Read it at Pragmatic Capitalism
A Job Guarantee Is Not A “Price Anchor”, It’s A “Price Buoy”
by Cullen Roche
My comment there:
Interesting post but it avoids the basic question that MMT deals with as a macro theory, that is, reconciling the big three, GDP growth, FE, and PS. A macro policy tool has to encompass all three to be taken seriously by policy makers, who are elected politicians that know voter care about all of the big three, and ignoring any of them puts one’s seat at peril. It is very difficult to reconcile these satisfactorily, as economic history shows, and the political consequences of failing to do so satisfactorily in the public’s eye are well-known to politicians.
So I don’t see FE and PS “normative” concerns that can be easily dismissed if productivity is emphasized. Even granting for sake of the argument that “productivity “should” be the chief concern, no policy maker will buy into the argument if following that course ends in either rising unemployment or high inflation, both of which spell loss politically. Yes, the JG may be unpopular among some people and even quite few people, but high unemployment in times of contraction and high inflation in times of expansion are more poisonous politically, since these issues most people are deeply concerned over, their pocket books are affected directly. That is a real concern. Concern about creeping socialism pales in comparison.So I don’t see that this post advances the game in the larger purview that the MMT economists are dealing with.
42 comments:
It is all over Tom. I don't know why Cullen is posting something like this but he lost the battle IMO. I don't want to comment on his article because I think he knows he lost It.
He has nothing else left so he starts with semantics like Bill Bitchell was wrong because he said JG was central to MMT and Warren is saying It is not. Central or not, he misses the the point and does so delibarately.
It is not conservative idea. Have you heard any other meaningful arguments?
And JG has nothing to do with socialism or capitalism.
In a "buffer", the system administrator/design authority has to have had previously put a NON-ZERO price or "value" on the stock that is momentarily housed in the "buffer". So I in a way believe I see what Cullen is trying to say here.
With the "govt cheese" analogy from the '80s, the govt paid a positive price for the cheese and put it in cold storage for safe keeping in a effort to keep cheese prices higher (price support). They eventually just gave the cheese away for free to seniors when prices recovered.
With UE compensation I dont look at that as a "buffer stock of unemployed", it is chaos. The govt is not engaging in the system at all except to dole out some free balances for the unemployed. To have this as the exclusive policy is dreadful.
I look at the JG as sort of govt OMO into the labor market. they are setting the minimum price for labor at $8.00/hr. and keeping it there. If they were to raise the JG wage, then they are raising the minimum labor price. If they were to never raise the JG price, then I could see how one might consider this an "anchoring" function, but it is anchoring it at a non-zero price which might effectively be a higher price than it is anchored to today.
Resp,
"I don't want to comment on his article because I think he knows he lost It."
In which case you should comment there because if he lost he didn't get the memo.
The way to address this is show how the MMT JG fails as a buffer stock of employed that also serves as a price anchor in doing what the MMT economists claim it does, achieve FE & PS.
The argument has been about the putative effect of the JG as inflationary, wasteful, infeasible, etc.
But the actual argument that needs to be meet is that the JG as a buffer stock of employed and price anchor is not the holy grail of macro as MMT economists argue.
But let's grant that for the sake of the debate. Then the question becomes what the value of the rest of MMT is if it cannot resolve the apparently irreconcilable difference among GDP growth, FE and PS. How is it superior to monetary policy since monetary policy, being politically independent is feasible, where as fiscal policy, being politically dependent, is infeasible in a divided electorate.
What I am saying is that the argument that the MMT economists are making is, first, a macro argument, and secondly, a claim about the application of the macro theory as a policy tool.
Thirdly, there are additional questions about applying pieces of MMT as policy tools independently of the entire macro theory, since the MMT economists have conceded that it is unlikely the comprehensive package would be applied simultaneously.
If you want PS, I dont know how much better an attempt at the labor inputs to PS you could get than a govt with a FFNC currency system issuing a mandate to set the minimum price of labor at $8.00/hr AND KEEPING IT THERE.
If you want FE, it dont know how much better a an attempt at FE you could get than a govt with a FFNC currency system issuing a mandate that it will DIRECTLY EMPLOY ALL SURPLUS WORKERS.
PS and FE, via authoritative govt mandates. Works for me Libertarians.
Resp,
To copy here what I quoted from Tom's inbox (I sent him a Bill Vickrey paper over the weekend):
Even if inflation should threaten to get out of hand as a result of a vigorous full-employment policy, there are ways of keeping it under control that do not involve tolerating unemployment. One of these would be a system of tradeable rights or warrants to value added, whereby anyone who ends an accounting period without holding warrants sufficient to cover his value added would be subject to a suitable penalty tax. Warrants would be issued to firms for successive periods on the basis of previous value added with adjustment for changes in inputs of prime factors such as invested capital and labor… Firms enjoying strong markets for their products will be able to realize higher value-added profits only by purchasing warrants from firms having a less fortunate experience, effecting a kind of profit sharing among firms and reducing risk to investors.
Ultimately, some form of third major macroeconomic control instrument is necessary, in addition to monetary action through interest rates and fiscal action through income generation, if full control is to be exercised over three major macroeconomic variables: the rate of inflation, the level of employment, and the division of the product between current consumption and provision for the future. While with a sufficient dihedral, one can fly a plane in good weather and make gentle turns with rudder and elevator, it was the Wright brothers’ invention of wing warp, later realized as ailerons, that allows landing in a cross-wind without disaster. If value-added warrants won’t do the trick, it is up to economists to devise something that will.
FFNC?
Seen it a few times but sorry I'm stuck on it.
Thanks, beowulf. I don't believe I got back to you on that yet.
I have been too occupied to get to reading the papert, but Vickery is one of my favorites. We need to talk about him more.
Senexx: FFNC == Freely Floating, Non-Convertable (currency)
"Thanks, beowulf. I don't believe I got back to you on that yet."
No worries, I was just nudging you in case it got stuck in your spam folder.
Also, I came across a simple analogy of how the govt creates money by spending and destroys money by taxing (bonus analogy, gold is not money).
:o)
"The Ring seemed simply to be made of gold, but was impervious to damage. It could be destroyed only by throwing it into the pit of the volcanic Mount Doom where it had originally been forged."
http://en.wikipedia.org/wiki/One_Ring
"But the actual argument that needs to be meet is that the JG as a buffer stock of employed and price anchor is not the holy grail of macro as MMT economists argue."
That's straight forward. Cullen is leaping.
He's gone straight from where we are now to NAIRU and hasn't bothered stopping off along the way to see what is happening.
NAIRU is a nebulous concept, highly unstable and moves around depending upon the liquidity and mix in the labour marketplace.
And of course what he's forgotten is that you never get to NAIRU because the 'anti-inflation' policy response will kick in just as soon as the policy makers get a sniff that wage inflation is going up in the secondary labour market - not when they've confirmed all the unemployed that could be engaged are engaged.
So I see Cullen's argument as the usual excluded middle logical fallacy.
Bill and Joan did a 2008 paper 'Labour Underutilisation and the Philips Curve' (can't get to the link at the moment but it's on the CoFFEE site)
What this shows is that underemployment is anchoring the wage levels in the secondary labour market in Australia.
You see the same effects in the UK where shorter hours have become the standard solution to the crisis rather than dismissal.
A 35 hour maximum Job Guarantee (which is effectively a form of underemployment) is therefore going to have the same dampening effect on wage inflation and that means any policy response from nervous politicians and bureaucrats to wage inflation will be delayed as well.
The JG system is most effective in the lead up to full employment by the private sector, actually enabling the system to get there.
I've finally come to the conclusion that the JG arguments are misaligned. The criticisms of the JG are about the politics and marketing of the JG not the mechanical (operational) thus we are all talking past each other.
For the lack of better phrasing - the anti-JG crowd say wrong goal and/or wont work for political reasons. The pro-JG crowd are saying what's wrong with the mechanics, you haven't pointed anything out yet.
The question then becomes what is the best way to frame the MMT/JG position in the current political environment that is likely to get it accepted.
Second to that discussion is how do you stop it from getting captured by special interests (the anti-JG argument).
We're all talking from different reference points and not a common frame.
Speaking for myself alone, I tend to favour Mosler politically but Mitchell economically. I see method in TC/Beowulf's madness but as long as that is a step on a journey to a JG not a stopping point.
And thanks TofuNFiatRGood4U.
I think Cullen makes atleast one point, and that is the J.G is a price buoy rather than a price anchor.
I really think something like a variable transaction-tax(e.g F.T.T) should be added in. This could be periodically adjusted to achieve a predetermined level of J.G workers.
It would be a rather stable system. The additional piece would be controlling the vertical wage structure. That would be most likely solved by using a progressive tax scheme.
Shaun H.
I disagree Shaun.
Unless I've misunderstood the argument, the very use of the term buoy suggests the price is higher than it would otherwise be.
This in itself suggests a market clearing wage.
I even find the statement from LaJeunesse somewhat self-defeating rather self-contradictory. I find it more of a strawman even though the weaknesses in the argument by both Cullen and LeJeunesse were acknowledged.
I keep trying to word that more articulately but it keeps coming out a mess which is why I haven't responded to the substance of the post yet
What i'm reading over there is that the jg is free lunch/communism. Has anybody told them that government spending is largely redistributionary. This is nothing new. They also state that there is nothing wrong with the theory itself and that the problem is that congress and the fed won't do whats necessary when it is time. Again, this is a political issue.
@ Rodney
The "redistribution" is not taking from one person to give to anther by taxing one in order to spend on another, which is the common misperception. Rather it is redistributing private goods and services to public use using the value of state money created by taxation. Most people don't get this, and they think that their taxes are paying for SS and Medicare, as "entitlements" they have paid into, and welfare is a drag on their incomes taken to spend on lazy people.
Sorry guys, but you made a bad enemy in this one. Cullen nailed your precious JG to a wall. He showed, in his usually clear way, that the JG likely won't help at all in halting upside inflation. Mmters are never very clear about this, but Cullen wades through the BS.
20 years of work debunked in a week. Sorry Marxists.
Remember to watch the MMTers explain how "inflation" works under a FFNC in the video at the 13:00 mark in the video in this post:
http://mikenormaneconomics.blogspot.com/2011/11/infaltion.html
Under a FFNC system, there is NO "inflation" without the govt "ratifying" a price increase due to short term supply/demand shocks.
So prices are all up to what the govt wants to either set directly, or accept passively.
The way Cullen is even talking about "inflation" as if it is a exogenous or outside independent "force" is "out of MMT paradigm" to begin with looks to me.
"Inflation" does not happen under a FFNC unless the govt agrees to it.
Resp,
Wow. You are really taking the statist stuff to a whole new level. There is no inflation unless the govt agrees to it. That's a whopper. I didn't know this was a negotiation with the inflation businessman. See, this is the problem with statism
You guys think you can control everything through coercion. When will you learn?
Lvg,
I don't see any debunking. I just see a lot of name calling and fear mongering. We already pay people to be unemployed. I don't think it is a stretch to put some of those people to productive use.
is the monopoly issuer of currency price setter?
Oh yeah. So since we can set prices we should right? You know what would work better is if the govt just manipulated everything! Yeah, that sounds awesome! Go MMT!
LVG,
did you at least watch the small segment of the video?
If it serves the public purpose then the answer is most definitly yes. The state is already "manipulating" prices as we speak. I see nothing wrong with realising this and using it toward the common good.
West's comment is ridiculous. He says there's no cost to employ all the unemployed. Even Bill M admits there's a "one off" cost of inflation (and that's likely understating it).
Then again, Wray is the same guy who can't even do basic accounting per his embarrassing crusade against the Feds 29 trillion in loans. This man has no concept of reality. He's just a political advocate.
You guys think the govt gets a free lunch because of monopoly control. You think the state should set prices just because it can. All the while you're oblivious to unintended consequences. Sorry, but this is Marxism reborn. Wake up. The MMTers are jamming a political agenda down your throat and you're gobbling it right up.
Ha. The one thing MMT has right is that the Fed should set rates at 0 and stop manipulating them higher. But when its convenient for your politics you argue that the govt should manipulate all other prices. Double talk. Hypocrisy.
Top comment should read "Wrays comment is ridiculous."
The only real complaint that Cullen has is one of potential initial so-called "inflation" effects of the JG, but yet Cullen has not imo fully disclosed whether he really understands the concept of so-called "inflation" from an MMT paradigm.
Resp,
LVG, I would not jump to conclusions about this. This is a debate about macro theory and the MMT macroeconomists have not responded.
If Cullen doesn't write it up as a professional paper fleshing out his argument, no professional economist is going to take his blog comments seriously.
LVG,
They ARE manipulating the price of labor currently left unemployed by the non-govt sector at "ZERO".
LVG: They ARE manipulating the price of labor currently left unemployed by the non-govt sector at "ZERO".
And what is the opportunity cost of doing that? Zero? Gimme a break.
LVG: You guys think the govt gets a free lunch because of monopoly control. You think the state should set prices just because it can. All the while you're oblivious to unintended consequences. Sorry, but this is Marxism reborn. Wake up. The MMTers are jamming a political agenda down your throat and you're gobbling it right up.
More misrepresentation. I gave you the benefit of the doubt before when you said your read the basic MMT lit, like Warren's mandatory readings, and now it is obvious you have not or are just trolling here.
The JG is not a price anchor working all by itself to keep prices from floating above some particular level; and it's not just a price buoy keeping them from falling below a certain floor level. It's price ballast. For the reason Cullen mentions, the JG cannot all by itself enable the government to stabilize prizes. But it's another tool in the arsenal. Warren Mosler simply makes the point that the employed buffer stock will serve as a more effective tool for price stabilization than the unemployment buffer stock.
That limited claim is a substantial and important one in itself, because it runs contrary to the mainstream contention, reiterated by John Carney, that a JG must be inflationary. He actually says "massively inflationary".
If the JG is one additional tool for government to use to exert countervailing deflationary pressure in an inflationary environment, then that's great, and MMTers can stick with that talking point rather than trying to make the more aggressive point that the JG is an all-purpose fix for price instability. The government has other tools to regulate aggregate demand if it gets too hot. It can tax; it can raise interest rates; it can impose other credit restrictions.
Why is price stability so important? It seems to me that deflation encourages hoarding of cash (why buy today when it's 10% cheaper next year) and a small amount of inflation keeps things rolling along by encouraging more spending now. So I guess, how stable must prices be to be considered to have price stability?
Anon,
Right. The govt gives all Social Security recipients a 6.8% COLA and then act surprised when Geritol prices go up....
Resp,
@ Matt
That's why a constant (non-indexed) price anchor is needed. That has to be something that the government sets a constant price for. And that price can be zero, as is the case with a buffer of unemployed after employment insurance runs out, as the 99'ers are finding out.
A price anchor ties the nominal value of the unit of account to something of real value by a constant price, like a specified weight of gold or silver, an hour of unskilled labor, a measure of wheat, etc.
What a price anchor is is different from what it does.
This distinction is being ignored, I think.
Different price anchors all serve as real benchmarks of nominal value wrt to real. That's what a price anchor is. Choice among different candidates like an hour of unskilled labor, a weight of gold, a measure of wheat, etc. have different related functions and different consequences economically.
As I understand it, the MMT economists are saying that the floor compensation package for unskilled labor has superior consequences to others, and that is why it should be preferred.
My concern with that is that it treats labor as a commodity, which seems to conflict with human rights and the dignity of work. But I accept the macro argument that it is superior to a buffer stock of unemployed.
Matt,
The argument "you just don't understand MMT" usually works on other people, but it's flat out ridiculous to argue that I don't understand MMT.
Plus, my argument comes down to much more than this one "real complaint". If you're not familiar with how broad my JG position is then you're the one who hasn't taken the time to understand.
Tom, you said:
"If Cullen doesn't write it up as a professional paper fleshing out his argument, no professional economist is going to take his blog comments seriously."
I'm not in this to validate or invalidate theories. I am not an economist and I have zero interest in winning awards or taking credit for MMT (as some MMT economists are clearly self motivated in this regard based on their reactions to my receiving publicity at times).
I am here to offer the public a way to understanding modern money and the world we live in. That was the ONLY reason I started pragcap. To help educate, provide a better understanding and provoke ideas and discussion. I am not trying to solve the world's problems or fix the politics involved. My only goal is to provide people with a better understanding of the world they live in. That's all.
It is my opinion that the JG is not an essential component of understanding modern money. It is not my responsibility to prove MMT wrong. And it is not my responsibility to publish papers validating positions. It is my responsibility to stick to what my message has always been and that is offering readers a clear understanding of the world we live in. There are parts of MMT that do that and there are parts that are slapped on as nothing more than policy fixes. The latter is a clear theoretical part. And yes, the JG is ENTIRELY theoretical.
If the MMT economists want to sell MMT and "modern money" as part of a massive government labor program then that's fine. It's my opinion that no one in the world needs to understand large government labor programs in order to understand modern money. Instead, I think we should focus on giving the world a better understanding of modern money by focusing on the proven factual pieces of MMT. If we offer policy proposals then that's fine, but that's secondary. I would expect the MMT economists to do that. But the JG is a very clear case of embedding a policy proposal on top of operational aspects of MM(t) - JKH has rightly noted this on several occasions. In this regard, it really is entirely theoretical and I appreciate and understand that the economists have built it this way.
Frankly, I presume that the reason why no economists take MMT seriously now is because of this huge cancerous tumor hanging off the side of the core operational explanations of MM(T). The reason why I have had so much success selling MMT is because I've always removed the cancer and separated it out. It's not a coincidence that once I started blasting MMT all over Business Insider, Seeking Alpha and my site that its popularity soared through the roof. Even Warren acknowledges that its recent success is largely my doing.
But this is something different and I clearly didn't understand that before. We're no longer in the world where Bill Mitchell and Scott Fullwiler say we are (where there are prescriptive aspects and descriptive aspects). It's all one tightly balled up theory. And that's great. But there's a big big difference between the theory and the truth. That's just one guy's opinion.
Right Tom,
I can see them doing the wage/benefit anchor and then some sort of anchor for a kW-hr of electricity to make electrical power abundant and cheap....
Nail those two things down; the wage/benefit package and the electrical power unit price, and then we're talking....
Resp
Matt,
The argument "you just don't understand MMT" usually works on other people, but it's flat out ridiculous to argue that I don't understand MMT.
Plus, my argument comes down to much more than this one "real complaint". If you're not familiar with how broad my JG position is then you're the one who hasn't taken the time to understand.
Tom, you said:
"If Cullen doesn't write it up as a professional paper fleshing out his argument, no professional economist is going to take his blog comments seriously."
I'm not in this to validate or invalidate theories. I am not an economist and I have zero interest in winning awards or taking credit for MMT (as some MMT economists are clearly self motivated in this regard based on their reactions to my receiving publicity at times).
I am here to offer the public a way to understanding modern money and the world we live in. That was the ONLY reason I started pragcap. To help educate, provide a better understanding and provoke ideas and discussion. I am not trying to solve the world's problems or fix the politics involved. My only goal is to provide people with a better understanding of the world they live in. That's all.
It is my opinion that the JG is not an essential component of understanding modern money. It is not my responsibility to prove MMT wrong. And it is not my responsibility to publish papers validating positions. It is my responsibility to stick to what my message has always been and that is offering readers a clear understanding of the world we live in. There are parts of MMT that do that and there are parts that are slapped on as nothing more than policy fixes. The latter is a clear theoretical part. And yes, the JG is ENTIRELY theoretical.
If the MMT economists want to sell MMT and "modern money" as part of a massive government labor program then that's fine. It's my opinion that no one in the world needs to understand large government labor programs in order to understand modern money. Instead, I think we should focus on giving the world a better understanding of modern money by focusing on the proven factual pieces of MMT. If we offer policy proposals then that's fine, but that's secondary. I would expect the MMT economists to do that. But the JG is a very clear case of embedding a policy proposal on top of operational aspects of MM(t) - JKH has rightly noted this on several occasions. In this regard, it really is entirely theoretical and I appreciate and understand that the economists have built it this way.
Frankly, I presume that the reason why no economists take MMT seriously now is because of this huge cancerous tumor hanging off the side of the core operational explanations of MM(T). The reason why I have had so much success selling MMT is because I've always removed the cancer and separated it out. It's not a coincidence that once I started blasting MMT all over Business Insider, Seeking Alpha and my site that its popularity soared through the roof. Even Warren acknowledges that its recent success is largely my doing.
But this is something different and I clearly didn't understand that before. We're no longer in the world where Bill Mitchell and Scott Fullwiler say we are (where there are prescriptive aspects and descriptive aspects). It's all one tightly balled up theory. And that's great. But there's a big big difference between the theory and the truth. That's just one guy's opinion.
Tom,
I'm lost.... as a former Naval Officer what is your opinion on why the govt now has 2 aircraft carriers off the Hormuz Straights right now.... are they "digging holes" or are they taking indirect actions to help to set the price of petroleum?
Resp,
The US is playing cat and mouse with Iran. Strategically, the larger question is who controls the seas (shipping routes), and the narrower question is who controls the ME. Anyone who challenges the US on either of these is going to get whacked, possibly very badly.
Apparently, TPTB in Iran did not learn any lessons from what happened to Saddam when he tried to get persnickety with the US. They may think that Russia and China will provide cover for them, but that is really taking a big risk. Neither Russia or China are going to risk going to war with the US over something like this. It is in neither of their interests.
The risk to the US is a spiking of the price of petroleum if there is war, so there are good reasons for both sides to be cautious. The balance of power lies heavily with the US though. Looks to me like Iran is risking way too much, and this could end very badly for them.
Another consideration is that Iran is a Shia state and Sunni Islam regards Shia as heretical. There are a lot more Sunnis than Shia and the US is allied more with them.
Complicating the matter, the Saudis are Wahhabi, and they are particularly opposed to the Shia. The Saudis would like to see the US take Iran out once and for all. I am pretty sure that the hawks in DC are working on a deal already.
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