Read it at Pragmatic Capitalism
Does America Need To Do A 180?
by Cullen Roche
Cullen has turned off comments over there owing to the heat generated by the recent debate, so let's keep it cool and respectful here, or at least make an effort at it.
125 comments:
He really carries his anti-JG argument to the point of hyperbole in mounting a defense of capitalism as though the JG represents an assault on it.
Far from being a 180 change that throws "the whole idea [of capitalism] under the bus" it might be better described as an attempt to upgrade to capitalism 1.1 with better human capital preservation.
agreed gee. That's the kind of reactionary crap I would expect from someone who doesn't understand MMT. Pretty weak to turn off the comments too. I expect better from Cullen.
It seems to me that Cullen is overblowing the long term impact of a JG somewhat. I don't see that it would constitute a 180 degree about turn or represent a complete overhaul of the system.
Rather, I see it as just beefing up the economy's automatic stabilisers and raising the floor on living standards, in doing some addressing some of the heinous distributional issues of the current system.
I guess it comes down to your view of human nature. Whether you think people are generally lazy and always looking for something for nothing, lacking in ambition and desire to improve, or whether you think people have a basic desire to better themselves and make a positive contribution to society.
If the latter, then it is difficult to see any insurmountable barriers to a JG, but if the former, then the idea of a JG will always seem to be a nice idea, but in practice unattainable.
Tom,
To me (my first principles), is we should strive to get to a point where a person cannot be separated from their means of subsistence by any "man made" legal or organizational, or distributional constructs.
I guess we could go about this a few ways.
Tremendous wealth building opportunities will of course still remain for the truly gifted and talented, but if this happens against just ONE person, then the whole system can be considered a FAILURE and we need to "go back to the drawing board". (Not that anyone was ever at the "drawing board" to design the chaos system that we have now in the first place)
It's a full time job keeping up with all the MMT discussion these days. And that's a good thing. Thanks for posting it all here.
I like Cullen's site, and he's generally a reasonable guy. However, I think he goes too far in saying:
In just 235 short years we have built the most prosperous wealth creating economy ever known to man. EVER. There is simply no refuting that fact. The ideals that built that economy were based on small government and individualism.
Personally, I think that other countries have done better than us in recent decades due to their more active government roles in such things as health care, education, and industrial policy. The quality of life in the United States has been falling at an alarming rate. This is due in no small part to the Reaganesque zeitgeist reflected here by Cullen:
The ideals that built that economy were based on small government and individualism. We took the idea of a constitutional republic and combined it with a rugged sense of individualism that unleashed a whirlwind of innovation and wealth creation.
The Reaganesque belief that America is great because of its small government and individualism has led us to almost complete political dysfunction. Disapproval of Congress is now over 85%, setting the stage for an authoritarian coup if we don't build an effective government using the tools at our disposal...
I agree, Cullen is simply a prisoner of his ideology.
The argument is that the pool of the unemployed is the most liquid buffer stock available. Does he have an argument to the contrary? Or an argument that liquidity is not the category to look at? It certain't doesn't seem so.
Instead, he launches into ideological diatribes that "I suffered fearing unemployment, let others suffer too!". Typical misantropic conservative libertarian talking points.
Agree with above comments. Cullen's article is very poor quality.
Detroit Dan,
I think the political dysfunction stems from the cronyism and insider deals that lead to the repeal of Glass-Steagal. Americans in general do not want government in their face. Ideally, it would be in the background. Both parties have done their best to create a DC-Wall St. elite and the expense of Main St. Who in their right mind would approve of that.
Ron T.,
Everyone is a prisoner of their ideology. Everyone sees the world from their own perch. The gift- which I believe Tom Hickey has- is taking in all sides and making some sense of it. Cullen has done a remarkable job in bringing MMT to a vast audience which in turn has brought that same audience the the other MMT sites, such as this.
BTW- I think I mentioned this elsewhere, but this whole MMT thing is very energizing. Thanks to all of you who take the time to comment. I feel like I'm in college again.
I have to admit that I am surprised to see the ad hominems and personal attacks all over the place. Some people clearly don't even know what the word ideology means. But whatever. It's a free country and people can say whatever they want....
My position is simple and really rather reasonable. We know the current model works to some degree in generating a very high level of prosperity over long periods. That doesn't mean there aren't flaws or that I am not in favor of VERY pro-govt intervention, but to argue that the USA has been a failure over multi-generational periods is a stretch.
All I am asking for is a measured approach here. You either need to provide resounding evidence and real-life data proving that a JG can be superior to the current system over a multi-generational period or you need to take a less extreme left stance. Why is that so unreasonable?
Btw, for those who think I am some rah rah Reaganite, I live in CA and fully support gay marriage, pro choice and just about every single socially liberal view there is so spare me with the personal attacks about being closed minded. I've heard it all before from people who have an axe to grind and don't know the first thing about me....
Personally, I haven't seen the evidence that convinces me that the JG is superior. It's just not there. And that's a big problem. This has never been tried to a degree that is comparable to that being proposed. Maybe you're convinced. I am not. I am not here being ideological. I am merely asking what any citizen should ask which is for someone who proposes extremely diverging policies to prove that they can work better than what has worked over a long period. The proof isn't there. Maybe it will build over the years. Hell, I for one hope MMT is right. But to proclaim so confidently that we are there now is just not right. It's not logical. You might want the evidence to be there, but it's not because it has never existed....
I hope that clears things up some. Have a good weekend everyone.
Cullen, I knew this blow-up was inevitable just from the title of your blog. There are many here who are essentially anti-capitalist and have tolerated you because you support MMT. However they support MMT both because it is an accurate description of our monetary system but ALSO because they believe it allows them to shove the free market over the cliff and look to government to solve everything. You've called them out and oh boy are they angry.
Goodluck to Cullen and others as they pursue their variant of MMT.
On another note, I have a 'feeling' that the J.G is deflationary under certain conditions. Perhaps..... Under a situation where cost-push inflation is in the distance, I think it would be. Think about...... more people producing stuff but not consuming at the rate of production.... Questions, questions.
Let me just say this: The JG certainly does not constitute a 180 degree reversal, as Cullen puts it. It's maybe a 30% veer to the left. The opponents of the JG and similar full employment proposals are making it sound like the defenders of the JG are proposing to turn all private property into public property, turn all employees into government employees, and plan the economy from Washington.
It's just a plan to hire unemployed people. That's it. These are people who want to work and are not being hired by the private sector. They have been chucked out. If the private sector doesn't want to hire them, then the least they could do is let the American people hire them.
Let's not forget that a large number of people are already employed by the public sector at the national, state or local level. A large number of people have always been employed at the national, state or local level. The JG will augment those numbers, but the majority of working Americans will still be employed by private enterprise - not by some socialist leviathan.
The opponents of the JG think a good part of the unemployed should stay unemployed. Let's be clear about this. They are not arguing that the private sector will eventually produce full employment on its own. Rather the opponents have argued that having some stock of unemployed workers is good for all the people who are not unemployed, and so we shouldn't mess with a good deal. We should deliberately refrain from hiring them, not because the private sector is going to come to the rescue, but because its good to have an oversupply of labor chasing and undersupply of jobs.
Maybe there should be a message on the back of my iPhone that says, "This product was brought to you at a somewhat lower price by Joe Blow, whose involuntary unemployment is helping to keep workers powerless and labor costs low, so that you and others who are fortunate enough to have jobs can buy iPhones for less.
America is wealthy. But other advanced, developed societies are equally wealthy and have been outperforming us by most measures of the good life for decades - not just since 2008. Those societies have done it with more equality and more social support, and yet plenty of private sector jobs. Seems like a decent formula to me.
I don't see why we need "resounding evidence". It's not like the current system is performing so amazingly. We can experiment with pilots and scale up gradually. And I don't think the JG is an extreme left position. I personally favor all kinds of things that would make this a much more equal society. But the JG will only have marginal effects in that direction. It only aims at eliminating the scourge of joblessness.
Frankly, I never thought there would be such strong opposition to the basic idea of hiring people to do work.
Some "resounding evidence"
14 million unemployed
46 million using foodstamps
3 million homes repossessed
Dan, you write:
"They are not arguing that the private sector will eventually produce full employment on its own. Rather the opponents have argued that having some stock of unemployed workers is good for all the people who are not unemployed, and so we shouldn't mess with a good deal."
Everyone is taking that comment I made about my personal experience way out of context. I said UE helped motivate me. You pointed out that it was a BS example. I responded and said I agreed that my personal experience didn't matter. So, take Joe Firestone's quote with a grain of salt because it's taken out of the context of the actual conversation.
Just so we're clear on this point. I am not against the private sector achieving full employment. I have never said otherwise. I have questioned whether FE is the right goal and whether full productivity is not a better target whereby we achieve FE. So please don't try to misconstrue my comments to play political games in a weak attempt to make people like appear like big mean capitalists who want to rip your heart out and eat it on a slab....That's just sheer nonsense.
Deus, do I really need to pull up 100 100 year charts of net worth, income, equities, etc etc that make those statistics look ridiculous? We could have had the same convo during the Great Depression (in fact, many did!) or many other snapshots of American history. Fear mongering won't help your cause here. It will only weaken it.
Just the facts.
This is all a very healthy process and very positive development for MMT.
Look, learning about MMT has many people who are Republican (or otherwise politically conservative) realizing that their party is out of step with reality. David Frum wrote a piece recently quite on point.
"When Did the GOP Lose Touch With Reality? Some of my Republican friends ask if I’ve gone crazy. I say: Look in the mirror".
http://nymag.com/news/politics/conservatives-david-frum-2011-11/
Naturally it can be disconcerting to be so so out of step with your own tribe and so in agreement with some (but certainly not all) of the enemy tribe. So by drawing a line in the sand that a JG was a core MMT policy, Bill Mitchell did a kind thing. He gave conservative MMT supporters something to root against. They can rail against giving TSA jobs to homeless people and in favor of cutting payroll taxes or boosting EITC (and even the most vehement anti-JG "Market MMTer" supporting putting spending power in the hands of the poor) and still be a proud Republican.
Very cathartic and good for the country since we absolutely need GOP support for MMT (in the broad sense) in order to defeat mankind's mortal enemy, the deficit zombies.
A Basic Income Guarantee would do more to challenge capitalism, or rather, the capitalist mode of production, than the JG would. Yet under both programs, free markets would remain.
Meanwhile what is the likelihood of having an academic debate? It's the only way to make progress without offending anyone (outside of academia).
Cullen, your main argument seems to be that It is not manageable?(devil is in the details)
You are not claiming It is inflationary. You are not claiming It competes with private sector employment. I don't thing you even claim It is left or socialist(It is not in my opinion).
It cannot be proven to you the way you demand It to be proven to you.
I think the reason we need something like the JG is because there is no way for Congress to manage the right level of spending to provide full employment without generating inflation. The budget process is too ad-hoc and partisan, and is not able to respond in real time to generate the right level deficits or surpluses required to effectively implement MMT. It would be tough to even identify what those levels are in real time.
The JG provides the ultimate automatic stabilizer that would allow this process to happen in auto-pilot. Kind of like a thermostat. I think this is just another way of expressing the buffer stock idea. So it is worth a good try even if it hasn't been tried before.
I don't see anything especially "left" or "socialist" about it. The assumption is that the overwhelming majority of workers would be employed in the private sector. Plus it can replace various other things that conservatives/libertarians dislike such as unemployment compensation and minimum wage laws. It also affects welfare policy ... telling someone to "go get a job" becomes a much more viable position when you implement a policy that guarantees that that suggestion can be implemented by the individual concerned. Lots of things here for our right wing friends to cheer about, if they think it through.
If nothing gets done, academically or experimentally, how long does capitalism get to rest on its laurels?
Cullen: All I am asking for is a measured approach here. You either need to provide resounding evidence and real-life data proving that a JG can be superior to the current system over a multi-generational period or you need to take a less extreme left stance. Why is that so unreasonable?
Good point and well-taken. Let's focus on this.
The reason it is so wrong is that this NEVER the way that economic policy has operated in the past and it never will in the future because this kind of experiment cannot be conducted and this kind of data is not available. This doesn't apply to the JG in particular. All advances in economic policy were the result of moving forward on the basis of the hopefully the best information available when improvement of the status quo was called for.
Should the US have waited until some other country tested democracy? Good heavens, even the Athenians who developed the concept in the West did not have a democracy in the modern sense, and the other instances of democracy have mostly been based on tribal consensus and common ownership, a fact not lost on Marx who was the first empirical economist, who looked at history, anthropology, and sociology. Almost no economists have followed him there since.
Should the US have waited until someone else tried the New Deal programs before instituting them? Should the US have waited for some else to try something like the Marshall Plan before going ahead with it? How about sinking all that money into space travel and putting a man on the moon. What that bold, or what?
People and countries are successful by being bold and taking risks instead of waiting for other to show the way.
And as far as the narrative about US rugged individualism, innovation, and entrepreneuring as the chief drivers of US prosperity (really growth), read some US history about the slavery, genocide, massive exploitation, and cronyism and, yes, corruption, that went into it. These less than virtuous factors were arguably as significant or in some instances more significant that the cultural narrative would admit about "American exceptionalism," which turns out to be a myth on close inspection.
There was actually very little distributed prosperity in the US until after WWII, when the US emerged as king of the mountain in the developed world, with Europe and Asia in ruins. This free ride is now ending and we are going to see what happens. So far it doesn't look so good, with quality of life and living standard slipping.
On the other hand, the US has let the world know very explicitly that it has developed the strongest economy by drawing disproportionally on the world's resources and developed the mightiest military to defend the ability to do so. And US foreign policy explicitly states that the US will not allow a competitor that threatens its continuing global hegemony in either the economic or military sphere. Noam Chomsky has document this inb great detail in his voluminous political work, after dominating his field in linguistics.
So let's lay the presumptions on the table and see what stands the empirical test.
If you want views on the State of the USA, you can't go past John Quiggin's latest.
However if you want views on the JG with respect to MMT, that is a worldwide global issue.
And for those criticising based on a democrat/republican or liberal/conservative ideology - Reagan and Laffer were basically MMT.
I'm glad I've got the nub of Cullen's contention correct - that Full Production could lead to Full Employment without a JG.
That's fine. Now show me how.
As of this moment I cannot see how Full Production cannot be reached without loose Full Employment (JG) implemented first.
The two goals are not mutually exclusive.
Further thoughts:
The Fed budget could be divided into two parts:
1. The JG program, which is "financed" via freshly created money, and ..
2. The "regular budget", which can be required to be more or less in balance.
Under that scheme, Congress has clear targets to aim at in the budgeting process, so they can't just say "deficits don't matter" and run hog wild, producing inflation.
Heck ... maybe even write both into the constitution ... then the conservatives could have their longed for "balanced budget amendment", provided the JG program is defined as being outside the budget.
We could even support "End The Fed" ... since now monetary liquidity or lack of it is pumped or not pumped into the real economy automatically via the JG program. Functions of the central bank such as LOLR, etc, could be put on autopilot using ideas along the lines of Warren Mosler's banking proposals and no more discretionary monetary policy.
Anonymous: ALSO because they believe it allows them to shove the free market over the cliff and look to government to solve everything. You've called them out and oh boy are they angry.
Huh? Just who is looking to "shove the free market over the cliff "here?
The claim that that I read from objectors to "capitalism" as it presently exists, such as myself, is that the "free market" is a myth that hardly ever existed other than in an emerging economies with extremely distributed markets permitting near perfect competition. "Free market" MEANS perfect or near perfect competition. without which it cannot exist other than in name.
What I see, and many economists, too, is large companies with enough market dominance to set prices using all their power and influence to "discipline" wages to increase their margin with economic rent.
If you see a free market please explain to me where it is. Local flea markets? Even Ebay has altered its policy and structure to favor large sellers and extract rent from smaller ones with no clout, now that Ebay seems to feel secure there will be no meaningful competition.
Economies of scale necessarily result in market dominance, and market dominance allows firms to set prices and extract monopoly rents. It's appropriately called "monopoly capitalism," rather than "free market capitalism."
Moreover, business is now divided into mass market and the rest. Those who have access to mass markets have power and influence not available to others. The really big money is being made on that score, and it is the rare entrepreneur that is able to develop a new market. As a result social and economic mobility is declining in the US, and the Horatio Alger story is a myth of the past as small business is absorbed into giant firms in industry, finance, media, technology, and so forth. Even trades and professions are becoming more centralized to save money on administrative costs. Even doctors are now mostly employed by large firms calling themselves "clinics" but which are really business operations bent on increasing their margins about all else.
What many people are angry about, on both left (Occupy) and right (Tea Party), is that the federal, state and local governments have effectively been captured by big business-finance and are being run in the interest of an oligarchy funneling wealth increasingly to itself.
If a person belongs to the 1% they are likely OK with this, although all aren't. If one is a member of the 99%, not so much, unless they have been sipping the kool-aid. But there is even great dissatisfaction among the 1% as the 0.01 % pull miles away from the rest with increasing speed.
Even if it were "free market capitalism," which it is not, there would be problems with it.
Dan K: And I don't think the JG is an extreme left position.
There is no significant "extreme left" in the US. The so-called left in the US is center right in the rest of the world.
Great plan, Tom Hickey. More empirical,less invective.
Empirical: Man looks out of window while typing reply and observes three homeless people inspecting the contents of his trash bins.
LLL: Under a situation where cost-push inflation is in the distance, I think it would be. Think about...... more people producing stuff but not consuming at the rate of production.... Questions, questions.
Lot of the would be services rather than product. An economy can absorb a huge amount of service. When ladies of my acquaintance talked of opening nail salons and spas a some years ago before they were popular, I thought they were daft. How wrong I was.
Hi Cullen,
I was not alluding to the anecdote about your personal experience. I was referring in the first instance to the claim that the unemployment buffer stock "works". I believe this is something that both you and John Carney have defended. I was also thinking of Carney's criticism that the JG would be inflationary, which suggests to me that he believes in preserving unemployment as a way of holding down prices. (By the way, I think this inflation criticism has already been dealt with effectively several times, and in many different places by Mitchell, Wray and Tcherneva, but John keeps saying that people haven't addressed his points.)
The more I read in this debate, the more it seems that the position of the critics is that the present system works well enough, and the JG is a radical innovation that shouldn't be tried until it is proven that it will work. The supporters of the JG seem to be mostly of the opinion that the present system is clearly broken, and not just since 2008, and so we ought to try something different.
Maybe we could get everyone to unite behind the idea that we should engage in a national debate on ending unemployment once and for all, and then ask everyone to contribute their best ideas on how to do it? If not the JG, then what?
Cullen: Deus, do I really need to pull up 100 100 year charts of net worth, income, equities, etc etc that make those statistics look ridiculous? We could have had the same convo during the Great Depression (in fact, many did!) or many other snapshots of American history. Fear mongering won't help your cause here. It will only weaken it.
Again, I think you are equating prosperity with growth. What does the distribution look like. Prosperity implies distribution rather than concentration.
beowulf: So by drawing a line in the sand that a JG was a core MMT policy, Bill Mitchell did a kind thing. He gave conservative MMT supporters something to root against.
Important point, beo.
The MMT claim is that to the degree that MMT is successful the JG component will be continuously small — but not non-existent.
I think that what Cullen is attempting to arguing is that its possible to have FE & PS without a buffer stock of either employed or unemployed, which the MMT economists deny. This is a macro issue that has to be established adequately, and arguing about it on the blogs is not going to do it. The argument has to be worked up and presented as a paper IMHO.
I have been saying this from the outset. I don't see what's so hard to understand about this, or am I missing something.
Dan said:
"Maybe we could get everyone to unite behind the idea that we should engage in a national debate on ending unemployment once and for all, and then ask everyone to contribute their best ideas on how to do it? If not the JG, then what?"
Let's do it! This debate is great because it's making us all reconsider how we're going to fix this mess. We all know the neoclassicals and mainstream media don't have a clue. All I am asking is for us to maintain some rational perspective....Hey, it's just my opinion so take it with a grain of salt if you wish.
Tom,
Real living standards have not declined nearly as much as the mainstream media would have us all believe. This data is straight from Social Security and not some political think tank masquerading as an economics group:
http://pragcap.com/the-mythical-collapse-in-american-living-standards
Again, we need to maintain some perspective. I think it's a real reach to argue that the system is broken. So let's use the govt to help get us out of this rut. I am all for that. We're not against each other despite some people's efforts go give that appearance....
I want the best for this country just like you all do. But we have to be measured and calculated in our approach. Or else we will never be heard....
Best to all.
Senexx: As of this moment I cannot see how Full Production cannot be reached without loose Full Employment (JG) implemented first.
According to MMT, there is automatically unemployment in an economy using state money, since the state is using the money to extract resources from the private sector for public use and using taxation to give state money value.
Therefore, since the state has created the conditions for unemployment to exist, it has an obligation to deal with these results through its economic policy.
There are a variety of ways that the state could do this, and the JG is one of the factors it can employ.
The only way that an open economy can offset private saving desires, which creates demand leakage is to rely on export to make up the difference or have the government offset this with a deficit. The deficit involves government expenditure. The offset is to offset the demand leakage to saving to maintain FE. Why should some that deficit go directly to relieving UE either a basic income guarantee, or a job guarantee, or some combo thereof?
This is presupposing that the government cannot always exactly offset non-government saving so that there is usually an expanding and contracting residual of unemployed.
@ Ken
I large part of the problem is that economists and politicians in general do not understand the relationship of taxation and expenditure to the economy, so their concept of budgeting is severely flawed. If they got it, this could all pretty much go away overnight.
There would still be ideological differences over fiscal policy but then they would at least be informed and compromise would be much simpler.
Once it is realized that everyone wins by making the pie bigger, there would not be all the nonsense of shrinking the pie and then arguing about the relative size of the slices.
I want to make clear that I am not referring to Cullen here, but rather to John Carney.
Kurt Cobain was embarrassed when yuppies drove by with their BMWs and they were playing his music. IMO some people have found out that MMT describes the monetary system very accurately and It can make them a lot of money. They don't understand that MMT is all about public purpose. Of course It can be argued whether JG serves that public purpose the best. Nothing personal John and I might be mistaken, I've read your articles about MMT and this is what comes to mind.
Cullen: I think it's a real reach to argue that the system is broken.
Well, a lot of people will dispute this, but for the sake of advancing the argument, let's set that aside for the moment and ask if the system is where we would like it to be and whether and how it is possible to improve it in that direction.
"The ideals that built that economy were based on small government and individualism." (Roche 2012)
"Sixty years ago capitalism was a failed economic order ... The capitalism that failed over
1929-33 was a small government, constrained central bank essentially laissez-faire economy.
The capitalism that had a good run after the second world war was a big government interventionist economy with central banks that were less constrained than during the inter war years." (Minsky 1993)
"We know for a fact what built this great nation and we can prove (factually) how well it has performed and how far it has come in such a short period (despite recent turbulence)." (Roche 2012)
"From 1933 through the end of the second World War the main external financing of activity was by the government. As the Levy-Kalecki
relations show, massive government deficits lead to large scale business profits." (Minsky 1996)
"There is need for rethinking the system of intervention into capitalist economies that has evolved out of the New Deal structure which was mainly put in place before World War II. In particular, there is a need to make full employment the main goal of economic policy, mainly because a full employment economy is supportive of democracy where as a transfer payments based economy is too often supportive of resentment." (Minsky 1996)
... oh, and, yeah, my take on Mr. Roche's advance, similar to senexx, is:
"Maximize Productivity subject to no binding Employment constraint ...
Labor markets clear! (or they don’t, it doesn’t matter)"
With respect and patience I am waiting for a more formal proposal of Mr. Roche's formulation. Maybe my theory is a little rusty but it sounds a lot like the Patinkin Resolution (emerged into the neoclassical synthesis). We all know what Minsky had to say about that:
"if there is a road to full employment by way of the Patinkin real-balance effect, it may well go by way of hell." (Minsky 1986)
Mr. Roche is sharp and is advancing the conversation on MMT. May he continue to do so.
All the best everyone.
I think that the JG program has little or no chance of being embraced in the U.S. At least, not until an absolute disaster befalls the U.S. I say MMT advocates concentrate on fending off the fears of the U.S "going bankrupt" or the U.S. being at the mercy of "bond vigilantes". The JG may have a better reception in more social democratic soil but Horatio Alger mythology still rules in the U.S. In addition, my inner Hayekist(in chains and under heavy sedation :) ) tells me that the bureaucracy,whether private or public, required to run a JG will be captured or abused by economic predators. For example, see Georgia Works
Tom -
"Therefore, since the state has created the conditions for unemployment to exist, it has an obligation to deal with these results through its economic policy."
Thanks for tying that one together for me. Neil also said it over on 3spoken...
http://www.3spoken.co.uk/2012/01/job-guarantee-its-really-not-that.html
and included a link to an excellent RSA animation about how it's time to for our system of education to move on:
http://www.youtube.com/watch?v=zDZFcDGpL4U&feature=youtu.be
Excerpt from Neil's post:
....Increasing working increases demand which will then start to draw other people off the JG and unemployment queues as businesses expand to service the restored demand.
Then you see what is left and what (if anything) the state can do to help them.
Which may end up being 'not much' because the political will isn't there.
In which case the debate moves onto how much compensation they should be paid for the state's failure to provide true full employment.
Be careful using this quote:
"Therefore, since the state has created the conditions for unemployment to exist, it has an obligation to deal with these results through its economic policy."
Any logical conservative will say "perfect, then get rid of the state entirely!" :-)
I agree with Tom's take on this issue. I particularly think that this:
"I think that what Cullen is attempting to arguing is that its possible to have FE & PS without a buffer stock of either employed or unemployed, which the MMT economists deny. This is a macro issue that has to be established adequately, and arguing about it on the blogs is not going to do it. The argument has to be worked up and presented as a paper IMHO."
I discuss the issues raised by Cullen's post and the ensuing discussion in my ongoing series on MMT and the JG. Part Two is here: http://www.correntewire.com/the_job_guarantee_and_the_mmt_core_part_two I think it outlines the "Why not both" position pretty well.
I don't understand why you've been so resistant to that position Cullen, considering that Governments sovereign in their own currency can afford both to try very hard for full employment and also to try for "full productivity."
Why be opposed to the JG? Do you really believe that it will detract from productivity improvements? I can't see why it should, and I can't see what empirical evidence you have that suggests it would. On the contrary, I think if productivity gains put people out of jobs, as often happens, then the JG is very likely to provide a transition to new jobs where they can produce value for themselves and others?
"Any logical conservative will say "perfect, then get rid of the state entirely!" :-)"
I really don't think that's a conservative position, Cullen. At the least you should have "logical conservative" in quotes.
"my inner Hayekist(in chains and under heavy sedation :) ) tells me that the bureaucracy,whether private or public, required to run a JG will be captured or abused by economic predators. For example, see Georgia Works."
The Georgia Department of Labor (GDOL) provides a stipend and workers compensation coverage to participating job seekers. Employers pay nothing to these trainees. GW provides employers the opportunity to train and appraise candidates at no cost.
Free labor, gotta love it. I wasn't kidding when I said Morgan Wanstler's Ebay hiring hall system is probably the best way to set up a JG.
Meanwhile I have opened a new front in this war over at Cullen's in response to the question of what's the alternative to the JG?
Bill Vickrey's market anti-inflation plan and, while we're at it, Warren Buffett's similar import certificate market.
Controlling inflation without job layoffs (or job guarantees) at the same time the trade deficit's $600 billion demand leakage is taken off the economy's chest.
Hate to do it to you this way Tom but it is what the site allows
According to MMT, there is automatically unemployment in an economy using state money, since the state is using the money to extract resources from the private sector for public use and using taxation to give state money value.
Agreed.
Therefore, since the state has created the conditions for unemployment to exist, it has an obligation to deal with these results through its economic policy.
It hasn't yet, why would it now? That's what gives the rise to the JG option.
There are a variety of ways that the state could do this, and the JG is one of the factors it can employ.
No argument there. If we call the JG "loose" full employment then intermediary steps such as those suggested at Traders Crucible are then "loose 'loose'" full employment. Other than that the State has only ever fulfilled its full employment role by what has become known as standard keynesian pump-priming.
The only way that an open economy can offset private saving desires, which creates demand leakage is to rely on export to make up the difference or have the government offset this with a deficit. The deficit involves government expenditure. The offset is to offset the demand leakage to saving to maintain FE. Why should some that deficit go directly to relieving UE either a basic income guarantee, or a job guarantee, or some combo thereof?
This is presupposing that the government cannot always exactly offset non-government saving so that there is usually an expanding and contracting residual of unemployed.
And this leads straight to the sectoral flows of current account balance (not to be confused with the trade balance) and in that case it depends.
However most nations are net importers.
Which brings us straight back to show us how can full production lead to full employment. Show us methods by which this can be achieved without a JG.
As all of this is exactly what gave rise to the JG concept in the first place.
If methods beyond keynesian pump priming and the existing buffer stock of unemployed cannot be shown then the argument goes from strong to weak and relies once again on the fallacy of composition of keeping people unemployed for the sake of keeping people unemployed.
Alternatively the argument has been misspoken and is similar to TC's argument where the JG is ideal but is introducing moderate step by steps to get to a JG given at least the recent political history of the US of heavily compromising legislation.
I have been following this debate with great interest in the "MMT.net" blogosphere, I think it is a highly constructive debate.
I have heard several good arguments in favour of a buffer employment stock rather than a buffer unemployment stock, but I still think the best one I ever heard was made in 1972 by french-canadian poet Félix Leclerc:
"The best way to kill a man is to pay him for doing nothing."
See original song here:
http://m.youtube.com/index?desktop_uri=%2F&gl=CA#/watch?v=scnpQoaJk8M
Cullen: Any logical conservative will say "perfect, then get rid of the state entirely!" :-)
Yes, I agree with that as a left libertarian aka anarchist. Anarchists are a misunderstood lot. Some believe all sorts of nonsense about us that is bandied about to discredit us. The essence of anarchism lies in recognizing that the state is not a natural entity and has no natural rights. The state has asserted the right to a monopoly on the use of violence to advance its purpose, and it is this so-called right that anarchists deny above all.
As a libertarian of the left and specifically an anarcho-idealist, I believe that the direction in which humanity is headed is toward transcending statism for statism is unnatural to humans, whose nature as spiritual beings is freedom, for spirit is free.
The question is when and how the state will be transcended. The answer is — to be determined historically.The state was formed by historical forces due to the state of collective consciousness, which is evolving just as individual consciousness evolves. Collective consciousness is just the expression of the blending of individual consciousnesses moment by moment in historical time in terms of a variety of factors.
Hegel explained collective consciousness pretty well and Marx picked up on it, But Marx disagreed with Hegel over whether ideas were the shapers of history or material conditions. Marx through the latter, of course.
This was Marx's answer, too, from the material poit of view. That is, as a social scientist and historian. As a philosopher Marx held that the purpose of philosophy is not to reflect on experience but to actually to effect change. So he tried to rush the process, with fatal results as Mikhail Bakunin had presciently warned, accurately predicting what a "dictatorship of the proletariat" would lead to.
The state is a creature of history that history will replace in due course. Yet, when or how that will transpire cannot be foreseen. Neither can it be imposed on history prematurely, or there will a reaction, as Bakunin knew.
In the meanwhile, we have to make the best of things as they exist now with the state of collective consciousness that prevails, but which is in flux. The possibilities that collective consciousness may take are endless. Usually change come gradually, but there are also sudden upheavals, such as occurred politically at the time of the American and French revolutions in the course of a couple of decades. It thinks that we are in a period of upheaval.
With so much flux, there are now innumerable options for those whose minds are free. There are "anarchistic" communities all over the place. If one wishes to live with others of like mind there are plenty of opportunities if one seeks them out, with all kinds of lifestyles and philosophical variations.
Some are content lead their own lives in their own communities and let the rest of society go its way, while others do what they can to make the larger society a better place, knowing that collective consciousness cannot be forced but it can be nudged.
The importance of the state is already waning as the power and influence of international and transnational entities and institutions grow. Nationalism is on the wane in some parts of the world, while other parts of the world are still emerging from tribalism. History is on the move big time now.
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As an anthropologist Marx recognized the natural beauty of tribal life in which the rule was "from each according to ability and to each according to need," where group decisions were made taking consensus into account, where community provided the basis for order instead of government and other supporting cultural institutions like religious institutions, where the concept of private ownership was foreign to them, and where the heroes and role models were the great distributors rather than the great accumulators.
Marx saw that this kind of life was possible as reported by anthropologists like Lewis Morgan, and he reasoned that this it was possible again, and even that it was natural for humans, hence preferable. Marx thought, therefore, that it was not beyond capturing again just by getting rid of the hindrances.
My view is built on this but anarchism has evolved considerably since Marx's time. I have never considered myself a Marxist and have never studied Marx deeply, since I think think hus thought is dated now. But his work is still a treasure trove of ideas worth tapping.
Btw, if anyone examines the organization of Occupy, this is the kind of thing they will find. A generation of anarchists is being educated through through experience, just as I was during the anti-war movement and countercultural revolution. I was convinced enough by the experience to stick with it, as did a number of others, and I suspect that the same will be true for Occupy, although in a form suitable for this time. I am just sorry that I am a bit too old now to get down into the trenches with the Occupy folks. But I'll show up where I can. They are on to something.
Johann Wolfgang von Goethe in Faust — "Live dangerously and you live right."
Revelation 3:14-18 (NIV) — “To the angel of the church in Laodicea write:
These are the words of the Amen, the faithful and true witness, the ruler of God’s creation. I know your deeds, that you are neither cold nor hot. I wish you were either one or the other! So, because you are lukewarm—neither hot nor cold—I am about to spit you out of my mouth. You say, ‘I am rich; I have acquired wealth and do not need a thing.’ But you do not realize that you are wretched, pitiful, poor, blind and naked. I counsel you to buy from me gold refined in the fire, so you can become rich; and white clothes to wear, so you can cover your shameful nakedness; and salve to put on your eyes, so you can see."
Peace.
Joe F: On the contrary, I think if productivity gains put people out of jobs, as often happens, then the JG is very likely to provide a transition to new jobs where they can produce value for themselves and others?
This is the looming issue. Just about every economist I have encountered with whom I remotely agree as said that the overarching problem for the global economy is excess supply due to productivity increases and lack of demand to lack of income. And now we have advances in automation and robotics coming on line.
An additional note on violence and consciousness. Native Americans thought that the practice of the white man to strike his children was barbaric.
Tom - Intriguing post about Bakunin and Marx.
Prehaps a new movement could be called MDT - Modern Distributive Theory. JG or similar could be centerpiece here no question.
One view of economics is that it is the study of the cycle of production - distribution - consumption. In a market-based economy, distribution is based on price rationing and therefore current revenue, saving of past income or credit as the drawing forward of future income.
Clearly the weak link in the cycle is income, when productivity gains have resulted in oversupply. The solution has been relying on credit to fill the gap in the present, but that is unsustainable over time, since credit draws future income forward, there must be enough future income to cover the principle and interest unless inflation acts as the great leveler.
This is the problem the global economy faces at the moment and TPTB are doing their best to both control inflation and reduce wages, i.e., income present and future. Go figure.
MMT shows how this is totally unnecessary.
Ok Cullen, if you are still reading this, you may be opposed to JG, but what is your position on something halfway? A new deal WPA/CCC style temporary employment program. You are looking for evidence, we have resounding evidence for its success. We agree that US has no dollar spending constraints. Also we have a lot of idle construction. Assuming no logistical roadblocks, why not hire 2 million temp workers to repair/enhance the nation's ailing infrastructure, upgrade the power grids, explore green energy technologies. Right away the unemployment rate will fall to 7.2%. And it will fall a lot further due to increase in aggregate demand. Would that not be productive in your view?
While the New deal programs were not JG, this is indeed a real world test of direct government spending on employment. For the 4 years from 1933 through 1936 (until FDR cut the deficit in 1937), Real GDP growth averaged 10%, job growth averaged 750,000/month (adjusted for todays population), and the unemployment rate fell from 22.9% to 10%. If you don't count the temporary government jobs, even then, unemployment still fell to 14%. See here for details. During its 8-year history, the WPA built 651,087 miles of highways, roads, and streets; and constructed, repaired, or improved 124,031 bridges, 125,110 public buildings, 8,192 parks, and 853 airport landing fields all for $11 billion ($180 billion in todays dollars). Seems like a very productive use of $180 billion.
What did Marx try to rush? The Russian revolution?
You Mmters at least admit one thing. Unemployment is caused by the state. If the state didn't enforce minimum wage laws or pay people to not work then prices would clear at lower rates and hiring would pick up. You can't solve a problem with more of the cause.
I don't think Cullen's opponents are anticapitalist. I certainlny am not. I would just want to hear from him *any* argument based on economics. There have not been one so far. Saying "you don't have a proof" is not an argument. At least Mosler has an argument based on econ, Cullen so far has nothing. Saying "i dislike it so much, i prefer what we have now" is not an econ argument.
These are not ad hominems, just statement how I see this debate: Mosler's and Fullwiler's arguments on one side (granted: theoretical arguments, no experiment has been conducted), ideology on the other. It doesn't mean Mosler+Fullwiler are right, it is just that the debate is one sided.
I must add that at first I used to absolutely *hate* the JG, just like Cullen and so many others: it was like a disgusting pipmle on a bueatiful body of MMT, I always skipped Bill's posts about JG. And then I read Wray's "Understanding Modern Money".
Now I get it: JG is *not* a jobs program, it is a price anchor.
Are we OK with a 10%/year inflation? If yes, then we don't need JG or unemployment buffer stock, or gold buffer stock or anything else. If, however, we don't want inflation, then we need a price anchor. Once there is an economic argument that some other price anchor is better I will gladly forget about JG. So far I hear arguments I might have given in the past: "JG is ugly."
LVG
Yes but that is actually not the mechanism MMT'ers refer to. (That wage cuts would clear the labor market is seen as dubious, as the idea involves a fallacy of composition - it is said.)
What is said is rather something like this: The introduction of state money into a non-monetary economy - this is in a logical/functional sense rather than historical - causes unemployment.
How? Well, imagine a government being formed, declaring that a certain tax obligation is imposed on the people. The tax can only be paid using these new tokens that only the government can issue. People are thus forced to acquire these tokens.
Now, the government offers tokens in payment for certain work or resources that it is decided the government needs (to maintain a military system, say). How clever.
People will seek to acquire the tokens, but it doesn't come for free. They will have to offer something in return - typically.... work! People seek paid work. That's pretty much the definition of unemployment.
In sum - what creates unemployment is the government and its darned tax based state money.
(If you're gonna respond, please be nice and refrain from using pejorative terms this time, OK?)
Hugo,
You seem to have missed my point. The reason why ue exists in the first place is because prices don't clear at levels that make it profitable for capitalists to hire the unemployed. The govts coercion actually caused the ue in the first place by setting the minimum price of labor! So, instead if work they file for state benefits. Implementing a jg doesn't change this. Its just an excuse for a bigger govt. The pvt sector still won't find it profitable to hire all the jg workers because the massive lobbyist groups around the jg (oh boy, just imagine the new regulatory and legal nightmare associated with all of this!!!!) will set the price at a level that makes unions look bad. In the end, the increased coercion, lobbying, regulating, etc could actually reduce pvt sector employment and just end up creating an army of people pushing pens at government agencies.
You guys are so far from thinking through all the unintended consequences here that its hard to even take you seriously.
I think if it was implemented, a Job Guarantee wouldn't employ that many people in the long run, as long as an appropriate fiscal policy follows.
Although I must say that I now understand why a buffer stock is for.
LVG,
If a capitalist can't afford labor then he's a capitalist with non-viable business model just as certainly as if he couldn't afford any other cost of production.
I'm fine with that. Capitalism is all about trying and and failing, creative destruction.
Not to worry though, there'd be a safety net for that failed capitalist. He can sign up for the JG until he finds employment with a capitalist who actually has a functioning business model.
Boy you guys are dense. The reason ue exists today is not because capitalists are failing. Corp profits are at an all time high! Look at the data before talking out of your ear. They don't want to hire because the cost of labor is too high because the govt sets it. You think price fixing creates a price anchor. What it really creates is ue. Capitalist are making plenty of money. After all, that's what budget deficits do! Talk about both guns drawn shooting yourself in both feet. You MMT socialists are a funny bunch!
LVG
"Dense"? How can I convince you to be nice? You were even banned by Cullen the other day.. hm.. "Please"?
I don't think I missed your point.
You made a statement on what MMT'ers might be thinking is causing unemployment, and I tried to rectify.
You are also spelling out what the "real" reason is for unemployment - downwards sticky wages. It's too expensive for business to hire labor. Thanks a lot, what a revelation - I think I see the light! I think many are already familiar with this idea though. Isn't it a core part of neoclassical economics?
Anyway, I quickly noted that this idea is seen as somewhat dubious, and provided a link with some reasons for that, in the first paragraph of previous comment.
Laura: What did Marx try to rush? The Russian revolution?
As I said, on one hand, following Hegel's dialectical thinking about how change transpires historically, Marx agreed the conditions had to be ripe for change to occur. He disagreed with Hegel over what those conditions might be. Hegel believed that the Zeitgeist (spirit of the times) as the prevailing "idea" of the era was historically determinative.
I have altered that slightly to "collective consciousness" to make it a more suitable concept for our times, in which the cutting edge of thought is now consciousness studies.
Conversely, Marx held that material conditions were the determinative factor historically. Once he came to this realization, he had to become an expert in material conditions, so he studied history, as well as anthropology, sociology and economics, such as they existed at his time anyway. Marx not only contributed to all of them, but he brought them together into a coherent philosophy of social change in terms of class struggle. "Class" became a key concept of sociology. and Marx integrated it into Classical Economics through his reading of Smith and Ricardo, for example. Later economists, for the most part, do not follow him in this, focusing instead on bare aggregates.
This landed Marx with feet in separate boats, so to speak. As historian, sociologist and anthropologist, he realized that material conditions had to be ripe for social change and that the process of transformation would take place iaw the unfolding of the trajectory inherent in those conditions.
On the other hand, as a philosopher, Marx was convinced that the philosopher's job was participating in social change rather than reflecting on ideas. However, the only way that philosophers can do this is through ideas, since they are not people instrumental in dealing directly with material conditions. So this was Marx's "Hegelian problem." He was still stuck in the ideal as a philosopher, and he was not functioning so much as an activist, being isolated from events on the Continent while he was in England.
Marx was not a revolutionary activist that was operating on the ground, like Lenin would. We often speak of Marx, but Marx and Engels were a team as it were in Marx's mature years, and it would be Engels that would later team up with Lenin, who would emerge as the revolutionary activist carrying forward the ideas of Marx and Engels, as well as his own contributions to this body of literature.
So it was actually Marx's ideas that influenced Lenin and the Russian Revolution through chiefly through Engels work with Lenin.
A key idea of Marx was that instead of the conditions of the times mediating the transformation from capitalism to communism, there would be a transition phase necessary to impose on the process, namely, the dictatorship of the proletariat. As the successful revolutionary, this is the agenda that Lenin sought to follow, and we all know how that turned out.
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Well, what many don't realize is that other anarchistic revolutionaries of the time were unhappy with Marx's views. He was not the only contributor or even the leading contributor in the interim between the lead up to the failed uprisings in various countries in 1848. To understand the period in which this was happening, it is necessary to have some knowledge of the period of the 1848 revolutions, for example, as well as the lead up to it and what happened subsequently.
One of the other leading lights, Mikhail Bakunin, a Russian minor aristocrat, fell out with Marx and there was a running conflict between the two regarding theory. Bakunin did not like the notion of a dictatorship of the proletariat, because of the first word in that phrase, "dictatorship." He thought that there was too great a danger of it ending up as just dictatorship, which is what happened.
There is a popularly believed narrative in the West that there was a linear development from Marx, through Engels to Lenin and the Russian Revolution. That is not the case. Many people and cross currents were involved. Initially the Mensheviks (White Party) was the leading faction in Russia, but they were overthrown by the Bolsheviks (Red Party), and the rest is history. It could have turned out otherwise perhaps if this occurred in Europe rather than Russia and if Bakunin had prevailed over Marx and Engels.
A very significant point that is mostly overlooked is that the initial anarchists active in the lead in to the conflicts in 1848 and following thought that the struggle would be a European one that would overthrow the landed aristocracies that were in control there and who had make allies of the capitalist class. Marx thought that the US had already had its revolution and that England had, too, although not as explicitly. One could be free in the US and relatively free in England at the time, and Marx had had to emigrate to England.
As it worked out, the Marxist-Leninist revolutions took place in Russia and China, whose traditions were non-European, and therefore the revolutions ended up taking a much more authoritarian turn that they might have otherwise. But conditions were ripe for major change in those countries, and so that is where change came historically, in a way that would have appalled most of the European anarchists, who sought greater freedom and less state control.
Hugo, that argument is easily defeated. Lower ad? Better than no ad! Deflation? Its called the market. Are you in favor of the Fed manipulating stock prices? No. You Mmters hate the Fed.
You want higher wages and government workplace regulations and you think its all free. You just need to be more coercive and run budget deficits. Take your free lunch and shove it.
Cullen did ban me because he's also a socialist who uses the power of coercion. But he's got your number on this one.
LVG, you clearly don't understand the MMT position and just throwing one view against another without addressing the other position directly. According to MMT, what you are bringing up is a side issue to the main point. According to MMT failure to understand their position is the reason that Neoliberalism, New Keynesianism and Austrian Economics have gone astray. We know what these positions are, so you don't have to restate them for us.
If you wish to be taken seriously here, please start over at Warren Mosler's place with the mandatory readings. The MMT Wiki is also a good source of introductory information.
Then if you have objections and frame them politely maybe someone will respond to you. Otherwise, you are trolling and will be ignored. We value everyone's participation, but we expect people to actually participate.
Tom, I understand the MMT position perfectly. You want a JG which will set a floor in labor prices. But you aren't willing to accept that this causes ue. So your solution is to just hire the excess unemployed using more coercion. Its a free lunch. You want your big government, workers rights, decent wage laws, new regulations, etc. But you don't understand that there are real costs if you don't accept the consequences of these benefits. Marx had the same sort of thought process. It was defeated. You socialists lost. Now stop trying to ruin this country with your socialist agenda.
Rodger Mitchell doesn't support a Job Guarantee, but he has a fine post explaining that Government support is different from Government interference.
While I am on the subject of Marx, let me bring it back to MMT. As many know, Bill Mitchell has said that his antecedents lie more in Marx and Kalecki than Keynes, and Michael Hudson also draws on Marx. Randy recently listed Marx and Kalecki as antecedents of MMT, too.
According to people like Michael Hudson, Classical economists were chiefly concerned with economic rents. Their time saw the transition of feudalism and landed aristocracy to capitalism, which added monopoly rent and financial rent to land rent as major economic factors. The challenge that Classical Economics took up was reducing or eliminating economic rent and rent-seeking behavior, which impinge on the production-distribution-consumption cycle through extraction from the circular flow in a monetary economy.
Marx analyzed the issues insightfully for his era in the eyes of many, but his analysis is now somewhat dated, on one hand, and his prescriptions for dealing with issues questionable, on the other. Even Marx had a different view of conditions in the US than Europe.
Marx's analysis depended in his take on the "internal contradictions" of the capitalism of his time. That analysis no longer applies in the same way now, however, although the principles are still useful. For example, Hudson observes that in his wildest dreams Marx would never have envisioned financial capital coming to dominate industrial capital. Times have changed.
The next major iteration was provided by Schumpeter, in his Capitalism, Socialism and Democracy, for example, where he sees the "internal contradiction" of capitalism as the tendency to concentration that thwarts innovation, resulting in a decline that ends in workers rejecting a system that no longer works for them.
Economies of scale lead to concentration and ultimately rent-seeking over innovation (which involves risk-taking) as markets become more and more imperfect. Capitalists use political as well as economic clout to "discipline" wages. Etc.
But just as Marx did not see the rise of financial capital to a dominant position, neither did Schumpeter. While Schumpeter's analysis is more in date than that of Marx writing in and for the 19th centruy, Schumpeter was active in the 20th century and conditions have changed.
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Michael Hudson picked up the baton on rents and eventually was enlisted as an MMT ally. Moreover, Minsky was a PHD student of Schumpeter and Wray was a PHD student of Minsky. Minsky, according to the MMT developers, is central to MMT.
So economic rent and rent-seeking form a chief aspect of concern for MMT as well. Minsky's financial instability hypothesis is based on it, and now that finance capital has moved into a position of predominance economically and even politically, the situation is even more highlighted.
Conversely, mainstream economics, not being based on monetary economics, has largely avoided such issues, resulting in most mainstream economists missing the build-up to the global financial crisis unfolding before their eye. They just weren't looking at that data or those institutional dynamics. The MMT economists did not miss it, though, and instead were warning about it.
There's been a lot talk on this and related threads about so-called free market capitalism. A monetary economy such as exists today is very far from free market capitalism for a variety of reasons, and economic rent and rent-seeking are primary.
Moreover, rents and rent-seeking affect employment because they extract rent from the flow of funds of the production-distribution-consumptions cycle, affecting that flow by diverting funds into saving, which results in demand leakage. Unless net export or government intervention through deficit expenditure offset there is either a growth of private debt borne by workers to make up for inadequate income by drawing future income forward for consumption, or else consumption falls and ue rises.
MMT offers a comprehensive package for dealing with this within market capitalism by addressing sectoral balances with functional finance, stabilizing FE & PS, and reforming key institutions to reduce or eliminate rent-seeking, which is parasitical on the productive economy.
Issues of concentration and consolidation remain to be dealt with, however. These are conditions that challenge the capitalistic model by stifling innovation, as Schumpeter noted. There are already studies suggesting that the pace of technological innovation has already abated.
UE is the result of government giving certain benefits (setting min wage, workplace conditions, benefits, etc). This is the real cost of government. The socialists cause the ue. Not the capitalists.
Further, price stability is not = to better living standards relatively speaking.
Beat those concepts into your head Marxist Mmters.
@ LVG
OK, I've gone back and pieced out your argument in summary:
If the state didn't enforce minimum wage laws or pay people to not work then prices would clear at lower rates and hiring would pick up. You can't solve a problem with more of the cause.
The reason why ue exists in the first place is because prices don't clear at levels that make it profitable for capitalists to hire the unemployed. The govts coercion actually caused the ue in the first place by setting the minimum price of labor! So, instead if work they file for state benefits. Implementing a jg doesn't change this. Its just an excuse for a bigger govt. The pvt sector still won't find it profitable to hire all the jg workers because the massive lobbyist groups around the jg (oh boy, just imagine the new regulatory and legal nightmare associated with all of this!!!!) will set the price at a level that makes unions look bad. In the end, the increased coercion, lobbying, regulating, etc could actually reduce pvt sector employment and just end up creating an army of people pushing pens at government agencies.
The reason ue exists today is not because capitalists are failing. Corp profits are at an all time high! Look at the data before talking out of your ear. They don't want to hire because the cost of labor is too high because the govt sets it. You think price fixing creates a price anchor. What it really creates is ue. Capitalist are making plenty of money. After all, that's what budget deficits do!
I understand the MMT position perfectly. You want a JG which will set a floor in labor prices. But you aren't willing to accept that this causes ue. So your solution is to just hire the excess unemployed using more coercion. Its a free lunch. You want your big government, workers rights, decent wage laws, new regulations, etc. But you don't understand that there are real costs if you don't accept the consequences of these benefits.
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(continuation)
OK, I accept your assurance have understood the MMT position and disagree that the issue is lagging effective demand kneecapping investment.
Your solution is to reduce the real wage to discipline inflation and to stimulate production by reducing nominal cost. MMT shows why that is not the problem in the first place. The crisis did not result from rising nominal wages, since real wages have been stagnant, and now they are actually falling a bit.
Nor is the problem firms ability to invest. They have plenty of savings, and borrowing rates are historically low.
The problem that business owners report is lack of customers and consumers report that their credit is tapped out and their incomes are in the tank. Notional demand may be present, but effective demand isn't.
Moreover, the external sector is also saving with the US running a large trade deficit, adding to demand leakage.
Add the domestic private sector increased saving-delevering to the external saving (KAS) and you get the shortfall that government needs to pony up.
I assume we agree on that if you agree on basic MMT analysis.
Then there is the question of how to inject the deficit expenditure to get the largest multiplier. Injections that will be spent rather than saved carry the higher multiplier. The further toward the bottom that the injection is make the greater probability it will be consumed quickly, adding to effective demand.
There is also the issue of the purpose of government, chief of which is to preserve order. People starving at the bottom isn't good for encouraging social order. There are political reasons that governments provide assistance other than being nice to poor people to get their votes.
But the actual issue under discussion is the MMT JG, which is permanent, since it is a price anchor.
So far, no one has addressed the claim of MMT economists in their professional writing that MMT macro resolves the recalcitrant issue of reconciling production, FE, and PS. Regardless of whether the MMT JG BSE-price anchor would ever become policy, whether the MMT argument is viable is an important question that remains unaddressed in the serious and professional fashion it deserves.
UE is the result of government giving certain benefits (setting min wage, workplace conditions, benefits, etc). This is the real cost of government.
The role of governing is separating order from chaos. Just where the line between the two lies is a political question over which there is great disagreement, with authoritarians at one end of the spectrum and libertarians-anarchists at the other.
One of the roles of government is to police markets and keep them orderly, as well as to provide good order for the society. Different people interpret "orderly" and "good order" in different ways.
Sure environmental regulation that reduces negative externalities is expensive, but who wants to live in a sewer? Such regulation and taxation is about achieving true cost so that society doesn't bear the cost in other ways when gains are privatized and losses socialized. There is no free lunch. Costs are costs and get paid one way other another.
First, I didn't say wage deflation was the fix. I simply pointed out that government benefits come at a broader social cost. This is common sense and proven by MMT. The government causes the unemployment. That doesn't mean more government won't come at a greater cost. Again, common sense if you're not a Marxist.
The purpose of government spending is not multipliers. That might help stabilize the economy during a downturn, but sustained unproductive spending over the long-term only reduces potential living standards by driving up prices, malinvestment and unproductive output. You're assuming the capitalists have an ample supply of resources to meet this demand with raising prices. Have a look at oil prices. Go to a farm. Go to a has station. There is no free lunch. Real resources are a real constraint. Your model assume perfect elasticity. Wrong.
The purpose of our government is to serve the majority. Where do you get this notion that the government exists for everyone? Your obsession with Marx has led you astray.
These are all basic facts that are easy to understand. I hope your socialist MMT movement gets buried.
Let me add one thing to the discussion. Make of it what you will.
Slave owners, by definition had to pay a living wage to their slaves. So anybody paying below a living wage is being subsidized. So who should subsidize the capitalist with a bad business model, who cannot afford to give a living wage to his/her employees -- relatives who earn a higher wage, or somebody else?
"The purpose of our government is to serve the majority. Where do you get this notion that the government exists for everyone? "
Preamble: "We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence,[note 1] promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America"
LVG: The purpose of our government is to serve the majority.
Not exactly. Different forms of government exist for different reasons. Liberal democracy as envisioned the by the Enlightenment philosophers that the founding fathers followed in establishing the US government was about carrying out the will of the people at the ballot box, while preserving the rights of the minority.
Actually, the minority in a democracy includes the wealthiest citizens, and the government and laws are constructed to protect them from majority rule. But the basic principles are enunciated by Lincoln, "government of the people, by the people and for the people." Not some people. Moreover, public purpose is stated in the Preamble, which includes promoting the general welfare.
JUst as where in macro the big three to be reconciled are production, FE & PS, so too in liberal democracy the big three to be reconciled are liberty, equality, and community or solidarity (liberté, égalité, fraternité)
A job guarantee doesn't help me much if it keeps me from having the time to look for work during the day when other businesses are open.
And unless I'm missing some finer points, doesn't keep my skills in tact either if it was a particularly long event.
As for paying the bills, UE or JG mean the same thing to me - I'm out on the street with no way to keep up will the car payments or the mortgage. Both are a complete collapse of my life and both an extreme motivation to find a real job but the JG would make the time to do that much more difficult it seems.
The kind of JG that would help me is if I could do a turbine rotor stress analysis for someone for a price that didn't put me on the street washing up in public bathrooms, allowed me time to go on interviews, didn't pay enough that I didn't want to leave and didn't compete with the private sector. Seems like a tall order.
Tom,
This is interesting the point you made about Marx not really looking west as far as where his approach/view was perhaps really needed.
Where it eventually landed in Russia and Asia, I certainly do not consider part of Western Civilization. Not even Russia no sir. This kleptocracy/moronocracy that we have been descending into for some time threatens the best traditions of western civilization such as Liberal Democracy...
"General welfare". Voted on by the majority. That's how it works. Not government welfare for everyone. Beat that into your head before trying to mislead people with your socialist MMT beliefs. You people make me sick.
I dont think LVG realizes that when we decide to operate our govt with a state currency, that this immediately creates a system wide condition of "unemployment" as right at that moment, everyone is forced to find employment opportunity to obtain balances of the currency to be able to pay their taxes and not run afoul of the tax laws...
Do you realize this LVG as I have not read all upthread?
That's my whole point. Government coercion causes ue. Now the Neo Marxists want to convince the 93% who have jobs that we should accept their new socialism because their big government policies caused the ue to begin with. Are you serious? This is the biggest load of socialist crap I have ever read in my life.
Anon,
"no way to keep up will the car payments or the mortgage. "
Those 2 areas (housing and transport) are WAAAAY out of whack in terms of price at this time due to the govt allowing them to get too high. These areas would have to be adjusted also as govt lending and/or collateral allowances against these 2 areas is allowing them to take up too much of typical incomes...
LVG,
"That's my whole point. Government coercion causes ue."
Now you're an MMTer! Welcome aboard!
Resp,
Oh god. Read my above comments before spewing more stupidity. You don't have to be a MMTer to understand how big government prices out capitalists and causes ue. But don't your dare lecture everyone with a job about how they need to accept a lower standard of living so some economist can brag about how he created 100% employment. You can't have it all....
"You don't have to be a MMTer to understand how big government prices out capitalists and causes ue."
There is no "coercion" in this statement.. where is the coercion?
Businesses are free to charge more/pay more... they are not coerced in any way within the confines of your sentence here.
The coercion is thru the tax law that effectively sez pay the tax or go to jail. That is the coercion.
Wrong again. The coercion comes from price fixing. You socialists want minimum wages,minimum work conditions, government benefits and on and on. If none I'd this existed the capitalists would hire everyone at the wage that's profitable. There's your full employment. But you socialists want all the benefits and now you're trying to trick people into thinking that since government spending caused this that more spending will fix it. You've been called out.
I can only speak for my company but we hire to meet demand not to employ people.
The rest of it may effect profit margin but but whatever that profit is we are not in the business of leaving it on the table.
Tom,
"Class" became a key concept of sociology.
The concept of 'class' existed long before Marx lived. His contribution was to look at the socio-economic modes of production and to define the relationship of various groups to that production as the basis for class. He looked at who produced the surplus necessary for our survival, and who decided how that surplus was to be distributed. Capitalism is one of those modes of production.
Marx was not a revolutionary activist that was operating on the ground, like Lenin would. We often speak of Marx, but Marx and Engels were a team as it were in Marx's mature years, and it would be Engels that would later team up with Lenin, who would emerge as the revolutionary activist carrying forward the ideas of Marx and Engels, as well as his own contributions to this body of literature.
So it was actually Marx's ideas that influenced Lenin and the Russian Revolution through chiefly through Engels work with Lenin.
I'm not aware of Engels teaming up or working with Lenin. His death prior to the Russian Revolution precluded that. Why are you describing this in this manner?
One of the other leading lights, Mikhail Bakunin, a Russian minor aristocrat, fell out with Marx and there was a running conflict between the two regarding theory. Bakunin did not like the notion of a dictatorship of the proletariat, because of the first word in that phrase, "dictatorship." He thought that there was too great a danger of it ending up as just dictatorship, which is what happened.
I don't like the term either, but Marx regarded the Paris Commune as an example of a DOTP, which he considered to be an example of direct democracy.
There is a popularly believed narrative in the West that there was a linear development from Marx, through Engels to Lenin and the Russian Revolution. That is not the case. Many people and cross currents were involved. Initially the Mensheviks (White Party) was the leading faction in Russia, but they were overthrown by the Bolsheviks (Red Party), and the rest is history. It could have turned out otherwise perhaps if this occurred in Europe rather than Russia and if Bakunin had prevailed over Marx and Engels.
Here is another version of events: The Tsar was overthrown and replaced by a provisional government in February 1917. In October, the provisional govnt was replaced by a Bolshevisk govnt. A civil war followed shortly thereafter. As to the 'two factions' the Bolsheviks were supported by a majority of the population, who were peasants and lived in the countryside. The 'White Army' that fought in the civil war were supported by the western powers. Richard Wolff argues that the peasants didn't support the Bolsheviks because they were communists, they just wanted to have their land. They wished to go from feudalism to capitalism and the Bolsheviks delivered that pledge to them.
Indeed, two world wars, a civil war and a largely agragrian population led to an outcome that differed from the Paris Commune.
Lenin et al. were forced to implement the theories of deceased academics under less than ideal conditions. Isn't that how real life goes?
If Marx and Bakunin were alive today I doubt they would have framed their differences as a vindication of one theory over
another. I believe they would have refined and reconciled their differences.
Our business would also definitely take advantage of any government contracts to hire more people.
LV,
"The coercion comes from price fixing."
Price setting is not coercion, it is a legal mandate. This is what civil governments have/will always do. Issue mandates. here is the mandate: "We (govt) will purchase all surplus voluntary labor in the economy for $8.00/hr". That is a mandate, not coercion.
Coercion: use of force or intimidation to obtain compliance.
Mandate: a command or authorization to act in a particular way on a public issue
> "Now you're an MMTer! Welcome aboard!"
Haha, agree, welcome comrade LVG! :-) *applause*
Joining the maoist-leninist or the ultra-stalinist branch? Good to have you aboard! Perhaps work for human relations or something, where you really excel?
See you next "MMT people congress", comrade LeninVeryGood. Please wear a socialist hat.
H,
I just do not believe Libertarians come into this knowledge very easily.
Libertarians of the left, seem to get it sooner, but for Libertarians of the right this reeeeeeally seems hard for them.
Resp,
Laura: "Class" became a key concept of sociology. The concept of 'class' existed long before Marx lived.
Right but sociology didn't. Marx is considered one of its founders and principal early contributors.
Laura" I'm not aware of Engels teaming up or working with Lenin. His death prior to the Russian Revolution precluded that. Why are you describing this in this manner?
Right. That is incorrectly stated. I should have emphasized Lenin's use of Engels rather than imputing that Engles "teamed up" with Lenin, which is not the case historically. What I intended to say is that Engels views, which differed some from those of were picked up by Russian revolutionaries like Lenin and conflated with "Marxism," at least in the view of some scholars.
And while in his extensive correspondence with German socialists Engels modestly presented his own secondary place in the couple's intellectual relationship and always emphasized Marx' outstanding role, Russian communists like Lenin raised Engels up with Marx and conflated their thoughts as if they were necessarily congruous. Soviet Marxists then developed this tendency to the state doctrine of Dialectical Materialism.
http://en.wikipedia.org/wiki/Friedrich_Engels#Ideological_legacy
LVG has some of an understanding of MMT, I've seen LVG both attack and defend MMT on different sites.
From what I'm reading here. LVG believes there's a market clearing wage of unemployment.
From a Macro MMT point of view this is a fallacy of composition.
I wrote perhaps my only original post on it.
There were comments by someone of a similar persuasion to LVG but that only resulted in going around in circles with circular logic.
Let's grant that there is is market clearing wage for employment. The question is whether it is above or below subsistence. If it is below subsistence, then either people right to life is being violated or the cost has to be picked up somewhere else. This is to say, that the market clearing wage is a negative externality if it is below the subsistence wage. This brings up the question of what constitutes subsistence. In the US this is the poverty line that qualified one for public assistance. There are working poor that qualify for assistance. That is a negative externality, i.e., a cost that is socialized.
I hear a lot about socialism but when it comes to subsidies, government guarantees, tax breaks, negative externalities being socialized, then it becomes another story.
One could say, well, get government out of the way entirely. But there is no free market possible without a commercial law, a legal system, criminal law, and so forth. Where is the line to be drawn that demarcates the correct boundary of government? What is the criterion. What justifies this criterion?
And there there is Sen's paradox of liberalism.
And the paradox of free-market economy
"The Paradox of Free Market Democracy: Rethinking Development Policy," 41 HARV. INT’L L.J. 287 (2000)
Then there is the associated paradox of globalization and free trade, and free capital flow.
Dani Rodrik, The inescapable trilemma of the world economy
Review: Dani Rodrik’s “The Globalization Paradox”
Economics and politics are complicated and intertwined. Lots of knives in the air to juggle.
Tom,
> Let's grant that there is is market clearing wage for employment. The question is whether it is above or below subsistence.
I was under the impression there need not exist one. The belief there is is a fallacy of composition, as I understand it.
This is stuff that I think MMT has inherited from the post-Keynesians and Keynes (see Mitchell), who believe that even if wages were non-sticky -- perfectly flexible downwards -- there is still no knowing if the labor market is cleared.
The reason is that as wages decrease, so does workers' incomes and thus aggregate demand (caveat: possibly -- but not necessarily). This means that business sales decrease. So they may not be able to hire that cheap labor after all.
I noted previously, there is a section about that in this section in the MMT Wiki: Wage_Cuts_or_Government_Deficits
If you believe the Wiki text is in error, please let me know. Our new comrade certainly believes so.
Decreasing wages also increases the debt burden for workers that are debtors (typically most?), since the debt is fixed and income decreases. This may also weigh in to reduce spending and induce unsound macro-effects.
Furthermore, in (the hypothetical) times of decreasing wages, deflationary spirals (or "traps") could be triggered. Wages decrease may put downward pressure on prices. And as wages and prices decrease, people and business tend to hoard currency -- since its value increases it's profitable to hold on to it. Consumption and investment declines.
All in all, there is not necessarily a wage level that clears the labor market. Granted though -- there might be -- it depends on various factors in the economy such as spending propensities. If a certain economy happens to have such a wage level, then yes, it is a matter of subsistence.
But even if there are market clearing wages and they happen to be a good bit above the subsistence level, the strategy to let fluctuating wages and prices ensure full employment is fragile, as both inflationary and deflationary episodes are troublesome in various ways. (MMT obviously prefers price stability).
Hugo, often one grants an assumption without agreeing to it in order to advance the argument by undermining the assumption based on the way it is framed. If the opponent rejects one's frame, they it may be possible to attack the opponent's position from within the opponent's frame. This is often done in debating.
Tom,
Sociology didn't what? Exist?
To include class as a key concept is to recognize the work of earlier scholars.
~
Some socialists prefer to blame DM on Hegel. He's seen as the 'founder'.
No Tom. In economics one generally grants an assumption to affirm a political ideology. Clearly, the socialist JG arm of the MMT school is guilty in this regard. 20 years of research debunked in a weekend. Good thing. Looks like socialism loses again.
Sorry, LVG. This is a debates and that's how debates work. You are fantasizing again.
Laura, the science of sociology began as an academic discipline with Durkheim's establishment of "the first European department of sociology at the University of Bordeaux in 1895" (Wikipedia). Marx had passed away in 1883.
Of course, there was "sociological thought" prior to this, but sociology in the contemporary sense did not exist during the time of Marx. The foundations were laid in the 19th century by Compte, Marx, Spencer and Durkheim, and it was Durkheim who established it as the academic discipline in terms of which it is now considered a social science.
Marx's status in sociology is recognized as foundational.
For Isaiah Berlin, Marx may be regarded as the "true father" of modern sociology, "in so far as anyone can claim the title."[20]
http://en.wikipedia.org/wiki/Sociology
What's to debate? We all agree the state caused ue. You think more of the cure is the cause. Anyone who isn't a socialist can see that you're wrong. The math on this one is pretty conclusive. Unless you learned math from Randall Wray in which case you think the fed loaned $29 TRILLION. HA. MMT. What a joke.
Tom,
Wikipedia claims:
Some consider Ibn Khaldun, a 14th century Arab Islamic scholar from North Africa, to have been the first sociologist; his Muqaddimah was perhaps the first work to advance social-scientific reasoning on social cohesion and social conflict.
Perhaps he should be exalted.
And welcome back, WWS II
LVG -
Sounds like we don't agree on HOW the State caused ue?
Laura, it is long past time that non-Western contributions be given their due. In many cases, the West reinvented the wheel, when substantially the same knowledge or discoveries are now being documented as centuries or even millennia earlier than commonly thought hereabouts.
LVG We all agree the state caused ue
Yes, but we don't agree on the causal chain. And that makes all the difference.
LVG: You think more of the cure is the cause.
I assume you mean more of the cause is not the cure.
That's like the argument that (private) debt got us into this mess more more (public) debt can't get us out. MMT shows how that is false.
The argument that the government caused ue with state money, so state money cannot be involved in the cure is essentially the same fallacy. Doesn't follow.
Actually, your argument can be construed even more broadly. That is, the state caused the problem (for one reason) so the state can't fix it (with another entirely different one). Doesn't follow either.
Tom
"Hugo, often one grants an assumption without agreeing to it in order to advance the argument by undermining the assumption based on the way it is framed. If the opponent rejects one's frame, they it may be possible to attack the opponent's position from within the opponent's frame. This is often done in debating."
This is my poor English lacking again.
I thought "granting" it pretty much meant conceding it's true.
But you meant it more like "Ok, for the sake of argument let's accept the assumption [blah]...", right?
Thanks
Seen this argument before Tom. I say state spending via min wage and benefits causes ue and you create some totally semantic BS argument about wage stickiness or lack of a market. Whatever.
@ Hugo
Right. Granting an assumption for the sake of advancing the debate is specifically NOT accepting it as actually holding. The English is confusing on this if you haven't see it before.
Funny, all the business people I encounter are saying that the reason they are not investing/hiring is due to lack of customer demand, not that wages are too high. They say that as more customers show up, they will add personnel and inventory, but they are not going out a limb in hopes that customers will show up is they expand.
Funny how many of their expenses are fixed at state levels?? But hey, give me some more theoretical BS. You guys ever run a business of more than 50 people? Itsounds to me like none of you have.
LVG -
"Funny how many of their expenses are fixed at state levels??"
That's what we've been trying to tell you. You're so close....
No, you all are clueless about how running a company actually works. Get the govt out and the capitalists will clear the labor market. But you sob's need your min wage and workers rights and now you have the balls to blame us for the unemployment. Please try running a company as opposed to sitting in some classroom theorizing. It's great to have a PhD. Its another thing to live it.
LVG -
No, we're not blaming you for the unemployment.
We told you who we blamed for the unemployment. Hint: Starts with a "G" and ends with a "t".
lvg,
your have stated that price fixing is causing unemployment. You then stated that you were not advocating wage deflation. make up your mind. part of the problem is that people need to be paid enough to buy the products they produce. If it all goes to profit the market will not cleat and you have unemployment. greed is not god. there has to be some sort of balance. Do you feel anything for the plight of the unemployed and disadvantaged or was it destroyed by your blind compliance to neoliberal propaganda? I feel so sad for you!
LVG, you seem to under the impression that economic policy is the determinant of political policy and than neoliberalism is equatable with economic policy.
That is a very common assumption, but I don't want to jump to conclusions and impute it to you. But that is the impression I get. Is that the case?
Tom Hickey, I think the state can be considered a 'natural' entity. Its current form simply represents an evolution of a basic aspect of human life: community.
I think the state can be considered a 'natural' entity. Its current form simply represents an evolution of a basic aspect of human life: community.
The anarchist claim is that it is possible to have community based on solidarity and actual democratic governance instead of allowing a "state" to own a monopoly on the use of violence, which resides in a ruling class that has typically abused this power historically.
Historically, the concept of the state and state sovereignty grew out of productivity gains introduced by agriculture that resulted in a surplus. Then, that surplus became the object of contention as competition arose regarding who would control it. There were two major competitors, internal and external.
The internal competitors were the specialists that had the knowledge, typically temple priesthoods. The external competitors were marauders. and a professional warrior class arose that was supported by the surplus for protection.
The concept of the state came about through the interests of these classes, the knowledge class and the warrior class. This solidified around the rule of either one (monarchy or tyranny), or a few (aristocracy or oligarchy). In any event, it was the warrior class that ultimately enforced the rule internally.
Are these division natural, that is, based on innate differences in human nature, such as the claim of there being four castes as in India — brahmana as priest-teacher, kshatriya as warrior, vyshaya as businessman, and shudra as laborer or servant. Or are such class divisons based accidents of history that played a role for a time but are not necessary for human life in society?
At one end of the spectrum is the extreme Libertarian argument for autarchism, i.e., personal sovereignty. At the other end of the spectrum are the concepts of the divine right of kings and the mandate of heaven, holding that the ruler is either a god or the unique representative of the heavenly ruler in society. There are many options along the spectrum.
What is at question is whether the essential nature of human being is freedom, and if so, to what degree. These are basic questions of ontology, ethics, and political philosophy that have been debated for millennia and are now studied by psychology and the social sciences.
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