Thursday, June 30, 2011

From a balance budget amendment to gold and silver coin

It's getting crazier out there.
Good news, gold bugs. In an effort to promote hard money as an alternative to paper dollars, three tea party senators—Jim DeMint (R-SC), Mike Lee (R-Utah), and Rand Paul (R-Ky.)—introduced legislation this week to exempt gold and silver coins from taxation....
...states that are looking to go back to gold face a few obstacles—namely, that there's no infrastructure to actually handle an infusion of gold currency. Carrying around a pouch of gold coins would be a burden (and vaguely Medieval), and so boosters tend to agree that for it really to take off, you'd need a centralized storage facility and then a debit-card-like transaction system, neither of which currently exist. And then there's the cost: gold and silver coins from the US Mint are the only coins that could be used as legal tender, and there's a significant markup on those in addition to the taxes. The Lee-Demint-Paul bill is attempting to tackle just one piece of the problem by making it less cost-prohibitive....

64 comments:

TomatoBasil said...

The folks holding gold coins will become hard core environmentalists to slow new mining permits and will become concerned about short union hours for miners. They can block all efforts to stake new claims and maybe even make a case for burying fort knox gold back in the earth.

Just like bond managers boasted of a "new normal economy" with less debt and inevitable persistent deflation. End the deficits, now!, they proclaimed. Total financial ruin of the country is imminent unless we cut budgets they said, with that shifty look of a used car salesman glinting in their eyes. =(

beowulf said...

They are exempt from taxation-- at face value. 1 oz gold coins, for example, have a $50 denomination. If they want to use coins for money, isn't the idea the cost is whatever the number on the back says?

By the way, this may be the dumbest thing I've read in a while...
"In the same statement, Lee said the dollar has lost 98 percent of its value since 1913."

GDP in 1913 was $39 billion, this year its $15 trillion, 385 times larger. Only a rube would worry that, after inflation, the $1 equivalent today is $50.

TomatoBasil said...

A mint tax maybe...The Mint doesn't sell an ounce coin for $50 even though that is the denomination. Try $1785 for an oz eagle. A big price premium over pure spot gold even.

Tom Hickey said...

Gold and silver coins can never work in a fiat system with the price of gold and silver fluctuating, unless prices are set in grains of gold or silver, and the federal government accepts gold or silver at spot in payment of taxes. That is not going to happen, and if the crazies take over and it does, y'all get on the next boat out of here.

This is symbolic.

libertarian89 said...

Right, the world would come to an end if money was backed by a commodity like gold. Hard money, backed by gold that would place restrictions and limitations on the amount of currency a government could issue would be totally disastrous. Of course. The world would end if it wasn’t for un backed fiat paper.

Never mind the U.S was built on a gold standard in the pre fed, pre fiat money eras as millions of people were lifted out of poverty and standards of living rose. I guess the people during the industrial revolution had it backwards tom, they were coming over in boats to the U.S during the pre fed, pre fiat money era and saw their real wages dramatically rise during that period.

Oh the joy of limitless fiat paper. As if issuing more fiat paper made us wealthier. BTW, our money does not have to lose value over time; It can actually gain in value, which benefits people who have assets denominated in that currency. Hey, if my money’s purchasing power increasing over time, I sure as heck am not complaining about it. Gold helps money retain its purchasing power over time in ways that fiat paper simply cannot.

The MMT love for limitless fiat paper, a tool of the state, that has enabled huge bank bailouts, massive wars and welfare at the expense of U.S citizens who have seen the purchasing power eroded over time due to inflation, over hard, sound money backed up by a commodity that places restrictions on government, is quite bizarre.

Crake said...

Tom, your posts reminds me of NPR report today that I wish John Stewart would expand it (he could make it hilarious.) NPR was treating it as a serious report. The interviewer was interviewing merchants and customers at some libertarian fair in New Hampshire. From the description it sounds like it is a weekly or everyday “farmers market” ewvent.

I am not sure if merchants only take silver or gold, but NPR was interviewing ones that only did. Some guy was considered their “bank” and he would exchange silver and gold for your currency so you could shop. The silver and gold was broken down into grams as slivers in some laminated cards. It was not a very efficient process because the bank guy would check silver and gold markets and yell out to merchants what the current quote was, so it was not a simple act of handing dollars over for ”their” money. The interviewer asked the bank guy if he was sort of the Ben Barnanke of their outfit and he said something along the lines of “in your world that might be a parallel yet I am not physically harming or threatening you like that mob run Fed boss would.” The interviewer asked you think Bernanke, he is so soft spoken and mild, is a mob boss and the person responded that the fed Chief was exactly like a mob boss, acting very kind and gentle but had a team of gun armed troops waiting to enforce anything it wants to enforce on us.

Then after waiting a while to get the silver or gold cards as the bank guy had to check with many people on the current rate, the interviewer found another problem, some of the merchants did not want to take the silver or gold cards because they thought it was too much like the evil money we use. They wanted actually weighted nuggets. So, either you could not buy their wares or you had to go back and buy gold or silver nuggeta and then weight them with that merchant and possibly cut them down to smaller size or receive smaller nuggets as change (I think the interviewer declined to do that for time reasons.)

Then the interviewer bought some breakfast and the merchant talked about how great it was that he was operating unlicensed and no government was telling him when to wash he hands or how cold he had to keep the food before cooking it ( he was an adult and he could decide those things himself – he did not need any government telling him what to do.) The interviewer asked what about safety etc. The merchant and many others also chimed-in, the free market regulates them. If a merchant is not careful and you get food poisoning from him, then less people will want to buy from him – that is perfect regulation they added and no one is enforcing it with the threat of guns.

This interview would have been a gold mine for John Stewart. Also, I wish more mainstream media would interview these people in settings like this to show how crazy they are.

Crake said...

I found a link to the piece I heard.

http://www.npr.org/blogs/money/2011/07/01/137534361/breakfast-at-libertarian-summer-camp

Tom Hickey said...

What gold bugs don't seem to get is that "sound money" is deflationary. Gold backed currency did not save the US from the Great Depression or previous depressions. In fact, it was a contributing factor.

In addition, "sound money" favors creditors, i.e., financial capital, at the expense of workers, whose debts are nominally the same when the money deflates, making their debts more expensive to pay and money harder to get. This is recipe for either economic stagnation or debt deflation, Going to hard money now with the level of debt overhand would be suicidal for the US.

Moreover, if physical gold and silver is exchanged that is not minted, then there is an assay problem. If it is minted, then there is seignorage (tax). If physical currency is not used, then it has to be immediately convertible for be actually hard. Are the states going to provide conversion? Where are they going to get the gold other than through purchase, which means committing revenue (taxes) to gold purchases.

libertarian89 said...

We had a slow deflationary period during the industrial revolution as real wages rose, prices fell over time, and our currency gained in value. This happened on a gold standard, pre fed, pre fiat money. Prosperity and rising standards of living can, and have happened on a sound money regime.

In other words, the economy can grow, real wages can rise as can standards of living, as prices are actually falling due to capital accumulation and increased productivity.

So just because sound money may be “deflationary” is not the end of the world. In fact, falling prices are the trademark of any growing economy.

Limitless fiat paper is a recipe for economic stagnation, inflation, and depressions. The great depression was not caused by a “gold standard”, the depression was caused by government intervention and prolonged by monetary intervention, and much of the same fiscal stimulus/ “jobs” programs MMT’ers are currently advocating today.

I find the obsession with fiat paper among the MMT crowd quite bizarre really. Why not let individuals choose what currency to transact in as opposed to forcing people to repay all debts in a currency that the central bank can manipulate and debase at will?

As if giving the control of the supply of money to imperfect human beings is somehow desirable. At least a gold standard provides checks on limitless currency expansion. For me, I like checks, restrictions, and limitations on the ability to expand the currency which I transact in.

I guess I feel safer that my currency can retain its value and purchasing power overtime that way. I guess I just like my money having value which a gold standard can help ensure much better than a fiat paper standard.

maybe MMT'ers are just "fiat paper" bugs.

Crake said...

Tom, wouldn’t another downside be less investment in actual capital?

My memory might be wrong, but I recall that slight inflation is the optimal situation because it encourages credit and investment (it is optimal to invest cash for capital productive assets to maximize wealth under rising prices.) Whereas deflation or static pricing makes the situation one of cash is king. Under the individual entity’s perspective, if the rest of the economy is growing and therefore with a somewhat fixed money base, prices are falling, then if risk adjusted returns on capital are less than the rate prices are falling, then it would be prudent to just sit on cash, and let everyone else invest and grow the economy while you grow wealthy in you appreciating cash holdings in passive setting (no work.) The problem becomes if everyone acts rationale and does this and capital investment stops on a macro level and no one is investing and growing the economy.

Isn’t this a risk to a somewhat fixed money base and why slight inflation is optimal?

beowulf said...

"Why not let individuals choose what currency to transact in as opposed to forcing people to repay all debts in a currency that the central bank can manipulate and debase at will?"

Unless it involves prostitution or some other illegal activity, you're free to contract with another party to exchange one good or service for any another good or service. If the other guy cheats you, you can seek redress without resort to violence in the govt's system of courts.

However I would suggest our monetary regime is a bit more efficient than such a barter system.

Crake said...

Libertarian89, your premises are no facts. Most accounts that I have studied about the Great Depression point to inaction by the government being the causes of the bad parts (stimulus would revive the economy then be cut, economy fall, then stimulus again the cut, etc. until the great stimulus of the war effort finally took the country completely out of it.)

And your opinion of the US being built on gold backed money is wrong technically and fundamentally. First, there was paper script, much of the revolunary war was financed through it and I might be wrong but as I recall there was no direct convertibility for it (it was an IOU, pretty much like our current money.) And each state issued its own coins, under different degrees of convertibility. So technically, it was not a clear-cut gold backed monetary system as you preach. It was fragment with various degrees of convertibility including no convertibility.

Second, while many coins were minted in a precious metal, many were minted from non precious metals like tin and copper and the ones minted in precious metal were far from a fixed backing in practice. For example, as silver and gold exchanges would fluctuate, currency users would melt them down under various scenarios, which lead to frequent situations of new minting with less precious metal content for recalculation, so the precious metal value of the coins was far from fixed changing with new minting sessions. Also users would shave off metal from coins, a little at a time, and coins would physically lose value during commerce and have to be taken out of circulation. In other words, it was far from a situation of fixed value in the money as you seem to think.

Chaos said...

In a country were half the population believes in creationism, anything can happen.

David said...

libertarian89,
What do you mean by "Gold Standard.?" What do you mean by "industrial revolution?" Are we talking all of of 19th century or just the last few decades? If you want to talk about the whole 19th century many different monetary experiments were tried including the greenback. America was not really on a gold standard until 1873 when silver was demonetized and Tom is quite correct that it was very deflationary.

It may well be argued that America had an industrial revolution despite a bad monetary regime. After all, didn't we have a "virgin continent" to exploit? Forests, minerals, arable land? Golden California? A better monetary policy might have led to a more equitable distribution of opportunity and a less socially damaging industrial base might have been developed. If capital had been more justly distributed in the first place the vicious battles between labor and capital might have been avoided.

Tom Hickey said...

"I find the obsession with fiat paper among the MMT crowd quite bizarre really. Why not let individuals choose what currency to transact in as opposed to forcing people to repay all debts in a currency that the central bank can manipulate and debase at will?"

Everyone is free to immediately convert their fiat to whatever else they want, including precious metals, etc. What the problem? They can also easily convert back for dollar liquidity when they want to consume in markets that use currency.

In holding non-currency items, one foregoes interest but if one thinks that fiat is inherently inflationary that makes up for it.

I don't see what the problem is here.

Tom Hickey said...

"Isn’t this a risk to a somewhat fixed money base and why slight inflation is optimal?"

The Fed targets 2% inflation to stay on the safe side of deflation, the nightmare scenario for central bankers, and to encourage investment instead of letting available funds lie fallow.

The real rate of interest for high grade paper is considered to be about 1%. Add 2% for inflation, and the nominal rate is 3% for the highest quality paper. The Fed could set the overnight rate to zero and manage the yield curve so that the 10yr rate is ~ 3%, with Congress using functional finance to achieve full employment and price stability. This would be the benchmark for credit.

libertarian89 said...

Quibbling over whether or not we technically had a gold standard is pointless. Regardless, money was much sounder during the 19th century, with no fed, no fiat money regime, and standards of living radically rose as real wages increased. Millions were lifted out of poverty during this time period.

Government intervention not only caused the depression, but the various types of fiscal, monetary, and regulatory intervention prolonged it as well.

Murray Rothbard has your number:
http://mises.org/rothbard/agd.pdf

No, there are legal tender laws. Debts must be repaid in USD. The U.S government has a monopoly over the currency and has thrown people in jail like this guy for even giving people an alternative currency to transact in. It shouldn’t, and doesn’t have to be this way. Check out Lew Rockwell’s take, the guys name is Bernard von Nothaus:

http://www.lewrockwell.com/blog/lewrw/archives/82406.html

Here is something that surely will make you MMT’ers blood boil, and although I am no neo con by any stretch of the imagination, even NRO’s Deroy Murdock is onto the shortcomings of paper money, and apparently the founders were not found of it either. And neiter am I really.

Check out these quotes:

George Washington wrote to Thomas Jefferson on Aug. 1, 1786, “Paper money has had the effect in your state that it will ever have, to ruin commerce, oppress the honest, and open the door to every species of fraud and injustice.”

“Paper is poverty,” Jefferson in turn observed in 1788. “It is only the ghost of money, and not money itself.” In 1817, the author of the Declaration of Independence wrote that paper money’s “abuses also are inevitable and, by breaking up the measure of value, make a lottery of all private property.”

“Paper money is unjust,” declared James Madison, chief architect of the Constitution. “It is unconstitutional, for it affects the rights of property as much as taking away equal value in land.”

http://www.nationalreview.com/articles/270909/founders-were-no-fans-paper-currency-deroy-murdock

I disagree that having sound money is “bad monetary policy.” For me, bad monetary policy is giving imperct human beings unchecked power over the monery supply. At least the gold standard restricts that to agreater extent than does a fiat standard. I like restrictions and limitations placed on the ability to issue the currency in which I transact in. I don’t know why MMT glorifies the fact our government is not operationally constrained in its ability to issue currency, for me, this is “bad monetary policy.”

libertarian89 said...

I guess our framers were too dense to understand how glorious and wonderful limitless fiat paper was back then. I guess the “modern economy” that we live in today didn’t exist back then so it “doesn’t matter” right? Or something like that?

If only they could take heed of Toms advice and get on a boat and leave. Oh, but wait, people were doing the exact opposite of that, getting on boats and coming to some evil horrible gold standard economy with “deflationary” tendencies. If only they knew.

Anonymous said...

If there was a fixed money supply, would the value of fiat money increase over time?

Would that make it more sound?

Tom Hickey said...

"Regardless, money was much sounder during the 19th century, with no fed, no fiat money regime, and standards of living radically rose as real wages increased. Millions were lifted out of poverty during this time period."

Huh? The 19th c was replete with recessions, depressions and panics, This is the reason that the Fed was created. The only thing that rescued the US from financial disaster was the vast expansion of the metal supply due to prospecting and mining in the West.

List of recessions in the United States

Brief History of the Gold Standard in the
United States - Craig K. Elwell


Basically Silver: 1792-1834
Basically Gold: 1834-1862
Fiat Paper Money: 1862-1879
A True Gold Standard: 1879-1933
Quasi-Gold Standard: 1934-1973
Fiat Paper Money 1973-present

Chart: US real GDP 1930-2009US real GDP 1930-2009

Chart: Real GDP per capita 1929-2002

BTW, like Washington, Jefferson, or Madison knew much about money. Hamilton and Robert Morris did know quite a bit, however, and it was Hamilton as the first treasury secretary that designed US financial architecture. Not saying I agree with all of Hamilton, but he knew what he was doing based on his background in business, foreign trade, and banking.

Tom Hickey said...

"I guess our framers were too dense to understand how glorious and wonderful limitless fiat paper was back then. I guess the “modern economy” that we live in today didn’t exist back then so it “doesn’t matter” right? Or something like that?"

What monetary system a country adopts is largely based on the global monetary system in which international trade is conducted. A fledgling nation like the US in the 18th and 19th centuries pretty much had to conform to what the most influential nations were doing at the time.

BTW, the US ran under protectionist policies during this time to protect its growing industries from foreign competition mounted by already well-established economies. So did England prior to its accession to power.

When the US became the most influential nation, Nixon was able to change the global system unilaterally in 1971. This was ratified by international agreement in 1973. MMT simply describes the existing monetary system and how to use it to greatest advantage economically. If the monetary system changes, MMT will describe that.

MMT also shows the advantages and disadvantages of different monetary arrangements. A fiat system gives government more control over the economy, allowing it to smooth out rough spots. If you don't like this approach, you won't like MMT.

Chaos said...

The predominance of paper in the XIX century was outstanding. Indeed was the expansion of paper (either notes from banks or fiat from government) which allowed the growth of the country.

Oh yes, there were private central banks, ruled by the british by the means of gold, and they were indeed infamous for bringing so much pain to the population that they were closed eventually with an hearted opposition by the people.

BTW, imposing the gold standard is as 'allowing people choosing a currency to transact' as the current legal tender. So much for monetary freedom.

The current system is just an evolution of the past systems, pretending otherwise is just a lack of understanding of how real human societies function, besides any 'pretty' theory which ignores reality.

Anonymous said...

To be fair, many gold bugs just want to protect their savings from a crisis - they are okay with fiat money during other times.

libertarian89 said...

That is right. I don’t like the fact that MMT believes having control over the money supply smoothes over rough spots. That is my problem with MMT/Keynesianism. For me, having control over the money supply is what causes the rough spots to begin with, and further diluting the money supply prolongs recessions, postpones recovery, distorts the price system and impairs economic calculation, and surreptitiously steals purchasing power from current holders of money to the individuals receiving the new money.

Issuing more currency is not some panacea for recessions and or depressions. In fact in many cases, currency issuing is the cause of the problem. Not to mention issuing currency is simply a form of fraud in my opinion as it destroys real wages and incomes in order to allow the government to finance all kinds of mischief that it wouldn’t be able to engage in absent the issuing of more currency.

We can, and should have sound money. For me, it’s much more responsible to have sound gold backed money with limits as opposed to give imperfect humans, who do in fact suffer from the knowledge problem, free reign to issue the currency at will as if issuing more currency does anyone any good. It doesn’t. We don’t need more currency in order for the economy to grow, or to “fix” alleged problems. The economy can grow with a fixed quantity of money. We have seen it happen before.

When it comes to money, I agree with our framers. I think they were spot on.

libertarian89 said...

Yes laura. If our money wasn’t loosing so much of its value, I would probably hold more USD. Real rates are negative, so I own a lot of gold and silver. I bought it when it was significantly cheaper than it is now. I don’t regret it at all. I feel gold/silver will retain its purchasing power over time to a greater extent than fiat paper money because gold/silver is not at the whim of central bankers and cannot be created out of nothing electronically.

If im a gold bug because I want to protect my purchasing power from a falling dollar, does that make MMT folks “fiat paper bugs”?

for the record, i dont hate MMT or have anything personal against its proponents. I just disagree with it. I feel MMT is just Keynesianism laced up in mathematical and accounting jargon, as both schools believe in the same aggregate demand management style economics. Much of the same Austrian critiques of Keynesiansism also apply to MMT.

Tom Hickey said...

"To be fair, many gold bugs just want to protect their savings from a crisis - they are okay with fiat money during other times."

Why not this just buy gold? Gold bugs don't like government. Do they need the government to hold the gold for them? Can't they figure out which way the wind is blowing?

Talking about where things were going with my friends, I recommend that they close out their equity and other risk on positions and switch to a very high portfolio % of gold when Bear failed, based on my perception that a GFC was in the making. I had already recommended closing out all RE deals at the end of 2nd Q 2006. This is what portfolio management is about.

(I am not an investment advisor so don't ask for any advice.)

Tom Hickey said...

" I don’t like the fact that MMT believes having control over the money supply smoothes over rough spots. That is my problem with MMT/Keynesianism. For me, having control over the money supply is what causes the rough spots to begin with, and further diluting the money supply prolongs recessions, postpones recovery, distorts the price system and impairs economic calculation, and surreptitiously steals purchasing power from current holders of money to the individuals receiving the new money."

Do you understand national accounting identities and sectoral balances?

Tom Hickey said...

"Much of the same Austrian critiques of Keynesiansism also apply to MMT."

Why are you so sure that Austrian economics is correct and MMT is not?

libertarian89 said...

Tom the idea is that the Austrian critique of Keynesianism regarding the cause of recessions and how to respond also apply to MMT because both MMT and Keynesianism revolve around the circular flow economy. In other words, it seems both camps argue that recessions are caused by either overproduction or a lack of consumption, and the way to correct the downtown is by fiscal stimulus or monetary stimulus in the form of government jobs programs, tax cuts of various forms, currency issuing, or other forms of government spending.

Basically, both camps argue that there can be such a thing as a “lack of aggregate demand” and that such a problem can be fixed by government or monetary intervention. Also, both camps believe the requisite information necessary to make such a determination can in fact be possessed by real life ignorant human beings. Austrians acknowledge that the knowledge problem does exist. Hayek has written extensively on this.

Austrians have eviscerated and debunked the whole aggregate demand sided thinking and the notion government stimulus can somehow “solve” an economic downturn for decades. I can point you to literature if you would like.

Says law, which of course Keynes never adequately dealt with, is a starting point if you would like to learn how a lack of aggregate demand or a glut of production are not the cause of a recession. See Rothbard on how successive rounds of fiscal and monetary stimulus are not only the cause of further recessions, but also delay recovery and exacerbate the problem

I do Tom. But more importantly, do you understand economic calculation, the knowledge problem, and how money dilution impairs economic calculation which inevitably distorts the price, investment, and production structure of the entire economy resulting in malinvestment? Maybe our problems are attributed to the artificially lowering of interest rates through money dilution?

Chaos said...

Only in you mind.

Austrians accept that cycles happen and the fix is 'doing nothing'. But this is a failed vision, even Hayek agreed on it later in his life.

Empirical data has shown that non-intervention has never been usefull in getting past crisis (ones of solvency and liquidity) faster. Indeed at some point the situation got so bad because of real capital destruction that governments had to intervene even stronger.

Then there is the problem of 'neutral money', if you understood why money is NOT neutral (and this can be seen by empirical observation), you would understand how Say's law is irrelevant. Specially gold has an strong deflationary nature which means that on the down side of the cycle you will have all sort of troubles.

Now you add to that this will cause eventually social instability and you will comprehend why during second half of XIX and early XX's, there was the rise of leftist movements amongst the population and the poor, when a strong gold standard was imposed to the people by demonetization of such things as silver.

Why even bother with this... Actually all thius is a non-deal, you can buy gold or whatever asset you think protects you against inflation, so the discussion with gold-bugs about 'hard currency' is a non-starter at all. However you actually CAN'T fight against a too-hard currency (and there is such thing) as long is a legal tender.

So in one way or an other, you need to have an inflationary money which can keep pace with activity and production and/or either facilitate money circulation for exchanging (via taxes or negative interests rates). DO one of these and you can fix the crisis and we can move onto other real problems then we will see the missalocation of capital because the market when consumption is up will show us what is lacking (ie. oil) and is causing demand shocks.

But pretending destroying capital is the solution to a crisis is ridiculous.

Tom Hickey said...

I understand the Austrian position. I am wondering why you think that its foundations are more solid than MMT.

BTW, MMT developers deny that they are "Keynesians," "New Keynesians," or "Post Keynesians," although they share the view that effective demand is the signal for business to invest. (The current situation reinforces that view.) But otherwise, MMT is based on accounting principles that all economists accept to the degree that they understand accounting (and many of the don't). Admittedly, some economists would like to get accounting rules changed to fit their views, while MMT goes by the standard rules.

The Austrian view is based on theory that most contemporary economists who are not Austrian or Austrian leaning don't find tenable empirically. In addition, the Austrian view of action based on Mises is dated in light of contemporary research on motivation and action in cognitive science, psychology, evolutionary theory, and sociology. These findings support an institutionalist viewpoint and contradict strict methodological and ontological individualism.

I have rejected the neoliberal and Austrian views for two principal reasons. First, in my view the normative aspect, implicit and explicit, is skewed, in that individuals' self-interest eclipses the role of interdependence, reciprocity, and other social relations. Human beings are social. Strict methodological individualism, based on a presumption of ontological individualism, fails to adequately address major issues in macroeconomics, especially the tradeoff between unemployment and price stability. MMT is the only macro solution that shows a credible means for achieving full employment and price stability.

Secondly, there is the scientific question. I don't see Austrian or neoliberal key assumptions either having been tested or even being testable, whereas I am much more impressed in this regard with the sectoral balance approach of MMT that is based on national accounting principals and actual data.

Anyone can believe anything they want. They should be able to differentiate between belief and fact in arguments, however. that is to say, empirical warrants have to be provided for key assertions. Lacking that, the claims are ideological.

libertarian89 said...

@chaos

First of all “deflationary nature” on the down side of the cycle is only the result of the re adjustment of prices as a result of the bursting of the previous inflationary boom period. By complaining about the “deflationary nature”, you are complaining about having a hangover without realizing you got drunk the night before.

Says law is not irrelevant. It was never refuted or adequately dealt with by Keynes. People spend because the economy is growing but spending in and of itself is not what grows the economy.

When people forgo present consumption to the future and save, which allows those savings to be channeled into capital investments that produce real wealth is how you grow an economy. People derive their ability to spend from that process, but that process does not happen because people spend, rather, people spend because of the wealth creation process.

You do not need to give imperfect humans beings control of the money supply in order to inflate it in perpetuity. This just steals purchasing power from current holds of the money to the ones receiving it first. It benefits the rich and wealthy and hurts the poor. This is what inflationary money does. Inflation is what destroys capital by reducing interest rates to zero effectively diminishing the incentive to save, making capital accumulation almost impossible.

Money does not have to be inflated. You can keep a stable money supply over time and as capital accumulates and you produce more goods and services, prices come down and real wages and incomes rise. This is how standards of living rise, and millions were lifted out of poverty during the industrial revolution this way.

libertarian89 said...

Tom, you have completely skewed and fundamental misunderstand of what self interest implies. People acting in their self interest benefits others and promotes the social well being of society by encouraging individuals to trade with each other for mutual benefit. This is the free market process.

Bill Gates was self interested when he started his company, in fact most entrepreneurs are and probably should be. However, through his self interest he has created vast amounts of wealth by creating thousands of jobs, providing quality products to millions of people, and raising standards of living. Self interest is what motivates human action. Society benefits from self interest. Self interest indirectly benefits others. Wealth accumulation is a good thing. Man may be social, but that is no indicment against self interest.

There is no trade off between price stability and employment. The Phillips curve nonsense was rendered obsolete when stagflation occurred. Not to mention there have been many countries around the world (Zimbabawe) for example that have had a rapidly rising price level and high levels of unemployment. And no, raising taxes would not have cooled the inflation that Zimbabwe was experiencing. Inflation does not create jobs. You can issue currency all you want but that won’t restore “full employment” as if such a thing was even possible or desirable for that matter.

Treating the social sciences like economics like the physical sciences like math or physics as Hayek suggested, would lead to outright error. And it has. The soviet union tried using data, models, and accouting principles to plan an economy and it ended in outright disaster. Austrians use data to support arguments, however, we typically dont use models to predict outcomes because human action can be accurately and reliable predicted using models.

For example with the stimulus, all the math models the administration used suggested if we spent 800 billion unemployment wouldn’t go above 8 percent. And it did. That’s just one example on how the math and the models were flat out wrong.

As mises says,

“The experience with which the sciences of human action have to deal is always an experience of complex phenomena. No laboratory experiments can be performed with regard to human action.”

Frank Shostak elaborates here: http://mises.org/daily/940

Anyway you look at it Tom, economic calculation, the knowledge problem, catallitics, human action, and how the production structure is distorted by funny money dilution is still relevant to macroeconomics. MMT should consider the role these concepts play in the macro world.

In my opinion, to assume that a group of enlightened MMT following individuals can somehow predict the actions of millions of individual actors and somehow choose the economic policies that raise net benefit higher than free market interactions is simply nonsense.

Using one example of development as "proof" of State superiority to any market process is patently dishonest.

MamMoTh said...

It smells like Roddis...

libertarian89 said...

not roddis. was brought over here by being linked to a discussion about the austrian school from another blog. i check it perioically. just thought this blog needed a dessenter from time to time.

Tom Hickey said...

You say "Zimbabwe." I reply "Somalia."

Craig Austin said...

test - why are my comments being lost. i'ved tried 3x

libertarian89 said...

Not quite. No strict enforcement of property rights. That is the key, whether or not private property rights are protected or not. In Somalia, they are not. Although you could call Somalia “anarchy”, It’s no indictment against libertarianism in the Rothbardian tradition.

Craig Austin said...

i see my last post worked. 4x is a charm - i guess i had unrecognizable html tags in my comment.

Tom Hickey said...

Once a government is introduced, it has to provision itself and then the political question becomes to what degree. We obviously differ on that. This is fundamentally a normative issue, and that is what political economy is about. You want to live in one kind of country and I want to live in another kind of country, so we vote our preferences on that basis.

In addition, we provide rationales for our beliefs. You think that my rationale is wrong and I think that yours is wrong.

What more is there to say?

Craig Austin said...

see tom - MMT needs to steal the self-interest language like libertarian89. it's ballsy and appeals to the rugged individualist notion of the western pioneer days. "all i need is my horse, my gun, and a bucket" granted he's fundamentally wrong but he's got his talking points and it sounds good.

maybe something like:

The first step in sorting out our economic problems is to clear up some fundamental misunderstanding of monetary operations. For starters, mainstream economists don't recognize the fact that the government debt of a currency issuer is not remotely analogous to household debt. Why? Currency issuer debt is currency user savings. All banknotes, deposits, and treasuries are government liabilities to the currency issuer and government assets to the currency users as a matter of double entry accounting. The more users choose to save these assets more debt the issuer will have.

The fundamental nature of debt for a currency issuer is different than that of a currency user. One paradigm of physics does not exist in the physical world - macro/classic vs micro/quantum just as one paradigm of debt does not exist in the monetary world. Debt for a currency user is a burden. Debt for a currency issuer is a convenience to currency users who chose to save instead of spend in the marketplace.

Ultimately, government debt of an issuer should be viewed as a means to an end. Government debt is a tool to maximize goods and services within the economy and should only be constrained by the 2-3% maximum tolerated levels of core inflation.

The goods and services produced should be determined largely by what other countries are willing to trade for since the cost of importing is exporting. Extensive government investments in basic research and development serve the common good, drive spending, and can be sold off to the private sector for commercial applications.

MMT needs a grand narrative that inspires the imagination. we need to outsource some of MMT's marketing to libertarian89.

David said...

MMT needs a grand narrative that inspires the imagination. we need to outsource some of MMT's marketing to libertarian89.

I don't know, I'm not sure how you turn MMT into "Marlboro Man Theory," but I do think that was a useful discussion. Not so much because there was ever much chance that we were going to convince our Austrian friend of anything, but because he made so many unfounded assertions that it brought forth many valuable comments from the readers (and writers) of this blog.

I also think a deep recession/depression such as we are in makes the traditional "rugged individualist" rhetoric wear really thin for most people. I see many blog posts these days with topics like "interdependence" and "the proper role of government in an economic crisis" that are very well received. As to why such subjects don't get a lot of play in big media, well, you can draw your own conclusions.

Craig Austin said...

i agree with you david. not sure how or if the marlboro man theory has any legs either. i'm just trying to tease out some basic talking points for MMT to challenge people's economic worldview. i'm just trying to provoke some responses.

MMT's problem is not logic. it's piss poor marketing. not sure why everybody is making it 10x more complicated that it needs to be. the whole structure of monetary operations is binary: govt liabilities = govt assets. how do we go from something so basic to half of the stuff being discussed all around us. people need a sanity check - it's like we are all suffering from mass delusion or something. MMT is so ridiculously basic it almost hurts to think how confused we've all gotten.

Tom Hickey said...

Craig, the fundamental mistake of Libertarianism is ontological and this ontological error leads to unacceptable ethical conclusions. Strict ontological individualism has been opposed by all the people who have been considered sages, worldwide from time immemorial.

Ontological individualism is an ideological norm that is contradicted by empirical findings in the life and social sciences. It simply overlooks that human beings are essentially social rather than individual and that society is based on culture, convention, and institutions that evolved based on the social aspect of human nature adapting to the prevailing environmental conditions as a species in groups.

Rugged individualism is a myth of the frontier, which now longer exists and never existed in the way that ontological individualism presumes.

There is no sense debating with people who are ideologues committed to myths that fail the reality test.

Moreover, this ideology rejects the basic concept of macroeconomics because it fails to acknowledge how institutions function socially, politically, and economically. When ontological individualism enshrines strict methodological individualism it necessarily takes macro to be scaled up micro, which involves fallacies of composition.

It also rejects the notion of public goods, which is a denial of public purpose beyond the maintenance of order and protection of private property. The state only exists to provide security within what is otherwise a mosh pit. Good luck with that. It's going to be difficult to get a majority of voters to buy into this, so it is unlikely ever to get past the drawing boards.

If it does, there are significant engineering problems that will soon scuttle it, since it is not applicable to a modern complex society. It might have been compatible with a primitive society, but all primitive societies we have actually encountered and know much about are tribal, that is, tightly integrated socially. Tribal societies are based on recognition of interdependence and reciprocity. They also tend to be more authoritarian — ordered by tribal elders — rather than libertarian.

Finally, Libertarians argue about a system they would like to see put in place. MMT deals with the system that is place and shows how it can work more optimally in terms of reconciling a a market-based capitalistic system with social needs and public purpose.

There is no point in trying to fit MMT into this ideology. Square peg in a round hole.

Many adherents of MMT consider themselves libertarians but we differentiate ourselves from Libertarians. The difference shows up in the Political Compass test.

A fundamental difference between libertarians (anti-authoritarians) of the right and left is over the prioritization of rights. The right exalts property rights, whereas the left sees property rights as having a lower priority in the scheme of things than human and civil rights. This is a normative issue, and the disagreement reveals a fundamental difference in ideology.

Tom Hickey said...

"For example with the stimulus, all the math models the administration used suggested if we spent 800 billion unemployment wouldn’t go above 8 percent. And it did. That’s just one example on how the math and the models were flat out wrong."

This is not true. Christina Romer wanted 1.5 trillion in stimulus and shaved it to 1.2. Larry Summers dropped it to .8, and Obama riddled it with tax cuts that would just be saved by the people at the top who received them.

MMT economists opposed the bank bailout and recommended that the insolvent banks be put into receivership. They also recommended a stimulus based on the sectoral balance approach, which showed that Romer's 1.5 T was conservative. They also recommended a suspension of the payroll tax, which would have been used for consumption, servicing debt, and repairing middle class balance sheets. They also opposed QE as ineffective.

President Obama and his team blew it, but not because government has no role to play in crisis. The economic calculation assumption is ignorant of the sectoral balance approach and functional finance.

Craig Austin said...

i think the fundamental root of our problems is ignorance. MMT is correct but counter intuitive. It is a paradigm shift in thinking. The fundamental nature of debt for an issuer is different that that of a user. One paradigm of physics does not exist in the physical world, Newtonian/Quantum, just as one paradigm of debt does not exist in the monetary world. Debt for a currency user is a burden. Debt for a currency issuer is a convenience to currency users who chose to save and not spend

i'm trying to tease this language out on my site. check it out if you haven't recently. lots of changes. BTW warren just got back to me on his recommendations this morning. i've made revisions and waiting for his second round of comments.

Tom Hickey said...

"i think the fundamental root of our problems is ignorance. MMT is correct but counter intuitive. It is a paradigm shift in thinking."

Right. The issuer v. users, vertical v. horizontal, exogenous v. endogenous, operationally unconstrained v. revenue constrained distinctions have thus far eluded most people, including economists.

Warren has said that his fundamental insight, from which MMT sprang, was that in a soft currency system, the government as sole provider of the currency holds a monopoly. It is not possible to understand monetary economics without understanding this basic fact and its implications.

Craig Austin said...

@Tom This stuff is almost becoming comical. The whole world is stuck in the dark fighting over who forgot the flashlight and the dumb thing is right in their hand.

Look at this stuff I'm putting together.

"Look if you want to understand how an iPod works you don't listen to music. You try to figure out how the data is being manipulated to produce the music. Money, for all practical purposes, is digital and requires the exact same approach. If you want to understanding how the economy works you need to understand it on a binary level. You need to understand monetary operations. Most the academic community continues to trip over itself because of their fundamental misunderstanding of our monetary system."

libertarian89 said...

Tom, Bob Murphy has an interested take on Somalia here: http://mises.org/daily/5418/Anarchy-in-Somalia

You can’t tell me that because the stimulus was just a few hundred billion less than would it “needed” to be, that is why unemployment went higher? The CBO revised the stimulus package up from 787 to 847 billion, plus the omnibus bill a few months later that contained about another couple hundred billion in government spending, so there was plenty of stimulus to keep unemployment down, but it went higher than they initially thought despite the fact that all the stimulus did cover “the output”. They covered it and then some.

So no, I don’t buy this “if only we had just spent more money” unemployment would have been lower. We spent a ton, and unemployment continued to rise inspite of it, the math and the models were wrong.

I don’t know why people don’t come to conclusion that the reason the stimulus didn’t work had nothing to do with it not being “big enough” but rather, because more government spending was precisely the wrong policy prescription to begin with.

The "stimulus wasnt big enough" argument is nonsense. Taking a buckett of water from the shallow end of the pool and dumping it into the deep end of the pool wont raise the water level regardless of how much water is in the big or how big the bucket is.

Tom Hickey said...

As I have been saying, if you understood sectoral balances, then you would get it.

Government fiscal balance + Domestic private balance + External balance = 0

There are three variables in this equation. Changes in the domestic private balance (propensity to consume v. propensity to save) and the external balance (chiefly exports less imports) are based on individuals desires and "independent." The government's fiscal balance is controlled by the appropriations process and a target can be set based on trend of aggregated individual behavior. In this model the size of the government's fiscal balance is determined by the other two variables. Failure to get this right will disrupt circular flow.

Stephanie Kelton provides a simple explanation.

What Happens When the Government Tightens its Belt?

What Happens When the Government Tightens its Belt? (Part II

Now you may respond "economic calculation problem," and I'll believe that when I see government actually following the MMT prescription and it doesn't work. That prescription under present circumstances is suspension of the payroll tax, per capita block grants to states, and a JG.

But I'm afraid that even if you understood the rationale and did the numbers, you would not accept it because of your ideological preconceptions, which is why this conversation is going nowhere. We fundamentally disagree on the foundations.

libertarian89 said...

Real quickly tom:

All the Job guarantee program does try to achieve full employment for employments sake without considering what occupations people are doing or what they are producing or providing. Since government is not subject to market forces, there is no way it can employ anyone in a productive or efficient manner that is in conjunction with consumer desire.

Only if you obtain your revenue voluntarily can you employ people productively and efficiently. The JG just prevents people from shifting into lines of production that are actually profitable. In other words, jobs are not ends in and of themselves they are just a factor of production, the actual wealth is what we want. Jobs are an input in that process but are not ends in and of themselves. So promoting full employment though a JG is not optimal. The Soviet Union had 1% unemployment but were totally improvised.

On taxes we agree, taxes should be lower. Simplified tax code. Income, capital gains, dividends, and payroll. We agree, but for different reasons.

Block grants to states will just create more problems because during the boom years when revenues were high, states expanded services but now that revenues dry up they need to cut back and re scale the size of their government to meet reality. Bailing them out with block grants just encourages states to keep borrowing and spending, and maintaining an unsustainable governmental structure that only appearing sustainable during the phony bubble years.

Cut gov't spending, lower taxes rates(income, capital gains, dividends, death tax), simplify the tax code in general sound money, get rid of regulations that create obstacles to growth, shrink the size and scope of government, and give the free market a chance. Let market forces work, and refrain from disrupting the price system from coordinating the structure of production to meet consumer needs.

Just like to point out that some MMT’s sound more ideologically left wing than others. Maybe some appreciate the free market more than others. Some are more moderate. Its interesting to see the mix on this blog. Someone like Mosler, who I have actually seen speak before in person, seems a little more moderate and less left of center than someone like Tom Hickey. No offense, just an observation.

Craig Austin said...

@libertarian89

private sector is efficient - fires non-performers. you think steve jobs would be paying these mainstream economists? look what he did to the mobileme team.

agree with you on cutting taxes and freeing up private sector.

Ultimately, government debt is a means to an end. Government debt of an issuer is a tool to maximize the goods and services produced within an economy to be constrained only by the maximum acceptable levels of inflation (ie. 2-3%). The goods and services produced should be determined by what other countries are willing to trade for since the cost of importing is exporting. The most logical source of public spending is massive government investment in basic R&D to serve the common good, drive spending, and subsidize technology development until commercial applications are identified and sold off to the private sector that can efficiently employ workers.

Tom Hickey said...

The JG is about replacing a buffer stock of unemployed (present) with a buffer stock of employed (MMT proposal). There are several reasons for doing so that involve efficiency at the macro level. The largest inefficiency at that macro other than military spending which diverts production away from economic use is an lost opportunity resulting from an output gap, Whenever there is less than full employment, there is an output gap.

Another inefficiency is inflation. The MMT proposal, in which the JG is a key element, is about achieving full employment and price stability. The JG ends involuntary unemployment by providing a job offer to anyone willing and able to work. It also provides a floor price for labor as an anchor against inflation.

It may be that there will be some inefficiency at the micro level, but the macro efficiency offsets. In addition, anyone who follows Dilbert knows that large corporations aren't all that efficient either.

The way MMT proposes to deal with the is for the federal government to fund but not manage the JG program, other than to oversee it to ensure against "waste, fraud, and abuse." One of the reasons that there is waste, fraud, and abuse in government programs is inadequate checks and balances, like underfunding supervision and auditing.

We disagree about the "free market" and "the invisible hand," as well as over "sound" money. MMT explains why micro solutions are inadequate to macro issues due to the fallacy of composition. Macro is not scaled up micro, and sound money brings its own problem, too. The notion that either is a panacea is naive in my view.

Tom Hickey said...

I don't know what Warren's score is on the Political Compass. My score is near Bill Mitchell's. We all consider ourselves libertarians of the left, that is, we prefer maximum freedom but also recognize that government is a major factor in macro, since as currency monopolist, it has the capacity to meet public purpose effectively and efficiently if it uses its capabilities intelligently for public purpose rather than powerful private interests. We also agree that the balance of public and private is a political choice, which is up to voters to make. Well educated voters are equipped to make better choices.

I don't think that MMT is either left or right wing as an economic theory, however. The normative issues can largely be peeled off and a case made based on oeverall economic efficiency. There are a number of righties commenting at Warren's blog who understand the power of MMT as a macro theory, capable of addressing macro problems more coherently than other economic paradigms.

As far as my political position goes, I started as a Republican in a strongly Republican extended family. As I recall only one Democrat managed to marry into it. I switched to independent when the GOP nominated Nixon and voted for Kennedy instead. From there it was downhill with the GOP for me, and while I don't identify with the Democratic Party, either, I usually vote for Democratic candidates as the better of two evils. If the Democratic candidate is a shoe in where I am voting, I vote third party to send a message. The US now has essentially a one party system owned by the elite.

I am aware of the threat of government and also of big business and established wealth, and I am especially concerned when the latter has effectively captured the former, which is now the case. The right seems to be so ideologically focused on government that it ignores the other side of the coin. While concerned that "socialism" is the road to serfdom, it cannot see that the present threat is soft fascism (soft so far), but I am concerned with the suspension of constitutional protections in the name of "fighting terrorism."

I don't hear Libertarians raising a cry about this, which surprises me, frankly. So far, it seems to be pretty much the progressives.

libertarian89 said...

I guess we disagree that the government needs to continue to issue currency in order for the economy to function. I don’t think it does, and any quantity will do really. More money does not mean more prosperity. All Issuing currency does is just transfers purchasing power from existing holders of the money to the ones receiving the new money. This reduces the purchasing power of the currency in circulation, not to mention distorts the investment and capital structure of the economy resulting in malinvestment. Basically, this whole scenario is bad and problematic.

I guess most Austrians are not satisfied with the current system, so instead of describing it as is and basing policy solutions off of it like MMT does, many Austrians think the system is flawed and problematic and should probably change.

With the JG, like I said employment for employments sake is counterproductive. Jobs are not ends in and of themselves, which renders the goal of full employment obsolete.

It matters where people are employed, and like I said, government has no ability to determine this because it does not obtain its revenues voluntarily and is not subject to market forces. No amount of auditing or supervision can be a substitute for the checks that market forces like profit and loss provide.

Large corporations are sometimes inefficient and can be subject to the knowledge problem if they get to big. Austrians have explained this, so yes it can and does happen. But at least they are subject to market forces in some sense, have profit and loss motives, and usually go bankrupt if they go insolvent absent some type of government bailout.

The market can provide us with the “social good.” It did before the government existed. I feel it can do it again if we give it the chance.

Yes. I think MMT tries to be as neutral as It can, but it seems to me like most of its proponets are center left.

Craig Austin said...

@libertarian

"government needs to continue to issue currency in order for the economy to function. I don’t think it does, and any quantity will do really. More money does not mean more prosperity."

the issuer would never run deficits if users chose to spend in the marketplace instead of savings risk-free. when user's decide to save the issuer must spend to maintain a given output

spending (public or private) has an inflationary bias. saving has a deflationary bias.

the currency issuer just needs to react to what the currency users are doing in order to maintain price stability. if users are spending. the issuer needs to back off. if users are saving the issuer needs to spend. this whole system is binary - just asset/liability, on/off, this is exactly what computers are made for. there is no reason the dollar economy can't run as liable as this mac i'm typing on.

Calgacus said...

The market can provide us with the “social good.” It did before the government existed.

A basic misconception. Austrians have a completely wrong theory of money, which is the heart of their and the mainstream's errors.

Governments came first. Then came money, then came market economies. No case of a market economy before a government and state money is known. No case of a barter economy is known. Barter is the hypothetical antecedent to money in the Austrian story. The closest thing in reality is in Mad Max, end of empire, apocalyptic conditions.

Experience has shown that governments are more efficient at providing many important social goods than markets, which tend not to provide them at all, to the detriment of economic strength and growth.

If money creation never did any good, never caused prosperity, why on earth did the human race ever invent this useless thing?

libertarian89 said...

can't* manipulate

libertarian89 said...

Government is not subject to market forces, does not obtain its revenues voluntarily (which matters by the way) and overall is not subject to profit and loss incentives. Therefore, it has no ability to determine if its expenditures or anything it does for that matter is consistent with real consumer demand. All it does is divert resources away from profitable wealth producing activities into unproductive activities that likely would not have come into existence without government force.

We don’t need the state to take care of one another, issue currency, or promote the social well being of society. We can and have done it voluntarily through the free market. Lets try it again. I don’t think the state solution is working to well. Our current troubles are evidence of it, and certainly are NOT an indictment against the “free market” but an indictment against big government, central planning, and the interruption of market forces.

libertarian89 said...

First off the information that would be necessary to plan and economy, in terms of adjusting the economy with the supply of money like you said cannot and will not ever be held by any group of individuals regardless of how much MMT or accounting they know. People are not angels. They can manipulate and steer the economy into prosperity by adjusting the money supply. To assume they can is pure arrogance.

Markets have existed well before the state ever existed. People traded and exchanged goods with one another for mutual benefit pre state. States have not always existed. People historically have used gold coins and sea shells among other things as currency; state issued money has not always existed and certainly did not exist before a currency naturally emerged from the market place.
Health care, and care for the elderly and poor were addressed and provided by the free market well before government ever got involved. People have voluntarily provided social services to one another.

The free market has profit and loss incentives, obtain the revenue voluntarily, and use the price system in order to guide resources to their most desirable ends. Those ends certainly can be and have been social services in the past. The market can and has provided social services, and I would argue that they do it more effectively than government because they have the proper market based incentives that government can’t and will never have. In other words, we can provide social services voluntarily. Force is not necessary. We have seen it happen before throughout history.

Craig Austin said...

@ libertarian89

The most logical source of public spending is deep R&D investments to drive demand and subsidize next-generation technology until commercial applications can be sold off to the private sector and employ workers efficiently.

Most next generation technologies are subsidized by government spending of military applications. Read like chapter 10 of George Friedman's "next decade". Friedman owns the largest private sector intelligence agency in the world.

Calgacus said...

Government is not subject to market forces, does not obtain its revenues voluntarily Government does not obtain its revenues period. The purpose of taxation is to create demand for the government's money, what the government spends. The actions of a government are subject to market forces, as this spending is normally done through voluntary purchases. These purchases are the real taxation.

We don’t need the state to take care of one another, issue currency, or promote the social well being of society. We can and have done it voluntarily through the free market.
No, we have not. Money is a creature of the state, and always was. "Free markets" came after states and their money, not before. These views are not consistent with historical fact and the history of money. As Wray says somewhere, (today's) "Austrians" just invent their own history, rather than look at what happened in the past.

Therefore, it has no ability to determine if its expenditures or anything it does for that matter is consistent with real consumer demand. Elections & democracy are a way of making sure government does what the governed want, and there are many things governments do more efficiently than the private sector, or that only governments can do.

Chaos said...

An unemployed is more efficient & productive than an employed even not using its full potential (JG)?

Color me surprised with this fuzzy logic.

Anonymous said...

Jobs are not ends in and of themselves, which renders the goal of full employment obsolete.
For most people, jobs are the only means of affording food and shelter.