Monday, June 11, 2012

rsj on the JG/LER and more

• MMT Schism?

I go back on line, and it seems that there is some splinter group from MMT that doesn’t like the job guarantee. Sheesh. I think what is happening here (and I could be wrong, as I haven’t been paying too much attention), is that the PKers are generally aware of the political and distributional issues behind economic theories, and so they have an additional reason to splinter off of each other. Mainstream macro aspires towards purely mathematical and scientific aspirations (while advocating proposals that wreck our lives — Friedman praising deflation, Greenspan and Summers advocating financial de-regulation, union-busting, ignoring the housing bubble, etc.). So the heterodox types are aware that their analysis has strong political and distributional consequences and bear the costs with additional disunity. Mainstream econ has agreed (more or less) to avoid these questions and externalizes the costs by dispensing bad advice.

P.S. I am a big fan of the Job Guarantee. That is a no brainer that everyone, even if they do not believe a word of MMT, should support. And it is much better than a basic income guarantee. The JG/ELR makes sense even if we were on a gold standard.
Read it at windyanabasis
by rsj

The bit on MMT is an appendage to the body of the post which is about wealth, capital values, and rents. As always, rsj is incisive and cuts right to the chase.

32 comments:

beowulf said...

"The bit on MMT is an appendage to the body of the post"

Much like, one could say, the JG is an appendage to the body of the MMT.
I kid I kid! I left a longish comment at the link defending the militant wing of MMT (or splinter group, dissident faction, fifth column, etc).
:o)

paul said...

@beowulf

Don't know if you would be interested but I have a friend that has been running for the Libertarian Party Presidential nomination that has been contacted by a Native American Indian group that want's to create a bank that deals in it's own currency.

I believe they want to create loans for Native American investments.

They have a billion dollars in cash.

He asked me for advice, I know nothing about the legal ins and outs and even less about creating a bank.

I suggested he try to contact you and/or Warren Mosler.

Tom Hickey said...

@ beowulf

I have argued that MMT is not a policy prescription appendage to MMT but central to MMT as a macro theory that seeks to resolve the major issues that all macro addresses, the trifecta of production (aka output), employment, and price stability (aka inflation), and that the JG plays a key role in this theoretically. So it can hardly be called an appendage to MMT or simply a policy prescription. It is a necessary element in the macro theory that enables the theory to prevent a solution to the trifecta. The mainstream approach is to adjust the assumptions and definitions to make the problem seem to go away, but bogging the solution down in the inefficiency of permanent idle resources.

Bill Mitchell's initial post on the MMT approach to macro takes precisely this tack, and rsj observes in this post that non-mainstream approaches including PKE are policy-oriented theories because government is a key player in the economy and economic policy determines many marco outcomes. On the other hand, the mainstream tends to abstract from policy in the models, so that the outcome will diminish the role of government, consonant with neoliberalism, which is itself a policy prescription because no-government is not the starting point in modern economies. Bill makes the same point in his post.

Tom Hickey said...

That means that the MMT description of operational reality is not a macro theory in itself. Nor is functional finance alone sufficient to deal with the trifecta, as Lerner later recognized and added MAP to supplement his initial proposal.

So an alternative to MMT as a macro theory built on an operational description of the monetary system needs to address the trifecta differently if the JG is rejected.

The MMT economists claim that its either the JG with a BSE, or something else that includes a BSUE, and that the latter is more inefficient than the former.

So is that claim true, or is there another way to resolve the trifecta at least efficiently as MMT claims to do, but which doesn't use the JG? If so, how does it work?

FDO15 said...

"That means that the MMT description of operational reality is not a macro theory in itself."

Yes, it's just a total myth and completely wrong. Anyone who saw JKH whip STF over at the MMR site a few days ago knows that MMT has been caught with its pants down. STF got a pretty good spanking over there from someone who actually has banking experience rather than classroom experience.

Tom Hickey said...

FDO15,

My view is that STF prevailed. JKH knows the close of up banking and finance but not economics. STF knows both. The MMR folks are just out their league on the economics. They don't have the background.

FDO15 said...

Tom, I don't know which exchange you read, but the one where BF and JKH double team STF is pretty one sided. STF is just rambling about some incoherent "general" and "specific" case which he gets called out on. STF even admitted that he agreed with JKH's posts, but still didn't even begin to comprehend how that meant years of his MMT work was totally wrong. But you guys are politically biased so why would anyone expect you to be able to see past that? MMT can do no wrong because you all believe in the policy approach. Too bad the underlying foundation of it is wrong.

FDO15 said...

I think JKH said it best when he said:

"There’s no point in me recapping the case made in those papers, because I don’t think you understand it. You’re too close to the epicentre of perception. In all probability, you and MMT are not the only ones in the world who can be misunderstood.

The basic problem is that MMT thinks it can get away with conflating the general case (as implicitly implied, usually) into a description of real world monetary operations. "

You are all too close to the epicentre of MMT to even understand how your views are wrong. You have no perception because you're blinded by the idealism of the policy ideas. STF didn't even have a response to this comment by JKH because he was buried by it. JKH called it precisely how it is and how STF's morphing of the "general" and "specific" case is nothing but revisionist history and an attempt to blur the lines between reality and theory. In short, JKH debunked MMT and you guys still don't even know it.

beowulf said...

"Don't know if you would be interested but I have a friend that has been running for the Libertarian Party Presidential nomination that has been contacted by a Native American Indian group that want's to create a bank that deals in it's own currency..."

If you have a billion dollars cash and a desire for a banking license (which is, after all, a license to lend dollar deposits into creation), why on Earth would you want to deal in your "own currency"?

FDO15 said...

"The MMR folks are just out their league on the economics. They don't have the background."

Tom, that's just a ridiculous comment. BF is Brett Fiebiger on MMR and he's now cited in a lot of their material as a contributor. He's also a PhD economist. So there's no "out of their league" on this stuff. Fiebiger can stand toe to toe with anyone on this. In fact, he stands above Mosler and you on all of this since neither of you are trained economists.

Tom Hickey said...

FDO15, you are welcome to have it your way. There are and always will be disagreements in economics and most other disciplines in which the facts are non-neutral as Paul Volcker once put it.

The one thing you are indisputably correct about is that I lack the background to be a competent judge here. But so are you, so we are just picking positions and gassing about it.

FDO15 said...

I have been a fairly independent witness of the growth of MMT over the years. I used to read Cullen Roche's content at Pragcap and always had concerns about MMT, but could never quite put my finger on it. Brett Fiebiger did a decent job of it and so did Marc Lavoie, but I think the recent work by JKH is indisputable evidence that the MMT ideas are just plain wrong. So yes, we are just "picking positions". The side JKH and BF describes is the side of operational reality and the side that you've picked with MMT is a policy agenda based on a "general" (generally wrong) view of the way the operational side works.

A quick read of the BF and JKH comments makes this abundantly clear. STF is way out of his league in that debate. So far out of his league that he doesn't even realize it.

paul said...

@beowulf

"If you have a billion dollars cash and a desire for a banking license (which is, after all, a license to lend dollar deposits into creation), why on Earth would you want to deal in your "own currency"?"

That's a good question and I didn't think to ask it, because I'm loath to give advice in an area that I have no knowledge.

I think it has something to do with the Utah Sound Money Act, which I am not familiar with.

Maybe Libertarians are questioning the soundness of the dollar?

Here is an excerpt of the Act that was in the email I got:

The Utah Legal Tender Act which was signed into law by Governor Gary Herbert on March 9, 2011 contains 4 major provisions:

• Declaration of gold/silver coin legal tender status pursuant to the monetary authority expressly reserved to the states under article 1, section 10 of the U.S. Constitution;

• Voluntary exchange clause to acknowledge state and federal concurrent monetary powers and to ensure that state authorized legal tender will trade at market value;

• State tax exemption in recognition of the fundamental premise that any tax laid on money would effectively demonetize it; and

• Mandate for further study towards implementation of a full-featured complementary currency system.

beowulf said...

"Maybe Libertarians are questioning the soundness of the dollar?"

Sounds like it, that Utah law is nuts.
I wouldn't touch a bank that wasn't FDIC insured and of course the federales only take USD.

To Tom's question above
"So is that claim true, or is there another way to resolve the trifecta at least efficiently as MMT claims to do, but which doesn't use the JG? If so, how does it work?"

I'm a fan of Bill Vickrey's iteration of the Market Anti-inflation Plan.
http://stopmebeforeivoteagain.org/2010/11/were_paul_the_king_it_would_be.html

Tom Hickey said...

@ FDO15

What are your credentials as someone who is in a position to know/

This debate, if it has legs, will be argued in professional papers. If the MMT economists don't think it has merit, it is doubtful they will even respond.

As far as I am concerned, no concerns about MMT from that direction.

Tom Hickey said...

I like Vickery and Paine, too, but what's the reasoning it will mop up everyone that wants a job and is willing and able to work as the JG does?

FD015 said...

The MMT economists already lost this debate. Whether they know it or not. MMT is dead in the water. The only place it had legs was in the blogosphere and that died when JKH served STF up on a warm platter.

No academics take MMT seriously because their ideas are ridiculous. MMT had legs in the blogosphere because you all were able to trick a bunch of amateur economists into believing some of your ideas. Big deal.

Now you get to go back to being obscure.

Tom Hickey said...

FDO15, go back to la-la land with LVG. And I am not referring to MMR, but rather the imaginary world you both inhabit.

FDO15 said...

You mean the imaginary world where banks serve public purpose? I thought this website was that imaginary place? Isn't this called Mike Norman's La-La Land Economics???????????????????

Trixie said...

Even Lloyd Blankfein has to acknowledge the public/private partnership of US banks:

As the guardian of the interests of the shareholders and, by the way, for the purposes of society, I’d like them to continue to do what they are doing. I don’t want to put a cap on their ambition. It’s hard for me to argue for a cap on their compensation

He also adds that as a banker, he is simply "doing God's work".

That fact that banks have intentionally and fraudulently ignored their fiduciary responsibilities toward public purpose, and crash the global economy in the process, doesn't mean we get to throw our arms up in the air and worship the "There Is No Alternative" god.

Trixie said...

FDO15, go back to la-la land with LVG. And I am not referring to MMR, but rather the imaginary world you both inhabit.

I disagree. Every time FDO15 types 'MMT' into his keyboard, he places a mirror in front of Cullen Roche and MMR -- both in talking points and "tone". Sorry any self-declared spiritual leader of the internet may be upset about that.

As you were, FDO15.

beowulf said...

"like Vickery and Paine, too, but what's the reasoning it will mop up everyone that wants a job and is willing and able to work as the JG does?"

I'll outsource this question to the man himself...

"At the most optimistic, such measures [tax cuts] might serve to get unemployment down painfully slowly to the NIARU level of 4 to 6 percent, at which point further progress is likely to be blocked by a resurgence of inflationary tendencies that would provoke vigorous opposition by monetary authorities to further stimulative efforts, implemented if need be by sharply increased interest rates, and even cause a backing off on the budgetary side. The basic difficulty here is that the macroeconomic measures currently available are inadequate to bring the economy to a satisfactory state of full employment. In effect there are three dimensions of the economy that one would like to control: the level of unemployment, the rate of inflation, and the division of total output between current consumption and capital formation with a consequent effect on the rate of growth of the economy, whereas there are basically two available dimensions to macroeconomic policy: control of aggregate purchasing power through fiscal policy, and control of private investment through interest rates affected by monetary policy. This is like trying to fly an airplane without the ailerons that were the basic invention of the Wright brothers. At best, control is imprecise, and if bad weather is encountered there is danger of a crash. We lack a means of controlling the way an injection of purchasing power is divided between buying more goods and paying higher prices. Some method of controlling inflation is called for that does not create an inefficiently high level of unemployment, maintaining what Marxists used to call the "reserve army of the unemployed."
http://findarticles.com/p/articles/mi_qa5461/is_n2_v37/ai_n28633195/pg_7/

The article below reminds me of the Mormon practice of baptizing famous dead people into the Mormon Church. Its like the shade of Bill Vickrey was baptized into Church of MMT (doesn't change what he really believe, that the way to control price levels is by controlling price levels and not with a Employer of Last Resort bank shot).
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=174850
The idea is i

Tom Hickey said...

beo: "the way to control price levels is by controlling price levels and not with a Employer of Last Resort bank shot"

Not sure that the JG is for "controlling price levels" as much as mopping up involuntary UE. The way I understand the argument, MMT holds that setting a price anchor is no guarantee of controlling price by itself but rather gives a specified value to the currency that non-financial that along with the sectoral balance approach and functional finance resolves the trifecta that Vickery also mentions as the design problem to be solved by macro.

I don't see any contradiction in integrating either a Vickery solution or the Collander-Lerner Market Anti-inflation Plan into MMT.

But I am venturing out of my depth here. If Scott is around, perhaps he will comment on this.

Trixie said...

But wait. We should revolt against the Buckaroo system at UMKC, in the event you know where that is. And not the financial industry. You know, to "prove a point".

Buckaroos = BAD
Banks = TINA

Ramanan said...

Tom,

Randy Wray from Understanding Modern Money, page 3:

"There is an alternative. The government can instead let quantity ‘float’ and fix prices exogenously. While the government can, in principle, set the price of anything and everything that it wants to buy, it is probably preferable and certainly sufficient (for reasons discussed below) for the government to fix only one important price"

Tom Hickey said...

@ Ramanan

Yes, but does fixing one price actually control all prices sufficiently to maintain price stability within an acceptable band? When the value of the dollar was fixed to a quantity of gold, did that sufficiently control price stability, for example?

It seems to me that a price anchor is one element but controlling the amount of credit money is also essential in controlling price changes.

Moreover, I think that ignoring the changing value of financial assets in measuring inflation is shortsighted. What happens in a cycle is that assets appreciate first, then goods prices and finally there is wage pressure. So holders of assets always make out, while workers end up holding the short end of the stick. It's programmed in.

STF said...

Here is the MMT view, and there is no other MMT view. Hopefully this is clear enough, but since some like to make a sport out of misrepresenting MMT, probably not.

Randy Wray, 2000. http://www.cfeps.org/pubs/wp/wp9.html

"In conclusion, if the ELR is put in place, it is not at all likely that this will be inflationary in the sense of generating continuous pressure on wages and prices. I make no claim that this ELR policy will completely stabilize the overall price level, thus, it is not a close substitute for an "incomes policy" or more formal wage and price controls. Although I don't support them, such policies can be used in conjunction with an ELR program. I do claim that implementation of ELR will generate full employment (as defined) without generating additional inflationary pressure, and, indeed, would actually reduce inflationary pressure that normally arises when the "reserve army of the unemployed" shrinks."

Tom Hickey said...

Thanks for setting that straight, Scott.

Is there an MMT position on using a Vickery narket-based solution (Chock-Full Employment without Increased Inflation: A Proposal for Marketable Markup Warrants) or the Collander-Lerner MAP (Market Anti-inflation Plan), as beowulf has suggested before?

STF said...

Tom,

All of these are discussed favorably in books edited by Forstater/Tcherneva (collection of Vickrey's work, 2004,http://www.cfeps.org/pdftocs/feps_toc.pdf) and Warner/Forstater/Rosen (essays on Vickrey, 2000 http://www.amazon.com/Commitment-Full-Employment-Economics-University/dp/076560633X/ref=sr_1_2?ie=UTF8&qid=1339611044&sr=8-2).

Tom Hickey said...

Thanks, again, Scott.

Here are clickable links.

Full Employment and Price Stability: The Macroeconomic Vision of William S. Vickrey
Edited by Mathew Forstater and Pavlina R. Tcherneva

Commitment to Full Employment: The Economics and Social Policy of William S. Vickrey (Columbia University Seminar Series)
Aaron W. Warner (Editor), Mathew Forstater (Editor), Sumner M. Rosen (Editor)

beowulf said...

"Not sure that the JG is for "controlling price levels" as much as mopping up involuntary UE".

Look at the article title for the Mormon baptism link and you'll see where I got that impression--
"Savings-Recycling Public Employment: An Assets-Based Approach to Full Employment and Price Stability"

Tom Hickey said...

Here the link and abstract:

Savings-Recycling Public Employment: An Assets-Based Approach to Full Employment and Price Stability by Mathew Forstater

Abstract
William Vickrey's single-minded commitment to full employment is evident in a series of papers written in the last years of his life. In these works Vickrey formulated an assets-based approach to macroeconomic analysis that has definite implications for budgetary and employment policy. For Vickrey the relation between desired and actual holdings of net financial assets--or net nominal savings--is crucial to understanding macroeconomic processes, and the government budget is the key policy instrument in the necessary recycling of net nominal savings to bring the desired and actual levels into equality at the full employment level of output and income. Vickrey believed that the major task for economists and policymakers was to devise the means whereby the necessary recycling of net nominal savings can take place without unexpected changes in the rate of either inflation or deflation. This paper proposes government deficit-financed, guaranteed public employment as an automatic stabilizing policy instrument capable of serving as just such a means.