knowing how much there is invested in the MIC already).

climate change is still fairly polite, we can do worse and seem to fully intend to keep ramping it up till something so off-scale happens denialists will be run out of town on a jet-ski.

the next climate conference should be on the maldive islands or somewhere like that.

with no AC or ice drinks till they get a clue!

"We can all be prosperous but we can't all be rich." Ian Welsh

by melo (melometa4(at)gmail.com) on Thu Nov 15th, 2012 at 07:41:39 PM EST
[ Parent ]
I does kill Keynes, because what you call the pure Keynesian solution is actually the bastardised 'hydraulic Keynesianism' solution.

The 'pure Keynesian solution' is financing of improvements at a charge below the current rate of interest, to build houses and the like... His shrper argument is that

It is curious how common sense, wriggling for an escape from absurd conclusions, has been apt to reach a preference for wholly 'wasteful' forms of loan expenditure rather than for partly wasteful forms, which, because they are not wholly wasteful, tend to be judged on strict 'business' principles. ...

...

... Thus we are so sensible, have schooled ourselves to so close a semblant of prudent financiers, taking careful thought before we add to the 'financial' burdens of posterity by building them houses to live in, that we have no such easy escape from the sufferings of unemployment. We have to accept them as inevitable results of applying to the conduct of the State the maxims which are best calculated to 'enrich' an individual by enabling him to pile up claims to enjoyment which he does not intend to exercise at any definite time.

That is pure Keynesianism, and it is a much subtler position than the caricature that passes for policy debate these days, let alone the caricature that "the pure Keynesian solution is to bury bottles full of banknotes". There's also the delicious irony of
leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again (the right to do so being obtained, of course, by tendering for leases of the note-bearing territory)


I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS
by Migeru (migeru at eurotrib dot com) on Thu Nov 15th, 2012 at 04:37:59 PM EST
[ Parent ]
Perhaps it is time to revisit 'Pure' Keynesian solutions in a diary. I can't think of anyone more qualified as author than yourself.

You can't be me, I'm taken
by Sven Triloqvist on Thu Nov 15th, 2012 at 04:47:13 PM EST
[ Parent ]
Oh, I can. Check out New Economic Perspectives.

I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS
by Migeru (migeru at eurotrib dot com) on Thu Nov 15th, 2012 at 04:48:22 PM EST
[ Parent ]
What I'm thinking of is a 'narrative' of pure Keynesianism that a large number of people could understand. IMHO it is a 'sellable' story that could make sense to a majority of voters in lots of jurisdictions - but it has to be story that can be understood in the language and concepts of those majorities.

You can't be me, I'm taken
by Sven Triloqvist on Thu Nov 15th, 2012 at 04:59:39 PM EST
[ Parent ]
I can't help.

I was at the local health centre the other day and overheard a conversation by two older men, possibly retired. One of them was explaining that he was nearly illiterate and innumerate, but that he knew one thing: the state is like a household and cannot live beyond its means.

It's fucking hopeless. Moreover, the guy said he had learned to multiply "and to divide by one digit" during his military service, which allowed him not to be swindled by assholes. Is the guy going to listen to me with my math, or see me as a smartass who wants to swindle him?

I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS

by Migeru (migeru at eurotrib dot com) on Thu Nov 15th, 2012 at 05:06:47 PM EST
[ Parent ]
That is a failure of the narrative, not the recipient.

You can't be me, I'm taken
by Sven Triloqvist on Thu Nov 15th, 2012 at 05:11:39 PM EST
[ Parent ]
I'm pretty bloody progressive, but there's only so much slack I can cut the recipients.  I came to the conclusion in high school that people who deliberately shine off twelve years of free education (90% of my classmates) have to take at least some personal responsibility for being willfully ignorant morons.
by rifek on Thu Nov 22nd, 2012 at 04:55:36 PM EST
[ Parent ]
The problem is that the household as government narrative is just too compelling, and it is not false enough to demonstrate as untrue.  

The real problem with the narrative is that households, too, also frequently and successfully do live for periods of time "beyond their means," and this can be a good thing, not something to be discouraged. Households borrow from neighbors or family to start a business or send a kid to school, or just pay the corner store next week for a loaf of bread today. Or to go out and do work in the garden for no cash payment at all instead of buying vegetables at the market as in periods past.

My larger point with respect to my criticism of MMT is that there is nothing really fundamentally different about government organizations that provide them a means of printing cash and spending it than other kinds of organizations doing the same thing but perhaps with other instruments for organizing cooperation, even families.  The difference is in an organization's power to compel, convince, cajole or otherwise gain the cooperation of others into doing work for the promise, instead of the reality, of command over real resources at some future date.  That's what money does when a strong government prints it and exchanges it for labor, and it is what also occurs in families when they use non-cash means of compelling each other to cooperate in a family project for no compensation.  

by santiago on Thu Nov 15th, 2012 at 05:45:58 PM EST
[ Parent ]
Another compelling metaphor is money as a thing.

In fact, I doubt whether fiat money can really work unless a substantial fraction of the population operates as if money is not fiat.

I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS

by Migeru (migeru at eurotrib dot com) on Thu Nov 15th, 2012 at 06:06:30 PM EST
[ Parent ]
The story that many people could understand is: what happens if a macro-organization such as a sovereign state - not an individual, family or business or other micro-organization - cannot pay its debts?

You can't be me, I'm taken
by Sven Triloqvist on Thu Nov 15th, 2012 at 07:14:50 PM EST
[ Parent ]
Or what happens to such a macro-organization's promise to repay a debt in the future.

You can't be me, I'm taken
by Sven Triloqvist on Thu Nov 15th, 2012 at 07:16:06 PM EST
[ Parent ]
The problem is, we don't know what would happen.  We haven't really worked out the mechanisms or ramifications of true, sovereign default.  Further, "sovereign" is so broadly defined that there probably is no way to work it all out.  A default by, say, Italy would trigger a completely different set of actions and consequences than a default by the Democratic Dictatorship of Who-gives-a-stan.
by rifek on Thu Nov 22nd, 2012 at 05:02:33 PM EST
[ Parent ]
But they don't see a difference between macro and micro organizations. That's the power of 'the state as household' metaphor.

I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS
by Migeru (migeru at eurotrib dot com) on Thu Nov 15th, 2012 at 07:16:14 PM EST
[ Parent ]
Obviously they don't - so what narrative would help them see the difference? You are surely not going to bow down to a metaphor?

You can't be me, I'm taken
by Sven Triloqvist on Fri Nov 16th, 2012 at 03:45:10 AM EST
[ Parent ]
You're the publicist. Come up with the metaphor.

I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS
by Migeru (migeru at eurotrib dot com) on Fri Nov 16th, 2012 at 04:50:51 AM EST
[ Parent ]
Publicists don't do insight - they polish.

You can't be me, I'm taken
by Sven Triloqvist on Fri Nov 16th, 2012 at 06:42:49 PM EST
[ Parent ]
I'm not sure there is a way to polish this.  There is perhaps 30% of the population of the US you can't dumb this discussion far enough down for.  That is a big bloc of dumb to overcome.
by rifek on Thu Nov 22nd, 2012 at 05:14:53 PM EST
[ Parent ]
sometimes there's little choice.

you tell people to live within their means for decades, with bankers as trusted guardians and dolers of capital to the deservingly talented. visionary, pragmatic and ambitious, then the bankers go crook and give loans to anyone because they presold the risk down the river, then that bubble blows and towns and districts and countries go belly up because they trusted their pension funds and savings to these sharks. governments meanwhile have stood by looking in the other direction while all this happened, thus aiding and abetting the whole grotesque tragi-farce.

people don't know what to think on macro-economics, they have been so diddled on the fine print and mystified with jargon they roll their eyes and suffer, but when they hear their government's going to go into massive debt some more to get them out of the hole, you can't be surprised that they get leery and find keynesianism such lumpy porridge to swallow.
it's counter-intuitive so people don't grok it, but it's ignorance, the only way they'd trust it is if they could borrow as much as they wanted with the same ease and freedom governments do -or did!

they are also haunted by spectres of communism, when the state ordering the job market didn't bring unicorns either. with the dozens of nationalities of people i have met, none have been so vituperative of the EU as those from eastern europe, while glad to have some bennies and travel access, the rest smacks too much of Central Control of Everything to them.

ukip in the uk rings this bell too, they're not totally wrong on everything, (just everything else).

i know we just got the nobel peace prize and all, but watching the news last night i wonder... where's peace going to come from unless a massive jolt of non-MIC keynesianism is effected, with green grids, eco-ag and b-band becoming the prime movers of a new economy, one that aims for a sustainably steady state, not some fiendishly sawtooth boom'n'bust growth-at-any-cost model.

enough of us want something...

"We can all be prosperous but we can't all be rich." Ian Welsh

by melo (melometa4(at)gmail.com) on Fri Nov 16th, 2012 at 05:03:15 AM EST
[ Parent ]
people don't know what to think on macro-economics

They think what Charles Foster Kane tells them to think.
by rifek on Thu Nov 22nd, 2012 at 05:17:49 PM EST
[ Parent ]
It is a good metaphor because it is relatable. The way to counter is in my experience to have a handy rebuttal that works in the frame of that metaphor and then deliver a another metaphor that instead says what you want it to.

Example from the copyfight:
Metaphor1: You would not steal a car!
Rebuttal: I'd copy it if I could!
Metaphor2: The internet is like a library, if it was not for big companies preventing it we could have all the culture and knowledge in the world at our fingertips.

(These works fairly good by the way.)

So a rebuttal could for example be "But the government owns the printing press, if I could print my own money I would not have to care about debt" or something like that. The point is to undermine the metaphor as description of the situation in order to introduce anotehr metaphor that shifts the idea of what the real problem is.

Counter metaphor could for example focus on unemployment. Hm, most people has had stupid shortsighted bosses. "The problem is not the debt but that the politicians has blown the money on tax cuts for billionaires [or something else you and the intended audience would like to cut down on]. Now they are like a boss that tries to cover their ass by blaming everybody else, firing half the company and still expect the same production. And when then that does not work they blame everyone else again and fire some more. What we need to invest wisely in the future by getting people back to work."

Or something like that. What works depends on setting, but mostly you need to try it out by using it. When it works you just need to get it out there to millions of people :)

A vote for PES is a vote for EPP! A vote for EPP is a vote for PES! Support the coalition, vote EPP-PES in 2009!

by A swedish kind of death on Fri Nov 16th, 2012 at 04:38:19 AM EST
[ Parent ]
Here's a metaphor that works: MMT to Congress: You are the scorekeepers for the US dollar, not a player! (WARREN MOSLER, July 30th, 2011)
That correct analogy is between scorekeepers in card games and your role as scorekeeper for the US dollar.

As scorekeeper in a card game, you keep track of how many points everyone has.
You award points to players with winning hands.
You subtract points from players with losing hands.

So as the scorekeeper, let me ask you:

How many points do you have?

Can the scorekeeper run out of points?

When you award points to players with winning hands,
where do those points come from?

When the scorekeeper subtracts points from players with losing hands,
does he have more points?

Do you understand the difference between being the scorekeeper and being the players?

You are the scorekeep for the US dollar.



I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS
by Migeru (migeru at eurotrib dot com) on Fri Nov 16th, 2012 at 04:59:43 AM EST
[ Parent ]
Note that Eurozone member states are players, not scorekeepers.

I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS
by Migeru (migeru at eurotrib dot com) on Fri Nov 16th, 2012 at 05:22:22 AM EST
[ Parent ]
I see this as the Achilles' Heel of the Eurozone: a collection of sovereigns without sovereign currencies, and a currency not issued by a sovereign.
by rifek on Thu Nov 22nd, 2012 at 05:19:55 PM EST
[ Parent ]
Ajax (mythology) - Wikipedia, the free encyclopedia
He goes to a flock of sheep and slaughters them, imagining they are the Achaean leaders, including Odysseus and Agamemnon. When he comes to his senses, covered in blood, and realizes that what he has done has diminished his honor, and he decides that he prefers to kill himself rather than live in shame.

Still waiting for the second part.

Von überall könnte das Volk, Urbrut alles Undemokratischen, Zelle des Terrors, über die gewählten Hüter von Wachstum und Wohlstand® kommen. - flatter

by generic on Thu Nov 22nd, 2012 at 06:22:42 PM EST
[ Parent ]
not bad askod! i can imagine (a possible future) obama saying this. ;)

"We can all be prosperous but we can't all be rich." Ian Welsh
by melo (melometa4(at)gmail.com) on Fri Nov 16th, 2012 at 05:08:07 AM EST
[ Parent ]
I can imagine a zombie Josef Stalin saying it. Doesn't make it likely to happen though. Obama has been consistently on the side of the deficit hysterics.

Von überall könnte das Volk, Urbrut alles Undemokratischen, Zelle des Terrors, über die gewählten Hüter von Wachstum und Wohlstand® kommen. - flatter
by generic on Fri Nov 16th, 2012 at 12:57:44 PM EST
[ Parent ]
Sven Triloqvist:
what happens if a macro-organization such as a sovereign state - not an individual, family or business or other micro-organization - cannot pay its debts?

greece enough of an example... before there were debtors' prisons for the indigent, now they just cut health and pensions for whole countries.

the convenience of the euro seems to have enabled a trojan horse to enter the stockade.

"We can all be prosperous but we can't all be rich." Ian Welsh

by melo (melometa4(at)gmail.com) on Thu Nov 15th, 2012 at 08:13:53 PM EST
[ Parent ]
Even the notion of sovereign state debt is flawed though.  Sovereign states are not actually the organizations that incur any debts.  Rather, particular organizations called "governments" do, and people in such states agree to be taxed and to otherwise cooperate with the projects of those governments.  Some don't agree, but their neighbors are usually successful at eventually coercing them into cooperation anyway.
by santiago on Fri Nov 16th, 2012 at 12:32:37 AM EST
[ Parent ]
Define the 'sovereign' is the legal enforcer of solvency requirements.

I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS
by Migeru (migeru at eurotrib dot com) on Fri Nov 16th, 2012 at 04:56:19 AM EST
[ Parent ]
My larger point with respect to my criticism of MMT is that there is nothing really fundamentally different about government organizations that provide them a means of printing cash and spending it than other kinds of organizations doing the same thing but perhaps with other instruments for organizing cooperation, even families.

There is the important difference that the government is the only entity which can (explicitly or implicitly) overrule contractual obligations between other agents (which is what makes it "the government").

This matters when the private sector fucks up and makes systematically unfulfillable contractual commitments.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Nov 16th, 2012 at 03:08:49 AM EST
[ Parent ]
The government defines and enforces solvency conditions in its jurisdiction, which is why it's solvent by fiat (in its jurisdiction, in its own currency).

The problem in the Eurozone is that we have no clue who defines solvency, who enforces the jurisdiction, and even the ECB believes it is itself not solvent by fiat but by balance sheet. It's an institutional mess, which naturally leads to policy paralysis in a financial crisis.

I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS

by Migeru (migeru at eurotrib dot com) on Fri Nov 16th, 2012 at 04:55:05 AM EST
[ Parent ]
The ECB may be right since it isn't an organ of a sovereign but rather of a confederation of sovereigns that are a long way from granting the confederacy true sovereignty.
by rifek on Thu Nov 22nd, 2012 at 05:23:54 PM EST
[ Parent ]
Solution: repeal article 123 (over Germany's dead body, of course).

I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS
by Migeru (migeru at eurotrib dot com) on Thu Nov 22nd, 2012 at 05:47:17 PM EST
[ Parent ]
Take the case of the Zetas in Mexico, or the FARC in Columbia or the various rebel groups in Africa as extreme examples of private groups that can also overrule contractual obligations between agents as well as enforce them.  And upon further examination you can find that all organizations possess this characteristic to varying degrees among its members and that governments are sometimes not even the most effective at this thing compared to others -- not as powerful. In fact that's what being in any organization, even a family unit,  is -- an implicit or explicit contractual obligation between members of the group that can be overruled by or enforced by that group in some way. A government is merely the convenience of larger group of groups in this sense -- the largest one for a given geographic and socially defined area.
by santiago on Fri Nov 16th, 2012 at 07:34:30 AM EST
[ Parent ]
And upon further examination you can find that all organizations possess this characteristic to varying degrees among its members

My emphasis.

The government is special because it enforces (or not) agreements between members of different informal patronage networks.

This matters when those patronage networks fail to cooperate voluntarily, because they are holding out for a better deal.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Nov 16th, 2012 at 08:12:51 AM EST
[ Parent ]
That's just a function of being the larger group of groups. The point is that such power is given by permission of the members, not exogenously determined. A multinational private corporation does much the same thing regarding all of its stakeholders, suppliers, customers, etc. A large MNC uses governments to enforce or overrule contracts when available for the reasons you describe, or it may do the over-ruling or enforcing in places where governments are too weak to do that job.  If an organization in a given area becomes better at enforcing or overruling patronage agreements between different groups it becomes the government, at least de facto.  The East India Trading Companies provide historical examples of private groups that became governments in their areas of business.
by santiago on Fri Nov 16th, 2012 at 08:37:02 AM EST
[ Parent ]
Yes, that's what I said, but using slightly more words than I did.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Nov 16th, 2012 at 01:09:41 PM EST
[ Parent ]
Take the case of the Zetas in Mexico, or the FARC in Columbia or the various rebel groups in Africa as extreme examples of private groups that can also overrule contractual obligations between agents as well as enforce them.

Yeah, well, if you have a failed state you don't have fiat currency. All of these groups trade in gold or in US Dollars.

I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS

by Migeru (migeru at eurotrib dot com) on Fri Nov 16th, 2012 at 09:18:40 AM EST
[ Parent ]
This matters when the private sector fucks up and makes systematically unfulfillable contractual commitments.

It matters far less when one or more of the entities in the private sector have obtained effective control over the actions of the government. That might constitute an effective argument against 'corporations as people'. It can be argued that allowing wealthy individuals and the corporations through which they act to gain disproportionate influence in national policy threatens our national sovereignty and solvency. But a large part of the problem is that so many people, despite living under what are officially 'democratic' regimes, still have thought patterns that are more appropriate to monarchies. I do not think it an accident that the most vociferous supporters of the billionaires' efforts to despoil us all are those who go to churches where they sing of 'Christ the King', etc. etc. No bishop, no king may have failed, but only slightly.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Nov 16th, 2012 at 12:30:32 PM EST
[ Parent ]
A work assistance office of the kind you describe, then, seems an unnecessary hoop to go through for that payment.  Such an office only makes sense if government is instead in the business of trying to match employers with employees.

No, I'm trying to match employees with gainful employment. So long as the public sector has a backlog of unperformed gainful employment, and it usually does, private sector employers are superfluous to that process. Corporate employers have HR departments to do recruitment. I see no reason for the public sector to subsidize them in this respect.

Matching employees to gainful, paid work rather than just cutting them a dole check actually does serve a further macrostabilization purpose beyond the immediately obvious purpose of not wasting involuntarily idle labor: It reduce the gap between relief payments and private sector wages, which would otherwise arise from a universal dole system.

The ideal macrostabilization policy would have the cash flow to meet contractual obligations, NGDP, remain on the same trajectory regardless of whether the private sector is in boom or slump. In turn, this means that work conditions in the public and private sectors must be roughly comparable, because to some extent remuneration spread is used as a buffer against variations in the attractiveness of the work environment.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Nov 16th, 2012 at 03:10:35 AM EST
[ Parent ]
Again, the segmented labor market problem is going to make this much less effective than you imagine, at least as I understand what you propose. There isn't just a backlog of undone public sector work.  There is instead a backlog of projects of very different natures, each of which needs specific skills -- education backlogs, infrastructure building backlogs, etc.  There isn't a backlog in minimum wage type work, so it is likely that the best way to mobilize unused labor has to come through contracting with private or public sector specialists in such things by giving them money to do work and letting them find the employees who can work on such projects.
by santiago on Fri Nov 16th, 2012 at 07:40:10 AM EST
[ Parent ]
You're making assumptions about the structure of the public sector here. Specifically, that the public sector lacks in-house capabilities in most areas, preferring to (or having to) outsource that work. This is not an efficient or effective way to run a civil service, as a comparison between France or Denmark on one side and Britain and the US on the other will attest.

If, by contrast, the public sector does most of its work in-house, then it will be able to expand employment of a great many different specialties quite rapidly.

But of course all of this is moot, because cyclical unemployment overwhelmingly hits unspecialized labor - the specialized labor needs paid retraining instead of work relief.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Nov 16th, 2012 at 08:12:39 AM EST
[ Parent ]
No I'm not making that assumption.  I allowed for privater OR public employers. In fact I don't see much difference between the two -- one of the principal ownership of the organization only.  Either way a fiscal agent has to provide payment of some kind to an working agent to employ more people in order to complete a project, and the same problems in doing that arise. Cyclical unemployment (and the financial crisis was not a cyclical event) hurts non-specialized labor because higher paid specialized workers lose their jobs and reduce spending on services, sending a ripple of other job losses through the economy. So there are no public sector jobs at restaurants, cafes, dry cleaners, etc. that are waiting to be filled by such unspecialized labor.  Rather there are high-skill and higher pay jobs that need to be done in education and transportation, and if done will generate demand for the lower paid service jobs.  
by santiago on Fri Nov 16th, 2012 at 08:21:37 AM EST
[ Parent ]
I allowed for privater OR public employers. In fact I don't see much difference between the two

Most people who have worked for a branch of the civil service that was turned into a private company would disagree.

Cyclical unemployment (and the financial crisis was not a cyclical event)

I disagree. The panics of 2007 and 08 were the foreseeable culmination of the 2001-2008 business cycle, and not very different in kind from the panics of 2000-01. And the way the magnitude of the panics has been trending up and the duration of the business cycle down over the past couple of decades is itself a part of a deregulation cycle that will end - one way or another - in the near future.

hurts non-specialized labor because higher paid specialized workers lose their jobs and reduce spending on services, sending a ripple of other job losses through the economy. So there are no public sector jobs at restaurants, cafes, dry cleaners, etc. that are waiting to be filled by such unspecialized labor.  Rather there are high-skill and higher pay jobs that need to be done in education and transportation, and if done will generate demand for the lower paid service jobs.

The Danish data, with which I am familiar, disagrees with you: Seasonal and cyclical un- and underemployment disproportionately affects unskilled labor, owner-operators of one-man businesses, and skilled labor in the construction industry.

Of those, only the construction industry is really specialized skilled labor, and the public sector always has a construction backlog of nice things that we are told we cannot have.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Nov 16th, 2012 at 01:09:28 PM EST
[ Parent ]
But the magnitude and frequency of panics has actually been trending down, not up, over the last two centuries, which is the data used by Keynsians to argue that Keynes was right -- government spending provides an inherently stabilizing influence since it has also gone up as a percentage of transactions in national economies over the same period.

Yes, recessions affect unskilled labor more than skilled, except construction, generally.  But it is why they are affected more that matters here.  Unskilled labor is heavily concentrated in what may be called the luxury sector -- the things people don't need to buy when the going gets tough -- entertainment, personal service, etc.  So when some high skilled workers in finance, government, engineering, manufacturing, constructions, etc. lose their jobs, the jobs multiplier data shows that several more lower skilled and lower paid workers lose their jobs as an indirect result.  So without providing jobs to the higher skilled people, there just isn't any demand for the kinds of things the jobless lower skilled people can do, regardless of who pays for it. In such a case, it is better to just cut payment transfer checks to those people rather than make them go through the hoops of showing up a train stop every day.

by santiago on Fri Nov 16th, 2012 at 02:27:51 PM EST
[ Parent ]
But the magnitude and frequency of panics has actually been trending down, not up, over the last two centuries, which is the data used by Keynsians to argue that Keynes was right -- government spending provides an inherently stabilizing influence since it has also gone up as a percentage of transactions in national economies over the same period.

Quite, but within that period, you have a cycle of deregulation leading to increasing frequency of panics leading to regulation, leading to fewer panics, leading to complacency, leading to deregulation.

So without providing jobs to the higher skilled people, there just isn't any demand for the kinds of things the jobless lower skilled people can do, regardless of who pays for it. In such a case, it is better to just cut payment transfer checks to those people rather than make them go through the hoops of showing up a train stop every day.

I take it that your streets are all swept? Your postal service functions immaculately? Your educational facilities are filled to capacity? Your childcare facilities need no additional hands? Your public parks are wonders to behold? And the regular staff of these services has such great redundancy that no-one ever suffers preventable work-related ill health due to over-exertion or stress?

If that is the case, how does one go about obtaining citizenship?

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Nov 16th, 2012 at 04:49:23 PM EST
[ Parent ]
Actually, there is apparently still a need for more prison workers in the US that could be conceivably be filled by government administration so that more prisons don't have to become privatized. </snark>

Seriously, though, the jobs you've listed all require investment in skilled labor in order for any more employment of less skilled labor to occur and the jobs for those positions are almost all filled through the civil service competitive examination processes, in the US anyway.

You can't hire someone at a train station to perform the work of a trained, licensed teacher, for example. And for every few low-skilled employees at parks in or city road maintenance, you need at least one new high-skilled employee with technical and/or managerial experience specific to the task at hand.  This is even true for the classic Keynesian story of WWII. You didn't hire a bunch of privates and give them guns and send them to battle.  You had invest in and hire a whole military industrial complex of engineers, scientists, managers, businesspeople for it to work.

So, by extension, any guarantee of job will require micro-level public-private partnerships with employers to ensure that the desired work does in fact occur.

by santiago on Fri Nov 16th, 2012 at 05:48:28 PM EST
[ Parent ]
You can't hire someone at a train station to perform the work of a trained, licensed teacher, for example.

No, but so long as you have slack in your educational establishment, you can pay him to attend teacher training. Because the labor would otherwise simply go to waste, you can hire an entire work crew and train it - middle managers, specialists, the works.

The worst that can happen is that the slump turns to boom before their training is done, and they drop out to go back to work in the private sector. In which case you have wasted no more than you would by just sending them home with a dole check.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Nov 17th, 2012 at 07:22:02 AM EST
[ Parent ]
I don't disagree with that.  I just think you'll have to provide a lot more than minimum wage for most people of higher skill levels to respond.
by santiago on Sat Nov 17th, 2012 at 09:34:55 PM EST
[ Parent ]
In a capitalist economy you cannot, of course, compel people to accept work rather than live off previously accumulated savings.

But I don't see how they are a problem for the work relief office.

Besides, in a general glut people who live off previously accumulated savings are a part of the solution, not a part of the problem.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Nov 18th, 2012 at 03:54:29 AM EST
[ Parent ]
Then I guess high unemployment rates aren't the big problem people seem to think they are after all, because that is what your statement implies.
by santiago on Sun Nov 18th, 2012 at 01:28:27 PM EST
[ Parent ]
Deprivation is a problem at the micro level, as is social or economic disenfranchisement. Insufficient cash flow to service contract obligations is a problem at the macro level. "People not working" is not a problem in and of itself, except when it leads to one or more of the above.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Nov 18th, 2012 at 02:31:58 PM EST
[ Parent ]
involuntary unemployment is a problem. Of course, there is no such thing as involuntary unemployment in neoclassical economics.

I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS
by Migeru (migeru at eurotrib dot com) on Sun Nov 18th, 2012 at 03:20:52 PM EST
[ Parent ]
People of a higher skill level are also motivated by having skilled work, even if it is of lower pay than the mythical unavailable private sector job they imagine they could be getting.

The point here is to provide a living wage to a large (and growing) population of long-term unemployed, and an even larger population of youth unemployed. In the case of the young workers, you can probably pay them the living wage regardless of skill level since they have no experience, and use the job guarantee programme for training, too.

I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS

by Migeru (migeru at eurotrib dot com) on Sun Nov 18th, 2012 at 05:15:18 AM EST
[ Parent ]
Now we're changing terms.  Minimum has become living wage, which are two different things.

I do like the idea of paying some kind of wage for people in training, however.

by santiago on Sun Nov 18th, 2012 at 01:30:35 PM EST
[ Parent ]
I don't mean to sound overly hostile but are you suggesting that the minimum wage shouldn't in fact be a living wage?

Von überall könnte das Volk, Urbrut alles Undemokratischen, Zelle des Terrors, über die gewählten Hüter von Wachstum und Wohlstand® kommen. - flatter
by generic on Sun Nov 18th, 2012 at 02:29:49 PM EST
[ Parent ]
Not at all, but  in many countries it isn't, and to make it so will increase the cost of labor, and decrease the amount of labor that can be employed, regardless of whether it is justified or not.

If we are talking about paying people a living wage out of government-spent money for retraining, it won't do any harm, but if we are talking about increasing wages to the point where all of the idle workers are willing to give up their time to show up at a train station for a daily job, then the costs could be very recessionary for many industries.

by santiago on Sun Nov 18th, 2012 at 02:53:49 PM EST
[ Parent ]
A public employment guarantee is not intended to compete with private sector industries.

I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS
by Migeru (migeru at eurotrib dot com) on Sun Nov 18th, 2012 at 03:18:45 PM EST
[ Parent ]
Intentionality has little to do with it.  If government pays people to work in something other than in the currently available jobs, regardless of whether those jobs are from government or private employers, and if at least some of the people who are employed in the jobs guarantee program may also have found work in the available jobs (such as jobs in some rural area that people wouldn't normally want to move to), then the wage rates paid by the employers who still need workers will be pressured upward (or the labor needs of those employers will be exacerbated further).  In a given situation, this might not be a big deal at all -- an acceptable social cost.  But we can't generalize that to all situations.

So, what if the employment guarantee provides a low wage that wouldn't compete with other employers?  Well, in that case we have to ask what is the real value of making people go through process of showing up to do busy work for a welfare check, which is exactly what the jobs guarantee payment is?  It's like making a homeless man do tricks for you before you give him a coin. From an economic point of view, unless it can be demonstrated that there is actually valuable work for people to do for minumum wage, it's better just to give them money to spend and let them enjoy their leisure time until their next job.

by santiago on Mon Nov 19th, 2012 at 01:31:50 PM EST
[ Parent ]
If government pays people to work in something other than in the currently available jobs, [...], then the wage rates paid by the employers who still need workers will be pressured upward

Yes, that is what a minimum wage does for you.

That's not a bug, that's a feature.

From an economic point of view, unless it can be demonstrated that there is actually valuable work for people to do for minumum wage, it's better just to give them money to spend and let them enjoy their leisure time until their next job.

That conclusion depends entirely on the assumption that either (a) workers will not demand a markup over a passive dole transfer to enter the labor market or (b) the discomfort of make-work is greater than the discomfort of the nominal income volatility of people moving in and out of the labor market which results from (a).

That this is true is not obvious, and the dislocation and discomfort of even a mild industrial recession argues otherwise.

The point of a job guarantee which pays the minimum wage rather than a dole which pays below the minimum wage is threefold:

  1. It gives us nice things that we are currently told we cannot have, such as clean streets and better mail service.

  2. It enforces a the minimum wage and a minimum standard of working conditions by forcing the market to clear at or above that level, an enforcement which can be argued to be more effective (or at least more comprehensive) than conventional law enforcement.

  3. By paying the full minimum wage, rather than the discounted dole payment, it reduces the cash flow disruptions of a private sector slump.

All three prongs have value, and each one would, individually, suffice to justify the program.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Nov 22nd, 2012 at 10:57:52 AM EST
[ Parent ]
people sit around discouraged, their skills rotting, is a prescription for long term economic damage and stagnation.

A signature European policy for over a generation.

by redstar on Thu Nov 22nd, 2012 at 11:06:20 AM EST
[ Parent ]
... not the point of a job guarantee, because a job guarantee cannot promise to provide work that is relevant to the skills of the unemployed. (It can, however, provide the unemployed with new skills, which it is difficult to suppose has a negative value.)

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Nov 22nd, 2012 at 11:15:16 AM EST
[ Parent ]
European, and the rest of the "developed" world.
by afew (afew(a in a circle)eurotrib_dot_com) on Thu Nov 22nd, 2012 at 11:35:52 AM EST
[ Parent ]
Have had full employment, or something approaching it, including in Europe.

Though as we see , just like in the 1990's, employment is not an elite concern in the EU, far from it.

The US Fed has both employment and inflation under its remit. The ECB, only inflation. That says a lot.

by redstar on Thu Nov 22nd, 2012 at 11:43:54 AM EST
[ Parent ]
Abolishing the low wage sector would be one of the policy goals, yes. Even if that would lead to an overall fall in employment. But in this scheme there is no reason to suppose that it would since the job guarantee would mop up the excess low wage workers.

Von überall könnte das Volk, Urbrut alles Undemokratischen, Zelle des Terrors, über die gewählten Hüter von Wachstum und Wohlstand® kommen. - flatter
by generic on Sun Nov 18th, 2012 at 03:20:50 PM EST
[ Parent ]
I'm not sure that it's true that the present recession is characterized by an excess of unemployed low-wage workers rather an excess of unemployed higher-wage workers.
by santiago on Sun Nov 18th, 2012 at 04:06:45 PM EST
[ Parent ]
Depends on where you are. Nonetheless nothing can be done in Europe until we solve our constitutional clusterfuck. And even then I wouldn't expect the JG to solve our current Great Depression rerun. It should significantly reduce the problem of involuntary unemployment and poverty in normal times though.

Von überall könnte das Volk, Urbrut alles Undemokratischen, Zelle des Terrors, über die gewählten Hüter von Wachstum und Wohlstand® kommen. - flatter
by generic on Sun Nov 18th, 2012 at 05:03:47 PM EST
[ Parent ]
As you know, at least the Social Democrats are running a semi-serious campaign for a Europe-wide youth guarantee.

But, on the constitutional clusterfuck, article 123 needs to be repealed, becaue it binds every EU member state, even outside the Eurozone.

I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS

by Migeru (migeru at eurotrib dot com) on Sun Nov 18th, 2012 at 06:13:29 PM EST
[ Parent ]
How was Article 123 originally sold?
by rifek on Thu Nov 22nd, 2012 at 06:46:14 PM EST
[ Parent ]
I don't recall it being debated widely. European integration was seen as an unalloyed good. And I was 17 or so, and not paying attention (who cares about macroeconomics when physics is your oyster?).

I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS
by Migeru (migeru at eurotrib dot com) on Thu Nov 22nd, 2012 at 06:48:32 PM EST
[ Parent ]
Not at all, but  in many countries it isn't, and to make it so will increase the cost of labor, and decrease the amount of labor that can be employed by the private sector,

Fixed it for you.

I don't have a problem with that, because I have no particular sentimental attachment to private as opposed to public sector employment.

If we are talking about paying people a living wage out of government-spent money for retraining, it won't do any harm, but if we are talking about increasing wages to the point where all of the idle workers are willing to give up their time to show up at a train station for a daily job, then the costs could be very recessionary for many industries.

I may be a soulless bastard, but people who are not willing to do work which is not unhealthful and pays 15 €/hr do not really have my most earnest sympathy.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Nov 18th, 2012 at 03:47:36 PM EST
[ Parent ]
On you first point, no. It doesn't matter whether the sector is nominally owned by a government or by private actors.  The competition for labor caused by running up the wage rates will be the same.  Government will cost more to operate, as will government owned enterprises, and privately owned industries will be more expensive to operate too.  Labor will increase in cost relative to other factor inputs as denominated in a given currency. Whether this leads to real cost increases depends on other factors as well, such as central bank operations and transnational transactions, but it absolutely affects both private and public sector activities.
by santiago on Mon Nov 19th, 2012 at 02:50:25 AM EST
[ Parent ]
That the public sector employing labor makes less labor available for the private sector to employ depends on the time scale involved (overnight, yes that's a mathematical identity; year-on-year, it is usually but clearly not generally true) and the private sector's willingness to provide wages and working conditions which match or exceed the minimum standard set by the public sector.

That raising the real cost of labor makes less labor employable is a fallacy of composition.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Nov 22nd, 2012 at 11:08:57 AM EST
[ Parent ]
It seems to me that what we're ultimately talking about here is forcing a number of costs that society has gotten away with carrying off the books (in the US, costs such as lack of training programs, a permanent underclass, lack of health care) onto the books.  I'm hard pressed to see a down side to this.
by rifek on Thu Nov 22nd, 2012 at 06:52:33 PM EST
[ Parent ]
In fact, it isn't. In typical "proof of concept" proposals by MMTers, they set the job guarantee wage at $10/h which is well above the US Federal minimum wage.

I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS
by Migeru (migeru at eurotrib dot com) on Sun Nov 18th, 2012 at 03:14:29 PM EST
[ Parent ]
I think santiago was suggesting that the minimum wage should be above the living wage.

This, however, will not long be the case if we use Adam Smith's definition of "living wage," as being that wage which sustains procurement not only the commodities which are indispensibly necessary for the support of life, but whatever the custom of the country renders it indecent for creditable people, even of the lowest order, to be without. (Wealth of Nations, h/t) Because the standards by which the custom of society judges the decency of creditable persons is apt to change and grow to match any increase in the minimum wage (whereas it is presumably not as apt to adapt to declining minimal wages).

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Nov 18th, 2012 at 03:37:15 PM EST
[ Parent ]
The Job Guarantee wage replaces the minimum wage, because if people are paid crap for private sector jobs they can always take a job guarantee placement.

I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS
by Migeru (migeru at eurotrib dot com) on Sun Nov 18th, 2012 at 03:12:48 PM EST
[ Parent ]
santiago:
the segmented labor market problem is going to make this much less effective than you imagine,...

But how can it be less effective than seeing the potential labor completely foregone?

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Nov 16th, 2012 at 12:36:06 PM EST
[ Parent ]
You could drive up labor rates, and thus inflation, throughout the economy just to employ a few more hard-to-employ people.  Inflation really isn't that big of a cost for doing so, but it is a political non-starter because of the actual bad experiences so many countries have had with inflation that did cause real suffering.  It also affects different industries and different people unequally. It tends to destroy your export and manufacturing sectors, for example.
by santiago on Fri Nov 16th, 2012 at 05:51:52 PM EST
[ Parent ]
Driving up labour rates only causes inflation if corporations decide to raise prices.

Since there doesn't seem to be a lack of profits to eat into at the moment, it's perfectly possible to raise labour rates without creating corresponding price increases.

And besides, profiteering have far more of an impact on both consumer and wholesale prices than labour rates do - as we've seen in the UK where real labour rates have dropped while prices have increased steadily over the last few years.

Inexplicably, profitability has also increased over the same period.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Fri Nov 16th, 2012 at 06:58:08 PM EST
[ Parent ]
Driving up labour rates only causes inflation if corporations decide to raise prices.

Which they are usually able to do through 'efficient' monopolies. Other things that Neo-Classical Economics cannot coherently explain are prices and value. Their purported attempts to do so have been repeatedly pulled apart, as is described in numbing detail in Nitzan & Bichler's Capital as Power - both for NCE and for the Marxist approaches. In order to account for price or value it is necessary to include a 'coefficient of hype', which represents the power that a seller has over the markets. That is what explains why Apple has had a higher valuation than all of the major automobile manufacturers combined - as measured by stock price times total share, an example they use.

Yet they still speak of wanting to found macroeconomics on sound microeconomics!

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Nov 18th, 2012 at 01:31:06 PM EST
[ Parent ]
J.K. Galbraith, The Affluent Society:

In steel and other industries, there is now a well-established policy of making the occasion of a wage increase the opportunity for a rather large increase in prices and company revenues.

Galbraith suggests that to curb inflation in a full employment economy one needs to put price and wage controls on companies in oligopolic sectors.

A vote for PES is a vote for EPP! A vote for EPP is a vote for PES! Support the coalition, vote EPP-PES in 2009!

by A swedish kind of death on Sun Nov 18th, 2012 at 03:14:57 PM EST
[ Parent ]
You could drive up labor rates...

They only pay the minimum wage! If this results in some wages a little above minimum in the private sector that is only a price in the minds of those who detest seeing ANY money go to any but themselves. The people who are driving this argument are trying to drive wages through the floor so as to increase their own share of the take from production. How that can be justified from a public policy point of view escapes me. And such policies, pursued to their conclusion, will collapse the society. I guess that is O.K. for those who think they can escape to some (other) low tax paradise, but I suspect they have another think coming.

I don't doubt that there are people who make such arguments in all self convinced seriousness. Nor do I doubt that such people have driven and are driving the discourse and the terms of discussion of what ever national debates are happening about 'austerity'. Nor do I doubt that this process, if allowed to continue, will destroy the societies in which it is allowed to operate.

The problem with MMT, from the point of view of those supporting 'austerity', is that MMT makes hash of their carefully constructed, useless but non-threatening system of pretending to analyze the economy. Samuelson's real genius in coming up with his so called synthesis was in knowing on which side his bread was buttered. If he, or others in the field of economics, wanted a bright future in academia or banking with their degree in economics they needed to support the 'mainstream' approach which has been so successful in protecting the interests of the very wealthy from any wishing to see them pay a larger share of their wealth towards supporting the very system that guaranteed that wealth. Their attitude would only be matched by the policy of The People's Republic of China which allegedly bills the family for the cost of the bullet which was used to kill a family member who criticized the government, (presuming that  this actually happened or still happens.)  

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Nov 16th, 2012 at 07:34:59 PM EST
[ Parent ]
I'd discounted Jake's minimum wage rail station plan because I don't think it will motivate many workers to show up.  I was speaking of raising wages to the level necessary to get everyone employed.
by santiago on Sat Nov 17th, 2012 at 09:07:46 PM EST
[ Parent ]
You don't need to get everyone employed, just those who want a job and can't get one.

Maybe in the US you don't have that problem, but in Spain we do.

I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS

by Migeru (migeru at eurotrib dot com) on Sun Nov 18th, 2012 at 05:09:12 AM EST
[ Parent ]
Very important.

There will always be some percentage of people who just don't want to work - but it's a RBC/Austrian/Austerian fantasy talking point to suggest that our current situation is that they form the majority of the unemployed.

by Metatone (metatone [a|t] gmail (dot) com) on Sun Nov 18th, 2012 at 06:53:15 AM EST
[ Parent ]
Centre for Full Employment and equity: The Tale of 100 dogs and 95 bones
Each morning, the bone-winners would groom themselves with pride and head off to the field. You could see how keen they were to get on the road and go and dig for bones (see picture to right). One day the 100 dog bone-winners set off for the field and when they arrived they found there were only 94 bones buried. Some dogs who were always very sharp dug up two bones as usual, others dug up the usual one bone. However, as a matter of accounting, at least 6 dog bone-winners returned home to their families that day bone-less. There was initial despair but because this had never happened before the bone-less families pulled together and ensured that their bone-winner maintained spirit and arose earlier than usual next morning and spent the extra time grooming and getting prepared for the day in the field.

...

Consultants were called in - dog psychologists and dog-trainers - to work on the attitudes of the bone-less dogs. Initially there was resistance because the dogs didn't feel that they were to blame. 100 dogs but only 94 bones. The Bone Network was established by BoneCentre to provide various programs designed to help the bone-less dogs get back into bone-winning shape and organisations sprung up all over the small community to offer Bone Network services. The bone-less dogs began to hear new terms like bone-seekers and the staff in the Bone Network provider offices often called them clients. As time went by changes continued and each bone-less dog (and by now more than 25 per cent of them had been in that state for over 52 weeks) had to attend the nearest Bone Network office and be classified by the Bone Seeker Classification Instrument (BSCI). One dog was asked about the assessment process undertaken in the BSCI interview by the BoneCentre officer. The dog replied that the BoneCentre officer had a big sheet and put down numbers. Every time the dog fidgeted a bit a bad score under the heading "observable behaviours" was noted. The bone-less dog was considered a problem if they were "too quiet", or "too loud", or "talked over", or used "inappropriate or aggressive language", "talked incessantly", showed a "lack of insight", had "unusual dress", "inappropriate make-up application", and "shaked, paced, twitched, trembled" and almost any other sign of nervousness that accompanied their bone-less state.

...

BoneCentre also commissioned a major consultant's report which identified eight bone seeker segments, which reflected the bone-seeker's level of motivation towards the bone search activity. A complex diagram summarised the eight segments. Only one of these segments was focused on by the community's media next day. It identified Cruising Bone Seekers who were described as being relaxed about being bone-less and didn't really want to return to the field and had stopped going out to the field each day. The terminology quickly entered the kid's dog-school yard jargon. Any dog walking down the street during the hours when they would normally be digging in the field were taunted with the term. But there were still 100 dogs willing to dig each day and only 94 bones. BoneCentre published a monthly Bone-Less rate and this became contentious because the definition of being bone-less excluded those who didn't go out to the field each day. The same dogs had always gone out and would again but they understood the equation - 100 dogs 94 bones. BoneCentre said that the Bone-Less rate was around 3 per cent and would drop further once the benefits of the Bone Network were realised.



I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS
by Migeru (migeru at eurotrib dot com) on Sun Nov 18th, 2012 at 07:06:46 AM EST
[ Parent ]
Consultants were called in....

And all the research contracts went to Halli-bone-ton, Black-bone-water, and the American Bone-Enterprise Institute.
by rifek on Thu Nov 22nd, 2012 at 06:59:36 PM EST
[ Parent ]
Randy Wray's Job Guarantee did not set out to 'end unemployment', nor was it justified on such grounds. The justification was that it was significantly better than doing nothing and also would be better than what we are currently doing. It would insure that those who were willing to show up and perform the work that was provided could make the minimum wage and that work would be provided that was within their ability to perform, not at or close to their optimum capability. Those who have savings and can afford to wait for a better job may certainly do so, but those who need income now could get at least the minimum wage.

Wray put up over 50 posts in 2011 on New Economic Perspectives, largely to get responses from the interested public, while writing Modern Money Theory, which is now available, though I have not yet read it. (It is necessary to go back several pages into prior articles to find these posts.) This, in part, compensated for being unable to get what would be normal peer review were it not for the seemingly religious sectarian approach of 'mainstream economics' to what they seem to view as a 'heresy' threatening their mind control over the discipline. It is not for nothing that so many economists speak ironically about to which 'church' any particular economists belongs. The whole spectacle is reminiscent of the crisis that the Scholasticism faced in coming to terms with emerging modern science in 17th century Europe.  

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Nov 18th, 2012 at 01:20:21 PM EST
[ Parent ]
Inflation really isn't that big of a cost for doing so, but it is a political non-starter because of the actual bad experiences so many countries have had with inflation that did cause real suffering that led to inflation.

Fixed it for you.

It tends to destroy your export and manufacturing sectors, for example.

Preventing that is one of the things having a properly functioning central bank does for you.

Of course, if your central bank suffers from a silly sentimental attachment to a particular nominal exchange rate, such that it is unwilling to force depreciation of the currency when the current account turns negative, then yes, you will be destroying your tradeables industries. But that is a problem with nominal exchange rate pegs, not with inflation.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Nov 17th, 2012 at 07:16:34 AM EST
[ Parent ]
Sioux Steel?
by rifek on Thu Nov 22nd, 2012 at 04:36:48 PM EST
[ Parent ]
Randy Wray's Job Guarantee proposal, developed over a series of posts at New Economic Prospects, doesn't propose eleminating all unemployment or matching all available jobs to workers with applicable skills. A large part of his proposal is based on the premise that there is enough that needs to be done, especially in services, to gainfully employ the unemployed at the minimum wage and that, by re-employing those people, even temporarily, the money thereby 'spent into existence' will counter the contractionary forces at work in the economy, which will, in time lead to many of those so employed finding better jobs which otherwise might not have been available.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Nov 16th, 2012 at 12:11:15 PM EST
[ Parent ]
I'll have to look at his proposals details again, but I suspect that I disagree with the notion that there is enough work for low skilled labor to do absent demand from high-skilled workers looking for servants of various kinds in entertainment, food service, personal services, etc.  In other words, we should think of low-skilled labor as luxury items, so there is just no backlog of such work when high-skilled people are not working to provide demand for their labor.
by santiago on Fri Nov 16th, 2012 at 02:31:38 PM EST
[ Parent ]
It seems like there is a bit of confusion in terms on this issue.  It really seems like a few like-minded people are arguing past each other in their attempt to agree.  This topic seems interesting, and separable from this diary.
by Zwackus on Sat Nov 17th, 2012 at 03:05:02 AM EST
[ Parent ]
The fallacy, as with all neoclassical generalizations, is to conceive of a labor market as a single, homogenous market.

Believing the labor market to be the same as the capital market, which led to the whole "world is flat" fiasco and craptastic statements like Reagan's "workers should vote with their feet."

...so the mystery is why don't people who have been laid off from city jobs move to the country to take those jobs.

Not that big of a mystery.  No jobs, no housing, no infrastructure.
by rifek on Thu Nov 22nd, 2012 at 04:15:01 PM EST
[ Parent ]
I took a look at some of that a few months ago.

European Tribune - What happens during real resource austerity?

From time to time there has been discussion here on ET on the impact (if any) of lack of real resources when it comes to the current crisis. In short, the question can be posed as if there is an element of resource austerity driving the political austerity. To find the answer I had a look at history and found a recent enough example of resource austerity.

European Tribune - What happens during real resource austerity?

Conclusion
Faced with real resource austerity Sweden (and probably Switzerland) increased labour in production, reducing unemployment while production shrinked. Inflation was high during the transition phase. This was of course a political choice, one made easier by the rise of the labour movement and a war going on just outside the border.

Looking forward to your diary.

A vote for PES is a vote for EPP! A vote for EPP is a vote for PES! Support the coalition, vote EPP-PES in 2009!

by A swedish kind of death on Mon Nov 12th, 2012 at 03:14:21 PM EST
[ Parent ]
I have to apologize (i) for pulling a hit and run, and (ii) for the tone of the original post which appears to have seemed shrill - funny how writing can convey such impressions.

 I have been extremely busy and not able to check on the blog. Impressed by the amount of discussion it has generated so certainly I will go ahead and post my thoughts and responses to the comments this has garnered in a bit more thoughtful way.

Just to mention briefly since it was asked, that I have been a very diligent lurker for the past five years although I admittedly have not contributed much to the discussion.

Orthodoxy is not a religion.

by BalkanIdentity (balkanid _ at _ google.com) on Tue Nov 13th, 2012 at 04:14:08 AM EST
[ Parent ]
Your efforts among the great unwashed weren't totally wasted.  I read that diary but didn't know enough to respond despite by economics degree I obtained 20 years ago.

I did, however, do some searching and read Mosler's 7DIF shortly after reading your diary.  I've read it twice since then and listened to Stephanie Kelton's C-Span talk and her Le Show interview as well as devouring the information on the UMKC blog and the Billy blog.  

Thanks for pointing me in the right direction.  It makes so much sense but goes against everything we're taught.  

by swoof on Fri Nov 16th, 2012 at 03:14:23 AM EST
Welcome to ET, swoof!
by afew (afew(a in a circle)eurotrib_dot_com) on Fri Nov 16th, 2012 at 04:02:57 AM EST
[ Parent ]
Thanks!  It's really good to hear that.
by Zwackus on Sat Nov 17th, 2012 at 10:24:31 PM EST
[ Parent ]
It makes so much sense but goes against everything we're taught.

And that is the core of the problem we face both in the USA and in Europe today. The very terms of discussion are inhospitable to a coherent analysis, and, especially, to any analysis that might lead to policies that promote anything other than the interests of the very wealthy. The only way out that I see is to make an understanding of that problem more widely available.

I had a grad school buddy from the first half of the '60s who got a Masters in Economics. He ended up teaching in the private high school where I subsequently was employed in Los Angeles. I recall a discussion in the 90s I had with him when I was trying to update some of my meager understanding of economics, much dating from conversations with him and a third friend, also an MS in Econ., when I was trying to understand Keynes' Economic Consequences of the Peace for a History seminar. His summary circa 1995 was: "Its all BS, anyhow." I understand better now what he was saying.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Nov 18th, 2012 at 04:29:35 PM EST
[ Parent ]
this diary and comments have been an epic voyage into what is so great about this site.

heartfelt thanks to all!

"We can all be prosperous but we can't all be rich." Ian Welsh

by melo (melometa4(at)gmail.com) on Sun Nov 18th, 2012 at 06:30:07 PM EST


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