Friday, January 13, 2012

Rogue Economist questions the MMT JG

In the last 2 years, I have been discovering this new economic paradigm called MMT. I have come to realize that it is the best system to accurately depict the current realities of the monetary system, and is very comprehensive in explaining and anticipating the economic effects of certain financial, central banking, economic policies. Recently, however, I'm beginning to discover that it seeks to change the current economic order, and proposes an entirely new economic system to what we have now. It looks alien to me, and I'm open about the possibility that I'm not seeing the entirety of what is actually being proposed (Because if I have it right, it looks very statist to me, and I completely veer way from MMT here).
Read the rest at The Rogue Economist Rants
Questions about the job guarantee-driven economy
by Rogue Economist


Matt Franko said...

Rogue comments: "DanielR, wow, that puts it in even more diabolical light that I had thought. JG has nothing to do with raising demand at all?"

Diabolical light?

Please spare me.

Romans 13:
"1 Let every soul be subject to the superior authorities, for there is no authority except under God. Now those which are, have been set under God,
2 so that he who is resisting an authority has withstood God's mandate.

Resisting a mandate of God IS THE TEXTBOOK DEFNITION of what "Diabolical" is. ie if you look up "diabolical" in the dictionary, you see a picture of someone resisting a mandate of God. This is what the word means.

If an enlightened electorate in a liberal democracy comes together and votes for their govt to impose a full employment policy via the righteous authority granted to civil governments by a mandate of God, that is hardly "diabolical".

To the contrary, when the bunch of entrenched corrupt morons in govt now, can't quickly enough surrender said God given authority to "the invisible hand", now that's diabolical.


Anonymous said...

Well, I didn't know RE looked that favorably upon the non-JG component of MMT. That's a big win to me.

Neil Wilson said...

"because you don't care about the private sector jobs that the permanent JG would kill."

I do. If I can give the employees a choice of job, I have a small side bet that the number of individuals servicing premium rate chat lines will go down. I consider that a win.

Private sector jobs have no right to exist if they do not enhance the lives of those doing the work.

Private sector - good, other sector -bad is a religious position that doesn't stand scrutiny.

Rogue Economist said...

Neil, I hardly think chat lines are the private sector jobs that the JG would kill. They could actually be among the private sector jobs left after JG kills the legitimate mom and pop businesses.

Government dictate good, private sector bad is also a religious position that doesn't stand scrutiny.

Tom Hickey said...

Rogue, there are mom and pop businesses left where you are after Wal-Mart and now The Dollar Store? Not around these parts. No small family farms either after agribusiness moved in. :o

Rogue Economist said...

OK, in response to Matt Franko, using the word 'diabolical' to Warren's comment might have been over-reaching. I'd say it's 'ingenious' that what seems a demand-enhancing mechanism is actually a tax-cutting mechanism. But kudos to Warren Mosler for admitting it for what it is, and I actually agree that we need to cut FICA taxes.

I reserve the diabolical to those others who would couch what is actually a demand control mechanism and an economic straitjacket under the guise of helping those who are currently unemployed.

Rogue Economist said...

Tom, but is having a permanent price anchor the best way to bring back those mom and pops that were eaten up by walmart? I would think it would entrench the current big boys even more. if small businesses were to start up with a JG, they're probably going to be less inclined to hire if to be able to attract people away from the JG would mean an escalating wage, the more people they need, the higher the labour clearing price. Either less of them do start, or if they do, they don't hire labour as much as they would have without the scarcity induced by a permanent JG. The Walmarts, in the meantime, would probably start trying to justify that they are a JG supporting company that creates a lot of jobs for the JG, so the government better start paying their line workers, no?

TomatoBasil said...
This comment has been removed by the author.
TomatoBasil said...

The more I think about this, I think the problem is one of semantics. If we called it a CG instead. A "Customer Guarantee" it would appeal to the American psyche more. We are guaranteeing that any business that produces a quality good at a reasonable price will have consumers able to pay for the good.

Tom Hickey said...

Rogue, I don't like the JG not because it is "statist," which I think it s stretch. I don't like it because it just puts a bandaid on an obsolescent if not already obsolete system that is also badly broken for a variety of reasons, some economic and some political.

An economy is a the material life-support system of a society, and in this age of complexity, especially, the existing system is serving a few and disadvantaging many, not only nationally but also globally.

I agree with the MMT position that a buffer of employed is superior to a buffer of unemployed and that monetary policy is an ineffective and inefficient tool for addressing price stability. But that is within the existing system, and all the JG really does is remove some of the destitution socially. So I agree it is an improvement over a bad situation, but barely.

I am convinced that the whole concept of economics is in need of a complete overhaul on two fronts. First, the present system is ill-suited to the looming challenges and potential opportunities of global society and a global economy. Secondly, present economic thinking and the policy based on it is growth-oriented and equates prosperity with growth without taking distribution into consideration.

Looking that this in terms of the big picture it is insane, and from the standpoint of zero-based budgeting, starting anew is this the kind of system humanity would choose to support the physical survival and material progress of the species while considering other factors such as ecology, quality of life, and human rights and values?

In fact, I would say the present system is what is "diabolical." Tweaking it with things like a JG that marginally improve workers lives, maybe, is just fussing around the edges of the problem.

Is this the best we can do? Obviously not.

One could say, paraphrasing Rummie, that we have to roll with the economy we've got. But even here most seem to think that a JG is politically impractical, if not impossible. Well, then, if we are stretching the limits of the practical if not the possible, too, then let's get creative and go for what we think is optimal.

Jeff Madrick just put up a post over at New Deal 2.0 that is cited yesterday in which he says that economists have a professional responsibility to propose the best economic policy to meet existing and future challenges that they can devise, not just settle for proposing something that is politically expedient. I agree.

Sanjay Reddy is also emphasizing that it is not possible to formulate a social theory, and economics is a social science, without taking into consideration that wrt social issues, the positive and normative are necessarily entangled. The normative aspect should not be presumed and submerged, but rather made explicit and acknowledged.

What kind of a world do we want to live in and what kind of a world do we want to bequeath to those who come after us, our progeny? Let's start thinking about that economics based on the values (quality) instead of missing the forest of quality for the trees of quantity.

So to answer your original question, from my perspective it is the wrong question, and most of this whole debate is a distraction from what is truly important, which is species survival and progress.

I don't like being cynical but I have eyes, ears, and a cerebral cortex. The people at the top know full well that the planet cannot support the growing population on the resources that are available, even with the wildest technological innovation, unless we develop space travel and find some other planets to colonize. Stephen Hawking has been harping in this.

The present course is unsustainable. TPTB understand this. Their solution is eliminationism. Some of the proles like some of the Occupy folks are figuring this out. It doesn't take much imagination to see where this is headed.

Tom Hickey said...

Humanity has to develop a global social, political and economic system that allows the species to live within its means, where "means" doesn't mean financial resources as MMT shows, but rather real resource availability.

This is not rocket science. Scientists know how to do the numbers and figure out how to proceed effectively and efficiently once the design problem has been rigorously articulated.

One of these resources is human resources, and one of the issues is population. We know how to deal with that, too, if we can overcome the deeply ingrained cultural obstacles that stand in the way.

The way market distribution is presently structured is a very inefficient and ineffective way to allocate real resources and financial claims on real resources wrt solving the design problem. The whole myth of the free market has be to discarded before it kills us all except those that the top that are positioning themselves and their progeny to survive.

Failure to recognize and acknowledge this is leading to disaster for the species. James Lovelock said some time ago that by his estimation the point of no return has already been passed, and the likely outcome is that only a few hundred breeding couples would survive in the Arctic. Hawking has recently taken up the call and recommended a crash program to find extra-terrestrial resources, including territory for expansion.

Instead of sloughing this kind of prediction off as doom's day talk, we need to be listening to the scientists instead of careening along a course that very possibly leads over the cliff.

Senexx said...

"Mom and Pop stores" (feels weird writing that) can't start without capital and they can't get capital without a job.

I'm from a country town where practically everything is a "Mom & Pop store" so you can't get a job because there is very few of the larger places and only family works at the M&P stores. You can't get a look in.

However, that sort of talk is at the micro-level - does it scale up to the macro-level? You be the judge.

Rogue Economist said...

Yes, they can't get capital without a job. That's why a government jobs program is necessary when we have a laggard private sector demand. So what happens now when demand comes back, and let's say Senexx accumulates some capital and wants to open a new business, but when he tries to hire people, he can't hire them unless he promises to pay them more than he himself used to earn from the JG? Would he still start the business, or just go back to the JG and hope someone else hires him away at a higher pay?

You're worried if talk about small business scales up to the macro level? How about implementing the price and demand anchoring mechanism of a permanent JG, aren't you worried how it scales down to its micro effects?

Tom Hickey said...

Rogue, are many people that are hired off the bottom going to be starting new businesses even if they were given the capital? And even if they did give it shot, what is the probability they would last over a year. Last I heard the one year failure rate for startups was around 90%.

Also in today's climate it is almost impossible for someone to save up enough capital to start more than an ebay store, other than in a black market situation, which is actually what most enterprising people at the bottom do.

Even on ebay the competition is fierce, and there are always a lot of people who are really pursuing a hobby and losing money that keep offers below a profitable level on the stuff they are dealing in. Moreover, there are thousands of people scouting for niches that no one has exploited yet. Nor are they going to be writing apps.

I just don't see this kind of objection as being realistic although it may have merit theoretically.

Rogue Economist said...

Tom, not everyone starts a business. But everyone will have to make a decision whether to stay with a JG or start a business or accept a job from someone starting a business. There's a 90% failure rate, ASAIK, because many do not find a market for their product.

My concern in this post is not who specifically starts a business, or how many are able to save up in current environment to start a store, or even what the failure rate will be under JG. My concern is = How much less business will be started because of the increased costs to hire. Less businesses started means more people stay indefinitely with the JG. Less businesses started means either government ends up being the main employer in the economy (for how long a time, who knows), the current entrenched private businesses become more entrenched due to lack of competition from businesses with new ideas, and higher hurdle rates for existing businesses that need to hire a lot people who may now use the JG to ask for higher wages.

Do you think all these concerns are theoretical? Isn't it more theoretical to think that a JG can give workers employable skills yet expect these same workers to still willingly leave that skill-enhancing JG job for a job in the private sector at all? My guess is that either JG jobs will not be all skill enhancing, or the JG will eventually take over and become the majority employer in the economy. Maybe both.

Tom Hickey said...

At a compensation package arranged at just above the poverty rate? If the country cannot produce enough jobs that are above the poverty rate, hiring off the baseline as needed, then maybe that kind of society is destined to fail. The alternative is either firms hiring below the poverty rate and letting government pick up the difference, which is a subsidy for creating serfs, or condemning people to live in poverty, both of which are operative in the US, depending on circumstance. And then blaming the victim. That's just crazy.

Tom Hickey said...

Actually, the way it would work in many places is that temp agencies would offer a slightly better package than the JG and hire people away from the bottom. JG recipients would be fine with that because they could always fall back onto the JG if the temp employment dried up. The better temps generally get hired on, too, so there is some upward mobility off the bottom.

I am speaking of the MMT JG here, which I don't like for reasons already explained. I would do it differently, as I said above, but that is another story.

Tom Hickey said...

Just to summarize my objection succinctly, when labor is commoditized, then talents and abilities are monetized in terms of quantity demanded, and intrinsic quality is not considered. As a result, a lot of people get thrown on the trash heap for economic reasons, which under present economic thinking is irrelevant because economics is taken to be positive rather than normative, hence amoral.

The result, however is that human beings get treated as means, which is the great taboo of ethics and social-political philosophy in the Western tradition. There is a disconnect between mainstream economics and cultural norms, which many also consider to be moral values.

Senexx said...

To answer the question asked - No.

I'm more concerned about the hysteresis effect on the long-term unemployed due to the State being worried about accelerating inflation and not considering the Real Costs.

It's those that want jobs that can't get them that my concern is for. Not someone that just lost a job yesterday and can probably get one tomorrow when any tiny upswing comes but what about the person that has been trying and trying and getting nowhere.

Now that's what happens at a micro-level. In my view, you just didn't go micro enough.

Rogue Economist said...

Tom , but who said anything about hiring at the poverty rate? I repeat, I have no objections to the JG as a job program for when there is a recession and private sector is not hiring. What I have objections to is having a permanent JG as a means to permanently control demand and prices in the economy. The JG as proposed is not just really just meant to hire people who cannot get work now, but also tells people - work for JG now, but tomorrow you work for private business, but maybe next month, we'll make you go back to the JG.

Senexx, you're just thinking about today's environment, but you're not thinking for when the economy has improved. Do you think it will always be like this, even if we implement a JG today?

Tom Hickey said...

Rogue, I don't like the floor wage package as a price anchor against inflation because it commoditizes labor and doesn't address the actual problems we have with the economy and society. Would it work though? All too well I am afraid, given the criteria proposed. Everyone willing and able to work would have a basic job offer and the floor wage of labor would establish a numeraire linking nominal value of state currency with real value in the form of an hour of unskilled work that any worker could perform.

My question is how much of an advance this is over what we have now. I would say it is a pretty significant advance with seemingly low risk of anything going so drastically wrong that is not worth trying over the system in place, which is stupendously inefficient, wasteful, and inhumane. It's difficult to think of anything worse than the festering problems that presently exists around the world, even in developed countries like the US and which are not being addressed by the present system.

Rather than consign anyone to unemployment below the poverty level, I would rather tell people and firms that there is a permanent bottom at the poverty level established by government. Workers then know that they are free men and women in the bargaining process, not commodities being traded, which is basically wage slavery. Firms then know that that they have to pay a living wage and cannot expect government subsidizing their hiring people at below a living wage.

So a permanent JG would be an improvement over a Dickensian situation such as exists in much of the world and even in the US.

Moreover, there is a permanent underclass in most societies whose needs are not met and whose human dignity is not recognized. The JG doesn't really address this and similar issues. It's just a patch. That is why I prefer to look at the design problem in an entirely different light and from a completely different angle — beginning with the problem as it actually exists rather than as imagined.

I had a cousin who worked as an assembler of jet engines for Pratt & Whitney. He told me a story that has application here. His team was assembling a test engine for the first time one day and one of the parts did not fit. They checked the blueprint against the part and did all they could to make it fit. No go. So he called the engineering department and reported the difficulty. He was told that it was not possible that the part did not fit since the blueprint showed that it did, so they must be doing something wrong. He said, "Look, we've assembling engines for years and we have tried everything it doesn't fit. Come down and see for yourself." The engineer answered, "Engineers don't come down to the floor." Of course, the line stopped and higher up in management got involved and sure enough, the part did not fit.

The problem with this present system institutionally is that no higher up in management really cares about the problem enough to actually address it, largely because it is inconvenient politically, since taxpayers are convinced that assisting the great unwashed will mean higher taxes for them.

Senexx said...

Rogue, I'm in Australia with one of the lowest UE in the developed world and I still think that.

What you accuse me of (for lack of a better word) is exactly what I accuse you of. I might have even wrote that on your site (which overall is a very good site).

It suggests to me that you don't understand what an automatic stabilizer is.

Should we abolish all welfare benefits/social security in boom times too? Of course not.

Rogue Economist said...

Senexx, welfare benefits and social security do not compete with private job offers but the JG will. The JG as proposed is not an automatic stabilizer, it's also a procyclical cost pusher and, as part of taxation, a centralized demand control mechanism.

This is what I've been saying.

Rogue Economist said...

I know that in proposing the permanent JG, MMT doesn't want to surrender 100% employment to the 'whims' of the market. I understand that. Yes, you'll get the very last unemployable person gainfully employed. But you'll have a less progressive economy as a tradeoff. On this note, we can agree to disagree. I know I won't convert you, you know I'm set with my position. What goes won't depend on what you or I want, but what most others will want, but I needed to make the point. It's not all roses with the JG as proposed by MMT.

And if we agree, as I think we do, that the market in the pursuit of ever larger profits causes more unemployment than is necessary, then it would be better to regulate business in those areas where its profit motives go in the way of larger societal goals. Regulate banks and private equity, restrict mass layoffs caused by excessive debt due to corporate consolidations. Restrict offshoring and disincentivize mass automation. But don't make hiring more expensive for everyone in the economy, especially for those small business who would already be hiring actual people, but have fewer resources than the big companies that are more guilty of the mass unemployment.

Warren Mosler said...

to paraphrase donald sutherland in kelly's hero's, 'have a little faith in market forces, baby!'

with sufficient demand market forces adjust compensation etc. so that mom and pop will have at least as much spread in hiring away from the jg force as they do today in hiring the unemployed.