Abstract
This paper excavates the set of ideas known as modern monetary theory (MMT). The principal conclusion is that the macroeconomics of MMT is a restatement of elementary well-understood Keynesian macroeconomics. There is nothing new in MMT’s construction of monetary macroeconomics that warrants the distinct nomenclature of MMT. Moreover, MMT over-simplifies the challenges of attaining non-inflationary full employment by ignoring the dilemmas posed by Phillips curve analysis; the dilemmas associated with maintaining real and financial sector stability; and the dilemmas confronting open economies. Its policy recommendations also rest on over-simplistic analysis that takes little account of political economy difficulties, and its interest rate policy recommendation would likely generate instability. At this time of high unemployment, when too many policymakers are being drawn toward mistaken fiscal austerity, MMT’s polemic on behalf of expansionary fiscal policy is useful. However, that does not justify turning a blind eye to MMT’s oversimplifications of macroeconomic theory and policy.A critique of Modern Monetary Theory (MMT)
Thomas Palley
218 comments:
1 – 200 of 218 Newer› Newest»I'm always looking for a good critique but once I hit about page 10 I'm once again I'm left with - ok I'd agree if that was what MMT claims....
Looking forward to critiques of the critique.
Sorry that was the version with typos. Sorry. 4th try is a charm, I've heard:
Sad for at least 3 reasons.
1. Almost alone among economists today, Palley cannot pry his mind loose from the thoroughly discredited and reactionary Phillips Curve idea. We need tens of millions, nay, hundreds of millions of unemployed to keep inflation in check.
2. Certainly alone among economists today, Palley still embraces ISLM--which even its creator, John Hicks, abandoned.
3. Palley still cannot find any original ideas to work on. He doesn't understand anything about MMT. Nor, even, endogenous money which is now 25 years old. Stuck in 1960s Bastard Keynesianism.
Sad, Sad, Sad.
Ok now I have to prove I'm not a robot. (as if that would not be an improvement) Wish me luck.
You're way ahead of Tom, DAB. Hopefully there will be no replies to Tom--best to not give it any attention as it's a very poor piece of work that he obviously spent a lot of time on (from the looks of the details in the footnotes). Apparently we're kind of a big deal if so many people want to take potshots at us.
I only got a couple of pages in before he lost me. I concluded it was a waste of my time when what I was read was just a rehash of stuff that has been brought up before and replied to.
How about we start with the fact that it puts economics in plain English not behind the veil of jargon (or standard economic nomenclature if you prefer).
As Joe Firestone often indicates the political economy difficulties is just a matter of shifting the Overton window. Just because it is not easy, does not mean it should not be attempted or done.
Also "at this time of high unemployment" is presumably a US/EU narrative and thus a very narrowly defined view and a political economy reason for looking at MMT where MMT is much more broad based and for all times. Not to mention every country has a different political economy with different nuances.
And that only covers the abstract here.
First five pages are a rehash of very basic MMT principles and then we get the question of Should the government finance itself without using taxes and should it do so?
There is no MMT literature that I'm aware of that says any such thing, the very basics from Mosler answer this question to what the role of taxes is - a thermostat on the economy. Even in the 7DIF he gets into Bonds as a reserve drain.
Next I went straight to the references to see if Stephanie Bell/Kelton's Can taxes and bonds finance government spending? It wasn't in the references. So barely a few pages in, you can see there is much missing from this critique of MMT.
And from there he gets into the nexus of fiscal and monetary policy which has been much addressed in MMT and this Friday night 6.15pm EST - there is a web seminar discussing this issue at http://bit.ly/modmpp
That is as far as I have read so far.
I had a response on Twitter from someone I think also comments here from time to time that Scott Fulwiller and Bill Mitchell have previously addressed all these arguments.
Also on that note Scott is one MMTer that does not assume that there should be full consolidation of fiscal authority and central banks. However, that does not change the fact that they remain the opposite sides of the accounting ledger and are stock-flow consistent. That is the primary point MMT makes.
Just this nobody's viewpoint on the first few pages.
I made it about 6 pages and saw so many strawmen I couldn't go on. Palley is a lightweight thinker.
He will get a lot of high-fives from the amen choir though.
right, Tom. He basically relied on misinterpretations found in previous critiques---haters gonna hate. Better to push forward than worry about them--thankfully we've moved beyond having to worry about what misrepresentations our PK friends put out there given how our work has been received in other forums the past few years.
Paul and MM--well said!
Regarding "consolidation," in my own view it's really only been used as a "here's a way to think about this abstractly so you don't ever misunderstand the true nature of govt finances" sort of thing. Criticizing it makes about as much sense as throwing out Keynes's General Theory because the real world spending multiplier isn't (1/(1-mpc)). Just a basic inability to understand what a "general theory" is. Even Krugman now uses our language about the US govt being a currency issuer regularly--still waiting for the MMT haters to start writing their anti-Krugman polemics on that one.
And about the politics--that's funny, because think about it a second. If the govt isn't financially constrained but behaves like it is, then what is it really constrained by? obviously it's politics--MMT is ALL ABOUT overcoming the politics; you can't be an MMTer and not be aware of the politics because that's what's standing in the way of understanding the monetary system as far as we're concerned.
Well let's examine the academic "rigour" with which Palley examines everyoje's favorite whipping-boy:
MMT is described as "primitive", "inferior", "extremist", "averse to math" and "simple". Other insults are reserved for Post-Keyensians.
A "leading proponent" of MMT says inflation is never a problem, though Palley provides no source for this.
He asserts MMTer's think only taxes have an effect on the value of money, an assertion which could not be farther from the truth.
In his abbreviated discussion of the effects of a growing money supply on inflation, Palley appears unaware of the concept of financial leakage.
In asserting that MMT ignores political realities in its advocacy of government spending for public purpose, Palley appears unaware that it has always been emphasized that obstacles are self-imposed constraints and can be changed should we wish.
There's also a suggestion here that MMT implicitly requires a balanced budget. That alone derails the entire paper.
I'm bored, going to bed.
The encouraging thing is to see so many who DO understand MMT commenting here. Apparently it's not THAT hard to understand what we've been saying. Thank you all so much!
"Ok now I have to prove I'm not a robot"
Could Palley ?
I mean what do you call someone who has no ideas of his own, just verbatim's the orthodox line. which he was programmed ( i mean taught) with.
"However, though full of boilerplate disclaimers about the need to take
account of inflation (see for instance, Wray, 1998), MMT lacks an explicit theory of
inflation, how inflation impacts the economy, and how that impact complicates policy.
Once again, the lack of formal modeling requires reading between the lines to try
and intuit the MMT approach to inflation."
Afraid not...
Watch here in video at 13:00 mark Mosler, Mitchell and Wray lay out the MMT approach to inflation:
http://mikenormaneconomics.blogspot.com/2011/11/infaltion.html
Very straightforward and understandable.... govt ratifies the prices.
Prices are a function of the prices govt directly pays for provision or the collateral prices it allows the banks to use in underwriting loans... checkmate.
rsp,
I skipped to the part where he discussed ELR/JG, since that is what most people seem to find most "controversial" about MMT. Although Palley didn't seem to have an ideological hostility to the basic idea, he botched it thoroughly, nonetheless. He didn't understand it. Not even in the ballpark. Judging from the other comments, I will suppose that the rest of the paper is of similar quality.
To anyone saying MMT is nothing new my most immediate reaction is almost to punch them in the face. Yes, maybe it is nothing new, but before the loud-mouthed MMTers appeared, nobody seemed to bother telling people that govt deficit = private sector surplus, that sovereign default is always a political choice and never a necessity, that loans create deposits and money multiplier is a myth - all these apparently common place truths were guarded like state secrets from the plebeian public by the academicians in their ivory towers. Or so some of them say - Nick Rowe, for example. Bullshit, Nick Rowe and co, even if you "knew" these things, you never internalized them and never applied these understandings to your theory. Until MMT came about. So, yeah, Lerner and Godley and Kalecki all came before, but the only school o thought that synthesized the ideas and and got them into the public is MMT. Not that I imagine that Palley understands any of this.
Right Peter... And they never claimed they did not benefit from the past work of others with citation as is probably normal in all scholarship .... Rsp
The argument about constraining government is frankly ludicrous.
If the central bank in a direct lending system is incapable of setting (with the guidance of parliament) a budget and interest rate for Treasury discretionary spending, then how the hell is it supposed to divine the 'real interest rate' for the entire economy?
MMT works on the consolidated balance sheet of the government sector to highlight truths about the flow of money around the system.
That doesn't mean that the central bank and Treasury idea isn't a useful political control function. But that is what it is. A *political* control function.
And therefore there is likely an improved design. For example I've been toying with the idea of splitting the consolidated balance sheet into three. So you have the central bank, you have a cyclical fiscal authority and then you have a discretionary fiscal authority.
If you do that then the discretionary fiscal authority *can* be required to run a balanced budget - since the counter cyclical stuff is handled by another department.
Peter Drubetskoy’s comment above is spot on. I.e. there may be nothing new in MMT, but what MMTers have done is to take the large assortment of ideas and theories which academics like fiddling around with, with a view to keeping themselves employed, and picked out the ideas which will actually get millions of unemployed back to work.
As Simon Wren-Lewis (economics Prof. at Oxford) pointed out, too many academics are interested in theory rather than reality. See:
http://mainlymacro.blogspot.co.uk/2012/04/microfoundations-and-evidence-2.html
Apart from the ideas mentioned by Peter, there is another “reality” which MMTers have correctly highlighted (Roger Mitchell in particular) and that’s the fact that a monetarily sovereign government can deal with a recession by simply printing money and spending it (and/or cutting taxes). Keynes did admit OCCASIONALLY that governments could do this, but he stressed the “borrow and spend” option rather than the “print and spend” option.
I suspect that was because he knew he was surrounded by Neanderthals who would foam at the mouth when the words “print” and “money” appear in the same sentence, and unfortunately not much has changed there. So what MMT has done is go head to head with the Neanderthals. That’s MMT’s contribution.
Pete Drubetskoy,
I have yet to see a comment on MMT by Rowe that did not appeal to phrases such as "I don't understand what they're saying!", "I'm bored!" or "it's not interesting!"
Spot on Peter
And dont get me started on Rowe, who is a slightly more polite version of Sumner.
Sumner is the guy who actually argued that Japans inflation is 100x ours and even after I pointed out to him that the Yen was a penny equivalent and not a dollar equivalent. he said it didnt matter........ FOOL!
Ive become interested in trying a slightly new argument angle. Ive noticed that Cullen Roche has taken to criticizing MMT on it "government centrism" approach. He argues that in fact govt IS a currency user in our system and is better thought of as a facilitator rather than a creator. I dont think he is wrong about this, on a certain important level, but I think it has a blindspot. hat blindspot is that banks are facilitators too! Additionally he uses the word facilitation in a way that minimizes the notion of facilitate. Facilitating is the most important action within our society I think. Facilitating is like what an enzyme does for chemical reactions. Without enzymes we are DEAD!
So its all about the level of facilitation. Large scale or small scale. Banks are likely better at smaller more local facilitation while the govt is necessary for larger scale facilitation.
Sorry to wander a little off topic
Eugh, I couldn't get passed "latent high powered money".
The theory that "high powered money" is required for loans has been thoroughly discredited by the Fed, the BIS, and who knows how many other central bankers.
If we want to reduce the rate at which loans are being created, all we need do is lift the federal funds rate, and all we need to do that is pay interest on reserves. This has been thoroughly covered by Mitchell and others (where I sourced the above two citations).
So I got to about p19. If the author hasn't realised that MMT rejects loans being high powered money supply driven - due not just to theory but also empirical econometrics review (Fed piece above) - then he's really not in a position to be critiquing what the school has to say. It's a pretty fundamental part after all.
The government is simply NOT a currency user, although it has been functionally divided for now into two components, Fed and Treasury, one of which is a currency issuer and the other a currency user. One way to understand our current system is to think of it like a gold standard in which the government is the monopoly seller of gold specie. Just replace gold by the "base" dollars that are issued directly by the government, and you have our system. We're on a USG-dollar standard.
There was an endogenous component to money under the gold standard too, depending on how tight or lax the rules were about allowing banks to emitting their gold backed IOUs. But the govt had to accommodate sustained and stable increases in bank money by selling gold reserves to the banks.
A bank dollar is an IOU. It is an IOU for the USG dollars that are emitted directly by the Fed. These bank IOUs are accepted by other banks because they are redeemed with a payment from one bank's reserve account to another.
The fact that a government voluntarily decides to restrict its currency-issuing power to one department, does not make the whole government a currency user.
Let's see Ben Bernanke decide not to emit a single additional Fed dollar for the next sixth months, and then we'll see how fast the idea of USG as currency "user" crashes and burns.
Greg,
That is like Dan's 'PUBLIC Enterprise' vs 'PRIVATE Enterprise' ... RSP,
I thought it was a decent paper. If Palley's criticisms have already been addressed elsewhere, can someone provide a link? Cheers.
per Alex: "If we want to reduce the rate at which loans are being created, all we need do is lift the federal funds rate, and all we need to do that is pay interest on reserves."
Is this accurate?
Wouldn't it be more accurate to say that adjusting the FFR or IOR can 'attempt' to affect "the rate at which loans are being created" … but ultimately the driving force is endogenous factors?
Certainly the BSR has shown that lower the FFR/IOR doesn't necessarily increase "the rate at which loans are being created" ...so it doesn't seem accurate to claim that the power to induce the opposite effect is operable.
"I dont think he is wrong about this"
He's completely wrong.
The way that money is created in the US is through credit/debt, either public (tsys issuance) or private (loans create deposits). Most of the money stock is private credit (bank asset)/debt (borrower liability), and consolidated nongovt saving of net financial assets ($NFA) is through holding Treasury securities (Treasury liability/nongovt asset). This is a political choice rather than an operational necessity.
The United States Congress, with the approval of the president, decided through the Federal Reserve Act of 1913 as amended and other relevant legislation to "franchise" its constitutionally designated currency monopoly to the financial sector for the "public purpose" of greater privatization in a capitalistic system, in the belief that the private sector is better qualified to control the national purse strings than politicians influenced by their constituencies in a democratic republic. However, government did not delegate all of its currency monopoly power.
The Fed, whose district banks are all privately owned and controlled by their member banks, is a public-private hybrid that was created by Congress and subject to change by changing current law. However, while the district banks of the FRS are privately owned, they do not function in the same way as other private firms due to the institutional arrangements stipulated by the governing law. As a result there is confusion and controversy over the constitution of the Fed as public and private. In fact, fight now it is a raging controversy, with many views on what the facts are and what changes should be made, if any.
The majority of the FRS board of governors is appointed politically and the BoG has been made political independent after appointment. It also been a political choice to delegate the monetary policy of the United States to a small group of unelected and unaccountable technocrats, largely chosen from the financial sector and subject to the revolving door. (Here it is also interesting to note that the Fed has been charged with a legal mandate to regulate production consonant with full employment and price stability, a mandate the is regularly violated by the adoption of NAIRU and a Taylor rule.)
The purpose of private banking is to provide liquidity to the economy through landing by managing risk for a profit. This is supported by the Fed as the lender of last resort, which gives banks control of the endogenous money supply through lending. The Fed retains some exogenous influence in being able to set the interest rate which affects the spread that banks charge, hence the cost of borrowing capital for investment, which is where most borrowing goes.
The Fed has the ability to set the interest rate and to manage the yield curve as it deems necessary, ostensibly for public purpose, i.e., micromanaging production consistent with full employment and price stability iaw its mandate. (Whether the Fed is able to do this, or should be doing this, is controversial.) When the Fed is not paying IOR, the Fed and Treasury cooperate to facilitate the Fed hitting its target rate by managing quantity of excess rb.
continued
I don't think that the facts are controversial here. What is controversial is the degree to which this system serves public purpose and to what degree it adds value, if any. Some think that it is optimal or would be with some tweaking, while others advocate for nationalizing the banking system, on one hand, and other completely privatizing it.
IAW this political choice. the federal government borrows from the private sector in that the Treasury must obtain the reserves (Fed liability) it needs to spend by issuing treasury securities (Treasury liability) since it cannot run an overdraft at the Fed as can private banks. Issuance of tsys increases consolidated nongovt $NFA when the govt spends more than it taxes. That is to say, after deficit spending, the amount of reserves remains the same, the rb borrowed being spent back, but the amount of tsys held in nongovt increases. Exchanging tsys for rb and vice versa does not change the amount of $NFA only the composition. So $NFA increases by the amount of tsy issuance.
This funding arrangement by "borrowing" is obviously different from that of "printing," in which the Treasury issues coins and notes to self-fund instead of Treasury securities. The former is "indirect" funding, while the latter is "direct." But the net increase in $NFA remains the same, other than the additional increase that interest on the tsys involves. However, the indirect funding makes it appear as if govt is borrowing funds created by the private sector.
Note that if Treasury issuance by borrowing increased $NFA in the same amount as direct issuance, only through a different channel, then govt is not borrowing from the private sector in the sense of borrowing bank money that is created endogenously and therefore must net to zero. If this were the case, then there could be no $NFA add through this borrowing.
This is what some people erroneously believe is happening, which is why they think that the present arrangement is less inflationary than "printing" through direct issuance. It is also why they think that govt is redistributing funds through tax and spend.
viimothy: If Palley's criticisms have already been addressed elsewhere, can someone provide a link?
Not "link" but numerous links. Someone writing a paper is suppose to be aware of the lit and the state of the debate.
"It is also why they think that govt is redistributing funds through tax and spend." - Tom
This is one of those really elusive abstract relationships.
The government isn't redistributing funds by taxing and spending, but mathematically it is indistinguishable from a system that does.
Thus, reality is a matter of perception.
The way I look at it is that the system maintainers goal (maybe for the wrong reasons) is to keep the expansion of net money roughly matched to growth and savings desires.
At the same time flow must be maintained and this requires the government purchase a significant portion of production.
Think of taxes on the rich as a kind of protection…like limiting nuclear proliferation. Taxes on the rest of us manages demand mostly.
Without taxing excess saving a tiny cohort would accumulate enough funds to buy 100% of production 100 times over, as prices are set by the funds that aren't saved.
Game Over. Is it over already? Probably.
Tom: "The Fed retains some exogenous influence in being able to set the interest rate which affects the spread that banks charge, hence the cost of borrowing capital for investment, which is where most borrowing goes."
Are you aware of analysis showing the disaggregation of commercial loans into categories, e.g. real estate, capital investment, etc. ?
It seems this type of disaggregation would be necessary in order to claim: "…borrowing for capital investment, which is where most borrowing goes."
"It seems this type of disaggregation would be necessary in order to claim: "…borrowing for capital investment, which is where most borrowing goes."
JK, total debt outstanding is about $54T, $13T household and the rest business…apologies if I am misunderstanding your question.
Not "link" but numerous links. Someone writing a paper is suppose to be aware of the lit and the state of the debate.
So what paper did he miss? Be specific.
Wow, it feels good to see that others have the same understanding as I do regarding Palley, Rowe, etc. Thank you Peter Drubetskoy!
Paul,
That answers my question about as simply as possible,
Can you link be to that data?
Thanks
JK, ask and ye shall receive:
https://dl.dropbox.com/u/33741/z1%20120612.pdf
page 64. Enjoy
JK Are you aware of analysis showing the disaggregation of commercial loans into categories, e.g. real estate, capital investment, etc. ?
Should have said investment instead of capital investment. A great % of investment is RE.
I should also point out that Federal debt is included in the $54T (now $55T) so "the rest isn't all business".
My mistake. Total non-govt debt is closer to $39T.
vimothy So what paper did he miss? Be specific.
I am not going to take the time to go through the paper and critique with references. Maybe someone else has the time and inclination.
But for starters, Palley mentions Fiebiger's criticism and fails to mention the response, let alone respond to it. That put me on the alert right away that he was not approaching this rigorously but just rehashing. I'm not going to waste time on that level of "scholarship." After all this is presented as a professional paper, not a hurried blog post.
"At the same time flow must be maintained and this requires the government purchase a significant portion of production."
Paul I like Dan's concept of "Public Enterprise" here...
iow We need significant amounts of Public Enterprise that then the Private Enterprise sort of complements....
Like watching the Superbowl you have all of that hoopla surrounding the Public Enterprise which is the stadium and associated infrastructure without which you wouldnt even have the game to begin with...
This "Public Enterprise" that Dan has come up with may be good framing...
iow it is this "Public Enterprise" that creates the flow that supports the entire system...
rsp,
vim,
You are trying to dig another rabbit hole.... rsp,
But Palley isn't obliged to cite every MMT-related thing ever written. So why should he have read that particular paper?
IMO the best website for someone looking for the down and dirty mathematical details papers and positions on MMT is Bill's at
http://bilbo.economicoutlook.net/blog/
and this fruit cake didn't site any of it? and he wants to be taken seriously?
The concept of enterprise in a capitalistic context implies risk assumption with possibility of equity loss, which doesn't apply to a currency sovereign. So "public enterprise" is an oxymoron in this context. Outside a capitalistic context, "public enterprise" implies state socialism as in SOE's (*state owned enterprise") in China.
I would recommend "public utility" instead.
But Palley isn't obliged to cite every MMT-related thing ever written. So why should he have read that particular paper?
Unless writing in economics is different from other academic standards, one is expected to be thoroughly acquainted with the issues one is addressing and to thoroughly document one's work. Otherwise, one's work appears shoddy. When I encounter work I regard as shoddy, I stop reading.
IMO the best website for someone looking for the down and dirty mathematical details papers and positions on MMT is Bill's at
http://bilbo.economicoutlook.net/blog/
and this fruit cake didn't site any of it? and he wants to be taken seriously?
Right. Bill addressed the Phillips curve in several places, notably his book with Muysken, Full employment abandoned: shifting sands and policy failures, which Palley seems unaware of.
I would ask Palley to explain what is "Economics for Open Societies" ?
What is an "Open Society"?
That sounds like some sort of weird-o-rama over the top libertarian garbage right there at go.... so he probably will never be able to understand MMT anyway...
BTW, Matias VErnengo addressed the Phillips curve as recently as Jan 19th, Phillips curve? What curve?.blogspot.com/2013/01/phillips-curve-what-curve.html.
"iow it is this "Public Enterprise" that creates the flow that supports the entire system…"
Matt, yes this is pretty much the exact thing I am saying in different words. I tried to be non-political by framing in math terms…
…but my point was intended to be…public enterprise is a necessary component of the system. It has to be present.
What is an "Open Society"?
Karl Popper, The Open Society and Its Enemies.
Have you guys read this?
Greeks Forgo Winter Heating After Jump in Fuel Tax
http://www.cnbc.com/id/100443038
Looks like for people who fear authority for fear of totalitarianism or something Tom....
"no one in charge" type of thing...
If this is what "floats your boat" I could see those people having trouble accepting MMT in general....
rsp,
The concept of enterprise in a capitalistic context implies risk assumption with possibility of equity loss, which doesn't apply to a currency sovereign. So "public enterprise" is an oxymoron in this context. Outside a capitalistic context, "public enterprise" implies state socialism as in SOE's (*state owned enterprise") in China.
I would recommend "public utility" instead.
That is an excellent point. I'm glad you're at this blog, Tom.
Matt, agrred that Dan has addressed this in a manner.
Y, I meant to use scare quotes around wrong. I dont think its controversial that in fact we have in effect made our govt a currency user, at least by the appearance of our institutional arrangements, but its also true that there are workarounds that enable the type of fiscal stance most of us would like to see. Cullen and co support using the tedious workarounds, basically that we cater to the institutions because there was "good reasons" to design them so. I dont necessarily agree with all that but I also feel like all the MR folks support most of the things supported here, except the JG (although Cullen sometimes takes great pains to say that he isnt necessarily against a JG he just doesnt want to tie it in to his model).
"Without taxing excess saving a tiny cohort would accumulate enough funds to buy 100% of production 100 times over, as prices are set by the funds that aren't saved.
Game Over. Is it over already? Probably"
Ive thought along the same lines Paul. I think the notion of some small cadre having enough to OWN the world is pretty frightening really. But then I wonder what would happen if I OWNED the world.?
I realized that the work isnt over then, its really just starting. Ownership requires real stewardship or your asset becomes worthless. Might not work out how they hope.
So "public enterprise" is an oxymoron in this context.
Tom, an enterprise is just an organized project requiring work. Some enterprises are organized and operated by private sector, and some are organized and operated by political communities, i.e. the public sector. It's not that difficult. If you accept that there is some kind of conflict between the concept of "public" and "enterprise", you are accepting conservative and libertarian framing about the badness and inferiority of government.
I think the notion of some small cadre having enough to OWN the world is pretty frightening really.
This is the way it has always been since the beginning of surplus societies. It's always an elite, sometimes in a republic but mostly an oligarchy historically. The big question is whether it is even possible to change this. How has not yet been set forth effectively enough to be accomplished, and nor has what such a society would look like socially, politically, and economically been envisioned in any detail.
Public enterprises do involve risk. It's just that the risk is shared. In a public enterprise like a school, the costs of creating and running the enterprise are distributed in some way among the community, and the recipients of the good or service provided are also something closer to the full membership of the community. There is always a risk that in the long run the value delivered will not exceed the costs incurred. But with the school, that risk is distributed among the whole community.
It's important to understand that this project is enterprising in every sense of the term. It requires bold decisions in the face of uncertainty, hard work, skilled management, initiative and innovation. If a private university is an enterprise than so is a public one.
I realize that, Dan, and am just saying how use of the term "enterprise" will go down based on the current usage. It's got "socialism" written all over it, and even though most Americans are social democratic wrt to actual ideology they self-identify as "free market" capitalistic due to conditioning. So I don't think it helps the framing and probably compromises it by using one of the chief neoliberal frames.
I don't think that we need to cede all valuable memes to the opposition, like "freedom," but reframing is a lot more difficult than introducing other frames.
Tom, I think you yourself are just too drawn to libertarian solutions, and too scared of the old socialism bugaboos. We need the public sector to do more. Mitt Romney and company think government sucks and that government budgets are just cash cows for moochers, or at best the provider of unavoidable remedial, safety net services delivered by drab Soviet-style bureaucrats. It's important to fight for the renewed understanding that that the people who are in government component of our economy are often just as bold and enterprising as their private sector counterparts.
Remember that old Starship Enterprise? Owned and operated and staffed by the United Federation of Planets - a government.
Public enterprises do involve risk.
No equity at risk. The only cost is the possibility of wasted real resources that might have been better allocated to other uses. But how to know this without experimenting with promising innovations?
The cost of capitalistic enterprise is very high in terms of failure. Similarly, not everything that is tried publicly is going to pan out as expected either. Somethings will meet expectations, some will fall short, some will fail and have to be scraped, and some will greatly exceed expectations.
So far, the record has been pretty good for public involvement, in spite of the propaganda to the contrary.
The military, for example, is a huge public "enterprise" which has made the US an empire of unprecedented power. The military "enterprise" has also spun off some of the most important R&D and also public systems like the interstate highway system and the Internet.
But this was not putting capital at risk in any way shape or form like private enterprise does. Private enterprise risks capital (equity) not real resources, which are just transferred to other uses in cases of failure.
I think there is a good case to be made for public involvement. I would use specific framing that different from private sector framing however, such as "purpose," "contribution" and "utility," which are terms already in use in this regard.
On the other hand, the term "enterprise" conjures up not only socialistic connotations but also failure and capital losses. So I don't see it as all that positive a term.
I think you yourself are just too drawn to libertarian solutions
Dan, I am drawn to libertarian solutions for good reason historically. Governments have generally had a disastrous record, and allowing too much government power is a recipe for serfdom as many have observed, not just LIbertarians.
I am not opposed to public solutions but I am wary of government solutions. There is a difference. The former is consensual and genuine democratic, while the latter hierarchical and authoritarian, that is, imposed by an elite who are supposedly "better" than everyone else. It's basically traditional liberalism versus traditional conservatism.
I think that where LIbertarians go wrong is in seeing government as the only potentially repressive factor. I and most libertarians of the left hold that there are two such factors, one being hierarchical government and the other being owners of the means of production, whose advantage lies in maximizing profit share over labor share and creating privilege for rent.
The worst case scenario is when the owners of the means of production capture government and use to advance their agenda. That is largely what is happening now. The top priority is to address this, since whatever happens in this scenario will be diverted to the privileged elite and to the degree gains are distributed at all, it will be to cronies, minions, and eventually to heirs.
Tweaking things around the edges only works for a short while before the zombies are back.
"Cullen and co support using the tedious workarounds" - Greg
Greg, at the end of the day what do the tedious workarounds accomplish?
Funds are either spent into the economy or they aren't…it's that simple. The hoop-jumping didn't change anything…the bureaucrats still have to spend the funds appropriated by Congress no matter what. They are welcome to make it as hard on themselves as they wish…it doesn't affect us.
It's all a smokescreen designed to make us believe we can't have the things we need. Lets not be suckers.
Anything that happens before that point is political and nothing more, We confuse the system with the operators controlling it. Analysis requires the ability to separate the component parts.
Of course the problem is with the politics not the system. Idiots are at the wheel right now.
MMT tells us that there is no functional reason why we can't spend the money necessary for full employment and a decent quality of life.
There is no feedback mechanism that restricts the amount we can spend other than inflation.
No matter how much we spend the remaining supply remains unlimited.
Cullen's logic makes no sense. The private sector is incapable of creating the kind of money needed for the system to function sustainably.
What he says he want's can't possibly work. That makes him a part of the problem. We have an unlimited supply of bad ideas.
We need some good ones.
Tom, I just can't agree that public enterprises done't put capital at risk. To create and run one of these enterprises the community has to invest a large amount of capital. And if that enterprise fails, or at least fails to deliver the anticipated value, the result is a capital loss. The capital that is invested is publicly owned, and so if there is a loss, the loss is incurred publicly as well. Every economy develops not just final goods and services for consumption, but capital - the goods and services and resources used for the production of final goods and services. Some capital development is carried out by private enterprises, and some by the public.
On government - sure there is bad government and good government. Government is the making and enforcing of rules. And in a well-functioning democracy, government is just one of the things the political community does. It makes rules binding on all the members of the community and it enforces them. The more democratic a system is, the more the governors - the rule makers and rule enforcers - and the governed - those upon whom the rules are enforced - are the same class of people.
Also, I have no idea what it means to say government's have a disastrous record. That's like saying civilization has a disastrous record. It's pretty hard to find any example of a human society that doesn't have a government. There is always some mechanism for making rules and enforcing them. Almost everything good we have was born in societies organized under various kinds of binding rules, which provided the general functional framework of public order and security without which the various human arts and enduring enterprises can't come into existence and flourish.
Dan, an entity that creates its own financial capital in form of currency cannot lose capital to failure in other than a symbolic sense because it has an infinite supply and if too much is injected into an economy, it can just withdraw the excess through taxation. This is just engineering management of stocks and flows like the water department does.
The ONLY issue is availability of real resources for a society and how the society chooses to distribute them. The way that a society does this is a choice, in that it could have been otherwise.
How to allocate real resources between public and private and within the two sectors is really the only significant issue. Affordability is not.
Dan,
Tom, I just can't agree that public enterprises done't put capital at risk. To create and run one of these enterprises the community has to invest a large amount of capital. And if that enterprise fails, or at least fails to deliver the anticipated value, the result is a capital loss. The capital that is invested is publicly owned, and so if there is a loss, the loss is incurred publicly as well.
I think public (enterprises, utilities, initiatives, whatever) don't have to put capital at risk in the way a private enterprise might.
When a private company fails there is likely to be some capital loss as the company is liquidated/acquired by another enterprise, although I can't imagine a scenario in which there would be a total loss. A major loss can be the skills of the former employees if they are relegated to the unemploymemt line.
I don't see that government necessarily faces those losses. Resources from a failed initiative can be re-employed/reassigned/ transferred to private use at will because the sovereign cannot be closed on or liquidated, nor can creditors obtain a judgement allowing them to tear it apart.. Admittedly this could lead to other problems, but I don't think capital is one of them, if we don't want it to be.
"To create and run one of these enterprises the community has to invest a large amount of capital. And if that enterprise fails, or at least fails to deliver the anticipated value, the result is a capital loss. The capital that is invested is publicly owned, and so if there is a loss, the loss is incurred publicly as well. Every economy develops not just final goods and services for consumption, but capital - the goods and services and resources used for the production of final goods and services. Some capital development is carried out by private enterprises, and some by the public."
Sound to me like buying in to neoliberal framing. This is exactly what I would expect to here from their side.
They would then claim that private enterprise is much more efficient and effective than govt "enterprise" and govt generally pours capital down the drain while private enterprise increases productivity and optimizes ROI — and they have models to show it.
On government - sure there is bad government and good government. Government is the making and enforcing of rules. And in a well-functioning democracy, government is just one of the things the political community does. It makes rules binding on all the members of the community and it enforces them. The more democratic a system is, the more the governors - the rule makers and rule enforcers - and the governed - those upon whom the rules are enforced - are the same class of people. Emphasis added.
This the point that Marx made. Consensual governance is different from hierarchical government, characterized by "states." His point was that the governed should be the same class as the governing. In a hierarchical state, this is never the case due to class privilege — in spite of all the propaganda in the US about a "classless society."
"They would then claim that private enterprise is much more efficient and effective than govt "enterprise"" - Tom
Which is why I constantly stress the idea that capitalism can't work without public investment.
One of these things can exist without the other…and private enterprise isn't it.
This is not to say that private enterprise isn't better at solving some problems than public, but it won't succeed without a healthy system within which it can work.
I have no idea what it means to say government's have a disastrous record. That's like saying civilization has a disastrous record. It's pretty hard to find any example of a human society that doesn't have a government. There is always some mechanism for making rules and enforcing them.
That has always been a privileged class and generally it was the very few rich and powerful. Even in Athens, the "birthplace of democracy," the bulk of the work was done by slave labor. Mostly there were was a privilege elite that were rentiers economically living off the surplus created by the rest of the populace on one pretext or another, usually coercive. Civilization was built on the backs of slave and serfs. Modern concessions were extracted first by nobels (Magna Carta) and then the bourgeoisie (18th, 19th and 20th century revolutions) at the point of a spear or gun. Workers, who have been in the majority, not so much.
"I dont think its controversial that in fact we have in effect made our govt a currency user"
That's not logically possible.
What you mean is there are certain rules in place which state that the Treasury should have a positive balance in its account before it spends. That doesn't make the government a "currency user".
The problem is CR talks about money as if its some sort of physical thing. You never hear him explain that money is someone's liability. Specifically that currency is a government liability and bank deposits are bank liabilities (as far as I'm aware this isn't even mentioned in his "understanding the monetary system" text). If he did explain this, those who read his site might realize that his vague ramblings make no logical sense.
"Also, I have no idea what it means to say government's have a disastrous record"
Come on, Dan. One doesn't have to be anti government to point ot the obvious. Nation-States have a disastrous record. Witness the 20th Century, all by itself, for recent examples. Smaller forms of government, say US centric local and state, certainly don't have such a dubious record. With this in mind, any mildly awake student of recent history would be remiss not to have a wary, if not jaundiced, view of BIG government, especially in a non well-functioning democracy, which ours arguably is at present.
At the risk of starting a flame war, hereis Cullen's view. I am posting it here since discussion of MMT is not entirely welcome over there. But it was brought up there, so if you want to participate in that discussion you are welcome to. Anyway, I am providing the option of doing it here. Let's leave personalities out of it and criticize views to, other than to identify the view.
Tom, first I am talking about state and local governments, not just currency-issuing governments. Also, most of the capital of a government like the United States consists in all of the real stuff it owns that enables it to produce the plethora of goods and services it produces, as well as the stores of political power and institutions that enable it to make and enforce laws that direct and mobilize people to achieve public purposes. The reason that the US govt, unlike you and I, is able to print up a note and get people to accept those notes for goods and services it wants to procure to benefit the public sector rests in the fact that the government possesses these varied stores of political power. So the US government can certainly suffer a capital loss. The real value of its productive assets could diminish.
When a government runs a failing enterprise, it might or might not decide to discontinue or decommission that enterprise, and liquidate it by selling the remaining capital to the private sector. It might operate the enterprise at a public loss, which is covered by the public benefits and value added by its other operations. It might instead salvage and re-purpose the capital that is still employable, in the way a company does when it discontinues and operation but is able to repurpose the stocks it was using to conduct that operation. Or it might just absorb the loss, in the way a company absorbs a loss when one of its various operations fails, and it just mothballs it. If any of these things happens, the government has suffered a real loss.
Sovereign governments typically aren't liquidated in an orderly way when they fail, in the same way companies are, because there is no more encompassing legal framework within which to carry out the liquidation. But they often are liquidated. When a government fails, either some existing foreign government comes in to seize the usable property and governing enterprises of the government and takes over the operation of governing the country, or some domestic group organizes to seize those resources itself. In some cases, much of the capital is is sold off, with only some retained to continue existing operations.
This whole process used to be much more frankly acknowledged in international law. Two countries would fight, the government of one of them would collapse, and the victor was accorded by tradition and regional norms the "spoils". In recent years we tend to deal with state failures in different ways, assigning control of the resources of the former government to the "people" of the territory in which the government fell, and the custodial care of some internationally designated caretaker, that then is supposed to pass them on to a newly constituted native government.
"I dont think its controversial that in fact we have in effect made our govt a currency user"
That's not logically possible.
What you mean is there are certain rules in place which state that the Treasury should have a positive balance in its account before it spends. That doesn't make the government a "currency user".
It has to do with how the Treasury gets the rb, which from the private sector thru auction. In this sense, the Treasury has to obtain rb "like everyone else."
The MMT argument, however, has to do with aggregates rather than individual transactions. There is a view that holds that the aggregate is the sum of individual transactions so if the government gets the aggregate of rb that its spends from the private sector through tsys auctions, then the private sector is funding government, which mean that govt is not self-funding. As I have said, if this were the case, they there would be no aggregate increase in $NFA, which there is. So that hypothesis cannot be correct under the MMT analysis wrt distinction between vertical and horizontal transactions and changes in the amount of $NFA.
first I am talking about state and local governments
I would advise state and local governments to be very careful with "enterprise" since they have to tax and borrow to fund. Generally, state and local governments are not good at this other than wrt school construction, road construction, etc., but even there, the record of cronyism is pretty abysmal in many places. State and local government should stick to the tried and true, since they can little afford to make mistakes and their expertise in not in enterprise.
State and local governments books are quite similar to firms books. The federal government not — although that impression can be given, which is what neoliberals are wont to do, excepting for the military.
"It has to do with how the Treasury gets the rb, which from the private sector thru auction."
The money in the Treasury's account is a liability of the government.
More lame MMT bashing over at J.P. Koning's blog. Anybody know what his perspective is? Is he a market monetarist?
simple thought experiment Tom.
Write "I owe you $1" on a piece of paper.
Give it to someone.
You now owe them $1.
Ask them to give the piece of paper back to you.
Your liabilities have gone down by $1. Have your assets increased? No.
Do you now have additional funds which you can use to spend? No.
Now call yourself "the government".
I read a couple of other Koning posts -- one on "the myth of fiat currency", and the other on Treasury overdrafts. It seems he just throws out a bunch of facts, with snide implications that this proves or disproves something which is not clearly stated. It doesn't seem like a particularly productive approach to economics. After reading I'm left wondering what the point of it all is for him...
Dan,
This from Koning over there: "the labyrinth relationship between the Federal Reserve and the Treasury...."
If he finds that relationship a "labyrinth" then he is a mathematical moron as it can easily be described thru simple addition and subtraction between accounts...
rsp,
Thanks Matt. I guess he's reacting to some of the stuff we throw out that perhaps makes the world more black & white where he sees shades of gray...
The money in the Treasury's account is a liability of the government.
Reserves are a liability of the Fed and tsys are liability of the Treasury.
Treasury cannot exchange tsys with the Fed to obtain reserves to clear, or otherwise get them directly fron the Fed. The Treasury obtains the reserves from the private sector by auctioning tsys through the PD's. At settlement, the Treasury receives the rb in its Fed account to clear deficit spending, and the tsys are in the accounts of the purchasers. This is an asset swap in which the composition or $NFA changes but the $NFA remains the same. The incentive for the swap is the interest paid depending on duration risk.
"how the Treasury gets the rb, which from the private sector thru auction."
Tom,
IIRC you could go back pre-GFC and the daily system RBs would be like 40B yet they might have UST auctions of 60B in a day... so the statement above could not hold true in every case... govt would have to temorarily provide dealers the extra RBs necessary to settle the auctions from time to time i believe Scott F has written about this...
rsp,
"If he finds that relationship a "labyrinth" then he is a mathematical moron as it can easily be described thru simple addition and subtraction between accounts…" - Matt
Plus, the only number that matters is the one that emerges from the labyrinth…
What is this pre-occupation with rabbit-holes all about?
I have yet to see a comment on MMT by Rowe that did not appeal to phrases such as "I don't understand what they're saying
Well, Nick Rowe did once try to interpret MMT via a IS/LM diagram with both curves in a vertical position.
Mosler thought this interpretation was "interesting", btw.
So, maybe we shouldn't try so hard, sometimes, to prove more papist than the Pope himself.
JP Koning: This post may get a bit rambling. It's an attempt to tie together a couple of different strands that I've been thinking and reading about.
Modern monetary theory (MMT) in a nutshell, at least as far as I see it, goes something like this. Back in the 1990s a couple of clever guys came up with the idea of a government-provided jobs guarantee. They realized that this program would be seen by the public as an expensive boondoggle requiring sky-high taxes and huge debts. Could they outflank these criticisms by finding another way to fund the jobs guarantee?
To find the funds the early MMTers worked backwards through the labyrinthine relationship between the Federal Reserve and the Treasury. What they claimed to have discovered at the end of their trek was certainly shocking. The US Treasury, they said, funds itself not by the conventional route of taxes and bonds, but by creating and directly spending fiat (i.e. inconvertible) money. Furthermore, it is not only the government's prerogative, but its obligation to spend this money into existence, since people need a stock of fiat money to pay their taxes. Bonds, contrary to what most of us think, are not a sign of government indebtedness—rather, they drain spending.
This bit of monetary jiu-jitsu is powerful because it has the ability to disarm people's instinctual aversion to expensive social programs. If all it takes to fund a jobs guarantee is that the government spend money, and debt and taxes are not the great evils we have been trained to think, then why resist it?
Sorry, that is so shoddy he lost me. I gave up on it there. I usually post things relevant to to the discussion of MMT here but one has to draw the line when someone just makes stuff up.
Y, you are presuming that rb as a Fed liability is a govt liability. The presumption of the objectors to MMT seems to be that the Fed is not the govt, but private (owned by the member banks), and the govt has delegated its currency creation to this private institution.
IIRC you could go back pre-GFC and the daily system RBs would be like 40B yet they might have UST auctions of 60B in a day... so the statement above could not hold true in every case... govt would have to temorarily provide dealers the extra RBs necessary to settle the auctions from time to time i believe Scott F has written about this...
Matt, I think the position is that the PD's borrow from the Fed, which in not part of govt.
Tom,
Bernanke gave a online course at GWU last year that I monitored and Bernanke taught that the Fed is a part of the government... rsp,
I disagree, Malmo's Ghost. Nation states are disastrous compared to what? The rise of nation states in the last 300-400 years or so of world history has coincided with an unprecedented growth in global wealth and longevity, as well as the rise in science. Have they done awful things too? Definitely. Could they be improved and made much, much better - more rational and civilized? Yes, we definitely.
If we are going to declare things disasters, we need a context. Human life on this planet hasn't exactly been a picnic. It's hard and perilous, and we're no angels. We've had to struggle for the progress we have made.
I think Dan K is on to something with his Private and Public delineation in any regard...
Tom, those who assert that there is "Enterprise" and Private and Public entities wrestle for it are still living in a gold standard mentality...
Today we have an unlimited source of settlement balances via our govt IT accounting systems...
Granted under the gold standard this was not the case as availability of these balances were limited by the rate at which these metals were made available to humans... but again, this is NOT the case today...
So it is not as if we have "Enterprise" and the words "Public" and "Private" are modifiers... We have "Public" and "Private" purposes and BOTH undertake operations of "Enterprise"...
I think this gets back to the concept of "crowding out" which is mathematically impossible at less than full output and employment under state currency systems...
but perhaps would be possible under a gold standard as there was only a certain amount of gold made available, and back then I suppose one could have looked at it as the public and private sectors were competing for it...
but those arrangements fortunately are gone from the scene now... except for morons ;)
rsp,
What I find convincing about the MMT conception is that, unlike in the Eurozone, (1) the bond-vigilantes (the 'market') do not control/determine the interest-rate paid the federal government must pay in order to "borrow" and from (1)... (2) the PDs are required to take down auctions.
Consequently,for all intents and purposes, It seems reasonable to conceive of the Fed and Tsy unified as the U.S. government.
If (1) or (2) were to no longer be true, then I think the MMT conception would no longer make sense.
Is the way MR conceives the relationship also reasonable? I think so. When push comes to shove, there is no difference in what MMT and MR claim the U.S. government has the ABILITY to do via policy options. Each just conceives the "operational realities" differently.
"Y, you are presuming that rb as a Fed liability is a govt liability"
The Treasury's balance at the Fed is a Fed promise to pay Federal Reserve notes to the Treasury on demand. i.e. a Fed promise to pay notes printed by the Treasury to the Treasury on demand, the notes being supplied by the Treasury to the Fed on demand.
It's a bit circular.
The US Code doesn't mention Federal Reserve deposits/reserve balances specifically, though might be referring to them in general terms:
"The term “obligation or other security of the United States” includes all bonds, certificates of indebtedness, national bank currency, Federal Reserve notes, Federal Reserve bank notes, coupons, United States notes, Treasury notes, gold certificates, silver certificates, fractional notes, certificates of deposit, bills, checks, or drafts for money, drawn by or upon authorized officers of the United States, stamps and other representatives of value, of whatever denomination, issued under any Act of Congress, and canceled United States stamps."
http://www.law.cornell.edu/uscode/text/18/8
"The presumption of the objectors to MMT seems to be that the Fed is not the govt"
The Board of Governors of the Fed is an agency of the government, constitutionally part of the executive branch.
the regional reserve banks have an particular public/private legal status.
Paul
I dont disagree with anything you wrote. The workarounds ARE stupid and unnecessary, but they are there and VERY unlikely to change in next few years. Not that we shouldnt continue to push for it.... hard!
Those in control of the money system will either 1) Have it pried from their cold dead hands soon 2) Drive the system into failure again, ask for a bailout and THEN have it pried from their cold dead hands.
Im betting on 2......... on Obamas watch in an effort to frame him.
We'll see
BTW when I say "I bet", Im not taking my hard earned money and giving to any Wall St trader to back up my talk. I'll just observe and react.
"The workarounds ARE stupid and unnecessary"
The worst thing is not the operational structures themselves but the fact that they appear to serve the purpose of concealing the nature of money from the population.
" Human life on this planet hasn't exactly been a picnic."
boy you've got that right Dan... we have enough problems foisted upon us without making things harder for ourselves unnecessarily...
I encourage you to keep going with this 'public' and 'private' delineation in any regard....
perhaps Tom has a point with the exact wording/framing I have to think some more about this... but perhaps sometimes you cant finesse it you have to lay it out in black and white terms and challenge the opposition...
I believe this 'public/private' issue is getting to the root of our problems today...
rsp,
Bernanke gave a online course at GWU last year that I monitored and Bernanke taught that the Fed is a part of the government... rsp,
Matt, doesn't matter what BB says but what the law says. It is sufficiently confusing that a lot of people argue at cross-purposes based on different evidence. As far as I can tell, MMT economists hold that the Fed and Treasury are separate govt agencies (different books) that are informally consolidated operationally, with the Fed being designated the govt's fiscal agent. That is a point of contention.
In sum:
1) Market participants dont determine the interest rate that USGov borrows at
2) PDs must take down auctions
3) Congress can change rules if PDs don't obey, or for any other reason.
= Fed and Tsy can reasonably be conceived as unified.
The Treasury's balance at the Fed is a Fed promise to pay Federal Reserve notes to the Treasury on demand. i.e. a Fed promise to pay notes printed by the Treasury to the Treasury on demand, the notes being supplied by the Treasury to the Fed on demand.
The Treasury's balance at the Fed is used to clear Treasury expenditure in rb after the Treasury directs the Fed as its fiscal agent to credit nongovt accounts. The Treasury has to obtain the rb since rb are a Fed liability that it cannot create. There is no operational constraint preventing the Fed from directly crediting the Treasury account, but there is a political prohibition. So Treasury has to get the needed reserves to settle its account in the payments system from nongovt. It does this by issuing tsys for auction, in which the Fed cannot participate directly as a buyer.
I believe this 'public/private' issue is getting to the root of our problems today...
Absolutely. The reason is quite simple, as John Kenneth Galbraith has pointed out. The elite favors private sector control of the economy through neoliberalism and policy based on neoclassical economics, which sees government as a source of disequilibrium. But, the US being a democratic republic, politicians have to make concessions to the non-elite, who are in the vast majority, and this results in a mixed economy. Politics is the jockeying for positon regarding the mix between public and private sectors.
Well Tom I dont see how they get that govt can be a source of disequilibrium mathematically in real or financial terms unless under a gold standard or something... which is GONE FROM THE SCENE...
If we have a state currency system we have literally unlimited settlement balances at our disposal... so the system can adjust to whatever distribution between public/private is called for...
right now (obviously because 'private' enterprise is running at way less than full output) more 'public' is called for both in real and financial terms....
These idiots are blind morons...
rsp,
Matt, the basic neoclassical model is of a perpetual motion machine where money is neutral. The problem would be friction, and government intervention in the economy adds the friction that disrupts the perpetual motion. It's based on 19th c. physics w/o thermodynamics (no perpetual motion machines). :)
Should add that govt is not the only source of friction they impute, e.g., labor unions. But TPTB think that they can eliminate friction without govt interference, like labor-friendly legislation. They realize that head to head they can't beat govt, so the solution is to take it over and neutralize it, turning it toward crony capitalism and empire to secure access to new markets and real resources.
I'm coming late to this party, will make a couple of comments: First, Matt, Tom gave the cite to the seminal work on open societies. Second, OS theory is very important to George Soros who studied under Popper as an undergraduate, and who has used what he learned from him both to build his fortune and to motivate his charity work exemplified in his Open Society Institutes, opposition to the War on Terror and funding of INET, an organization that provides grants to researchers in alternative economics. Right now, Marshall Auerback is a Director and INET and Pavlina Tchernava has a grant from them; as does Randy Wray if I recall correctly. I've been very interested in OS ideas too, and their application to Knowledge Management. Some of my writing on this can be found here: http://www.dkms.com/papers/openenterpriseexcerptnumb1final.pdf
More influence of OS ideas may be found here: http://www.kmci.org/media/Corporate_Epistemology.pdf and
here: http://kmci.org/alllifeisproblemsolving/?s=%22The+Problem+Solving+Pattern+Matters%22
Government is people. These people are TPTB and the bureaucrats, comparable in the private sector to the upper crust and the rest of the people. These people are aligned, e.g., the country club Republicans and the limousin liberals. They are opposed in their respective parties by the populists.
The Establishments of of both parties are from the same class and they create institutional arrangements based on class privilege. This is part of government picking winners. This is considered OK because these people are all traditional conservatives in that they think that some people are better than others.
Politicians are addicted to power, so they will do what it takes to gain and preserve power. This means making deals with the rich and powerful and compromising enough with popular opinion to be electable. But after election, they are biased toward the rich and powerful, who fund the next election.
The second comment is for Greg. I think there are a lot of differences between MR and MMT; but to see them you have to ask about public purpose and how MMT sees it as opposed to how MR sees it. I think MR is mainly concerned about prosperity, economic growth, and sustaining moderate inflation at say a 4% level. On the other hand MMT's concerns (gleaned from the literature) are listed here: http://www.correntewire.com/the_job_guarantee_and_the_mmt_core_part_fifteen_components_of_the_knowledge_claim_network under social/value gaps.
Joe, at the policy level, I think it comes down essentially to differences over addressing unemployment. MMT advocates a buffer stock of employed plus fiscalism and MR a buffer stock of unemployed and combination of monetary and fiscal rules. So it is essentially the difference between full employment rate of about 2% (frictional only) and 4% (frictional plus unemployed buffer). The percentage difference may be small but that's a lot of real people, which means a lot of real resources either put to use or wasted.
Joe,
Thanks I'll look into that info...
But right away do you see any connection to Palley's orientation towards Open Societies and his seeming inability to comprehend MMT?
ie How "Open" do we have to be? No monetary/fiscal authority at all?
This philosophy looks a bit tilted towards the libertarian side... from the wiki: " Friedrich Hayek (who wanted to get Popper to the London School of Economics and thus was enthused by Popper's turn to social philosophy)," (maybe guilt by association when I see Hayek here?)
imo many libertarians seem to have big basic problems with MMT as the MMT has a very clear view of the absolute monetary/fiscal authority of our govt (ie "the coin" ;) ... while what I read about libertarianism indicates that it seeks to denigrate authority in general... so you see the big problems many of the libertarian persuasion had with 'the coin'... they probably look at it as "heavy handed", "big govt", etc...
but yet you (obviously ;) didnt have any problem with 'the coin' or MMT in general, yet you seem to have some congruence with this 'open society' concept... so that is hard for me to understand... how can you draw the line where they cannot?
rsp, Matt
OK Joe now I see where YOU are coming from in this:
"Competing Philosophies of Truth in Business- And How They Influence Knowledge Management"
You value TRUTH.
I'm not so sure our opponents in this have the same value for truth... and imo none of them are Fallibilists...
TO...THE...CONTRARY.
They think they are all 100% right and you can't tell them ANYTHING...
Good stuff here Joe thanks... rsp,
Joe this from your power point:
The Mainstream View
• Admits that our knowledge is fallible, but says we must carry
on as though it weren’t by endowing managers (or other
authorities) with the power to create knowledge that others
should regard as true
• A form of Justificationism that requires us to suspend our
disbelief in the fallibility of knowledge
• What Mark Notturno calls Floating Foundationalism – a form
of Foundationalism with – ironically – no foundation!
• Says that knowledge hatched by authorities is justifiably true
• Leads to adoption of falsehoods more often because the
beliefs and claims of authorities go untested
• Fraught with risk!
This describes the morons... TO...A...TEE!
My personal view is that they do not suspend anything but rather they do not possess the mathematical maturity to personally discern the truth mathematically... so then they have to appeal to authority and the authority they appeal to are more stupid than they are ...
You can see this in action in Mike's video down thread from his last appearance on the Glen Beck Channel...
He is on opposite Jim Miller (former GOP budget director) and Mike gets the host all twisted up and then the host appeals to Miller who says (and I kid you not) "I find this all confusing and gobbledegook" LOL! Right on the national Glen Beck TV! He's not embarrassed at all!
and they both ride off into the sunset as morons together still... unbelievable!
It's like this Koning guy that Dan linked to above wrote "the fed treasury relationship is a labyrinth" LOL!
It's like sometimes we ought to make people have a license to be allowed to speak...
rsp,
Wow, first I'm a socialist and now I'm a neoliberal. :)
I think I'm using the term "capital" in a fairly standard and universal way, as it is used by everyone from Marxists and neoliberals. Capital is the stuff you use for the production of other things. Under our current social arrangements, some capital is publicly owned - that is by various kinds of political communities - and some of it is owned by private individuals or entities such as companies. When either kind of owner uses that capital for the production of some good or service, they are investing the capital. Every kind of investment carries with it some degree of risk, since there is never certainty that the investment will achieve the desired end, and yield an output that is worth more than the sum of the values of the capital inputs. Some such investments are more risky than others. An organized project dedicated to the investment of capital inputs in the production of some desired output is an enterprise. If the eventual outcome ends up on the downside of the risk, than the enterprise is a failure and the owners who invested it have suffered a loss. When that happens, the owners will usually discontinue the enterprise. They may or may not sell off or lease the unused capital that had been dedicated to the enterprise. They may or may not sell off or lease the product of the enterprise that turned out not to be as good as expected.
To say all of this is to say nothing about which enterprises are best carried out by political communities and which are best carried out private concerns. We tend to think that producing baked beans is done more efficiently by private enterprises, and that building nationwide infrastructure systems that require a vast amount of coordinated planning and the potential seizure of a certain amount of private property is best carried out by political communities. We also tend to think that some tasks are so important to the community that they should retain direct control over them and are carried out according to democratically determined plans - the education of children for example.
Absolutely. The reason is quite simple, as John Kenneth Galbraith has pointed out. The elite favors private sector control of the economy through neoliberalism and policy based on neoclassical economics, which sees government as a source of disequilibrium. But, the US being a democratic republic, politicians have to make concessions to the non-elite, who are in the vast majority, and this results in a mixed economy.
Yes, it's all about the question "Who rules?", "Who controls?"
We could also say its about "Who owns?" But ownership and property are legal institutions created by societies and their institutions of governance, so ultimately it comes back to how power has been amassed and distributed.
Most major political battles are a struggle for ownership and control.
Liberals during the neoliberal era have made a big mistake in blithely thinking that a viable and potent democracy is compatible with vast private concentrations of wealth and control over the our society's resources. They think if they just erect some sort of barrier like a "campaign finance law" standing between the titans of finance and corporate power and the political community, they can preserve democracy without offending the gods of capitalism and the sacred taboos of private property.
But if the private concentrations are too large, the barriers are futile. It's like a community of tiny farmers trying to keep a giant out of their fields by erecting a Lincoln Log fence.
If we are going to declare things disasters, we need a context.
Oh please, Dan. How about government mass murder for starters?
http://www.hawaii.edu/powerkills/NOTE1.HTM
Human beings have been engaged in mass murders from time immemorial. It didn't start with the nation state.
If you start calling something that is publicly owned and operated "capital," you are inviting privatization. It's playing right into that frame.
"Everyone knows" that capital is best managed by the private sector. Why does "everyone know" this? This what they are taught from cradle to grave.
Marx realized that culture and institutions engender hysteresis so that even when some major institution disappears its shadow remains in minds and rises again from time to time zombie-like. As Chris Dillow observes, the Tsars have been history for a century but Russians cannot overcome their cultural desire for one.
If you start calling something that is publicly owned and operated "capital," you are inviting privatization. It's playing right into that frame.
Not at all. You could just as well say that when you recognize some capital is already publicly owned, you are inviting the socialization of all capital.I don't support either extreme. But capitalism is not just any system in which capital exists - no more than socialism is any system in which societies exist or libertarianism is any system in which liberty exists.
Dan you are welcome to use neoliberal frames. I just won't be joining you. In my view, it is bad strategy.
Dan, we use the word "capital" and describe it the way marx did: as a social relationship. Describing it in any other way brings about multiple definitions of it, and in fact brings you to use it the way "neoliberals" do.
Human beings have been engaged in mass murders from time immemorial. It didn't start with the nation state.
Nothing even remotely compares historically with the organized slaughter nation-states have exacted the past 100 years. Nothing. That doesn't necessarily make nation-states illegitimate, but reasonable people might just have more than a minor quibble with the depth and breadth of the state's scope and subsequent power.
Furthermore, this is the horrid backdrop that skeptics point to as a roadblock to embracing an all encompassing quasi authoritarian (welfare, etc) state (even if MMT inspired), proctored by so called benevolent bureaucratic elites who claim to know what's best for us. At any rate, in a divided country such as ours, informed as it is by the sordid past of recent vintage super state overreach, how, pray tell, would a program such as you advocate stand a snowball's chance in hell of becoming reality absent coercion?
I believe Capitalism was coined by Marx so that word actually has libertarian origins....
I like these terms: public infrastructure, public utilities, military hardware, the space program, regional transportation, recreational facilities, .... Words like that.... I'm starting to see Capitalism as for right-libertarians only....
Rsp,
Mal,
I would point out that now that we have precision strike capability, deaths are way down from warfare.... Look at the gwot compared to past wars...
And we have somehow found ourselves off of gold which has also helped prevent wars and get the deaths down imo ...
These are a couple of things that show we are headed in at least the correct direction...
With better people rotating thru our positions of authority I've no doubt this could even get better...
Rsp
Unless writing in economics is different from other academic standards, one is expected to be thoroughly acquainted with the issues one is addressing and to thoroughly document one's work. Otherwise, one's work appears shoddy. When I encounter work I regard as shoddy, I stop reading.
Your claim is that Palley failed to cite a relevant paper. All I am asking for is the reason why it is relevant.
Marx: "If we disregard the material content of the circulation of commodities…we find that it's ultimate product is money. This ultimate product of commodity circulation is the first form of the appearance of capital." (Capital, Volume 1, p 247)
i.e. capital = money, only when it is "advanced" in order to generate more money.
Tom,
"The Treasury has to obtain the rb since rb are a Fed liability that it cannot create. There is no operational constraint preventing the Fed from directly crediting the Treasury account, but there is a political prohibition. So Treasury has to get the needed reserves to settle its account in the payments system from nongovt. It does this by issuing tsys for auction, in which the Fed cannot participate directly as a buyer."
That's true, though it can happen in a variety of ways.
For example, a bank may purchasea Treasury bond with TT&L credit. The Treasury will in some cases only "call in" the payment when it makes a payment to that bank. i.e. the Treasury will pay $100 to that bank and then call in $100 from that bank for a prior bond purchase. In this case the Tsy transfers $100 rb from its account to the bank, then takes it back in payment for the bond. So it finances the bond purchase.
Either way, the fact that the Treasury needs a positive balance in its Fed account before it is allowed to spend doesn't make the government a "currency user". It's a currency issuer that has certain political and legal conditions on how and when it issues currency.
Malmo's Ghost,
You missed a word: SOME
(some nation-states)
JK,
I would point out that Marx was steeped in the 'gold standard' mentality.... Which is now gone from the scene...
His statement is similar to Hamilton's from over 50 years before in Federalist 12.
Sounds like he is writing about 'savings'.... Rsp
Tom, as I said, even with the current institutional arrangements, it's not possible for tax and bond revenue to fund govt spending in any logical sense. When the treasury has a positive balance in its account the government has a big fat zero. You can't spend a zero.
Under current arrangements the govt is usually only permitted to spend through the Treasury if it "destroys" an equivalent amount of money via taxes or bond sales.
Re Greg @ Feb 7 2013 6:20 PM
Greg, I think you missed my point.
If we are are going to accurately describe the system as it is in the real world, then for the flow of funds the choke point is Congress, not the Fed/Treasury.
Congress creates money when it spends in excess of taxation. The Fed/Treasury merely writes the actual check as it must do by law. It's a bookkeeping operation.
The Fed/Treasury is a friction-free bureaucracy between the government and non-government and as such it pretty much just waves at the money as it passes through.
Therefore, as far as the system is concerned the Fed/Treasury is irrelevant…it makes no decisions… adds no friction to the flow. It is invisible.
When this changes the MR people can get back to me.
Unless I'm mistaken the MMT academics have studied the operations of the Fed, the Treasury and the Fed/Treasury combined and concluded that these institutions are friction-free…they don't constrain spending in any way.
The evidence supports their conclusions.
From where I sit the issue is settled, but it's amazing to me that so many smart people think they've found friction where there is none.
vimothy, there are no papers at all by Scott Fullwiler in Palley's bibliography. This is particularly inexcusable, since Fullwiler is the MMTer who has done the most work on the issue of fiscal sustainability, an area that Palley thinks MMT ignores. Here are two papers, both available at SSRN:
2008: Sustainable Fiscal Policy and Interest Rates under Flexible Exchange Rates
2012: Functional Finance and the Debt Ratio
Tom, you are engaging in tendentious rhetoric in throwing the label neoliberalism about. There is a long tradition of socialists advocating the social ownership of capital. This tradition predates neoliberalism by decades. There are also some fairly standard definitions of "capital" employed by economists from many different schools of thought, and it is simply not part of the definition that capital must be owned by private "capitalists". A publicly owned enterprise can just as easily accumulate the machinery and resources used in the production of final goods as can a private corporation. The use of "socially-owned enterprise" is also common among Market Socialists and Social Democrats - two schools of political thought that I assume you recognize are not "neoliberal".
MattFranko,
For sure in Volume 1 he's talking about commodity-money, specifically gold, but my reading of it is that he seems to be acutely aware of the generalities of money in the abstract = "fiat-ness" of money.
"Only a material whose every sample possesses the same uniform quality can be an adequate form of the appearance of value, that is a material embodiment of the abstract and therefore equal human labor. On the other hand, since the difference between the magnitudes of value is purely quantitative…it must therefore be divisible at will."
and: "the money form is merely the reflection throw upon a single commodity by the relations between all other commodities."
(Capital, Volume 1, p. 184)
Sure, he says "only a MATERIAL…" but maybe the rest of the quote above is enough to partially excuse that.
Tom, with this:
"Joe, at the policy level, I think it comes down essentially to differences over addressing unemployment. MMT advocates a buffer stock of employed plus fiscalism and MR a buffer stock of unemployed and combination of monetary and fiscal rules. So it is essentially the difference between full employment rate of about 2% (frictional only) and 4% (frictional plus unemployed buffer). The percentage difference may be small but that's a lot of real people, which means a lot of real resources either put to use or wasted."
I think you're way oversimplifying. First, MR advocates a 4% unemployment, 4% inflation "rule." MMT is for full employment and for the best price stability one can get, and most important;y, no rule. Second, you've pointed to a different between the two in the present political context; but what if the issue of nationalzing the big banks comes to the fore. Most MMTers will line up on the nationalization side; most MR people on the ZOMG it's socialism. Third, I think MMTers have emphasized the importance, even the right to a living wage. I've never heard that concern frm MR people. Fourth, MMTers all favor Medicare for All or some variation like Warren's $5,000 grant, plus full coverage for everything over $5,000. I've seen beo advocate for Medicare for All, but never Cullen, JKH, or Mike. Fifth, MMTers are concerned about the real economic and social impacts of fiscal policy beyong effects on GDP, unemployment, and inflation. I've never seen MR people advocate for projecting any of these impacts. Sixth, the difference over the roles of monetary policy and fiscal policy are very important. Monetary policy is much more effective, and as it is normally applied it is much less damaging to well-off people than it is to middle class and poor people. Finally, I don't think we've begun to see the differences between MMT and MR yet. When more people accept the idea that the Government has no solvency problems, and the issues turn to how we should take advantage of the policy space we have, then I think we shall see great differences with MR people much more focused on favoring Projects that don't provide direct assistance of various kinds to people; while MMT will be much more concerned with implementing a Green New Deal.
Hi Matt,
"But right away do you see any connection to Palley's orientation towards Open Societies and his seeming inability to comprehend MMT?"
No, my view is that Palley does understand, but is creating disingenuous arguments and talking points that he hopes others will pick up. I say disingenuous because Palley has exchanged with Randy in the past, and knows what we say, but chooses to distort our views. Anyway, his OS orientation has no necessary connection to his opposition to MMT.
"ie How "Open" do we have to be? No monetary/fiscal authority at all?" No! Openness doesn't refer to the absence of government or regulation or anything like that. It has to do with how knowledge is created and maintained in society, and also with how easy it is to replace our current officeholders with alternatives when the officeholders screw up.
"This philosophy looks a bit tilted towards the libertarian side... from the wiki: " Friedrich Hayek (who wanted to get Popper to the London School of Economics and thus was enthused by Popper's turn to social philosophy)," (maybe guilt by association when I see Hayek here?)"
Popper and Hayek are quite different in my view. There's much history behind this which I can't go into here. But suffice it to say that Popper's criticism of the logical positivists were not popular with them, so, they were not friendly to Popper's attempts to get his works published, nor did they help Popper to get a good university position outside of Europe when, as a person of Jewish descent he had to get out. So, Popper ended up in New Zealand in 1938 and during the War years. Carnap, who he thought was his friend, still would not help Popper either with his publication of the Logic of Scientific Discovery in English, or later with his publications of the Poverty of Historicism, and the Open Society and Its Enemies, suring the War, or most importantly, with his getting out of new Zealand and int the major leagues in academia, in the US or the UK. Hayek, on the other hand, who was not a friend of Popper's at the time, read Poverty and OSE during the war and arranged for both of then to get published, and also for Popper to get a position at LSE, bringing Popper back to England and giving him his future career.
Thereafter, Popper felt very grateful to Hayek, and would never criticize him, and was always very friendly to him. However, it should be noted that Popper believed in the welfare state and was a Labor Party supporter. He did distrust Government and socialism somewhat following some early experience with street violence in Vienna very early on (in 1919 if I recall), coupled with an experience of how difficult it was to get iodine out the Government bureaucracy when he had to tend someone, and also personal experiences with the close-mindedness of some marxists of the day. But even though that led him to disillusionment with Marxism, he still favored what he called "piecemeal social engineering" and the Welfare State. So, Popper's politics were a lot different from Hayek's
Moving to Popper's philosophy of Critical Rationalism. Many CR-ists are market economy neoliberals, and some are quite right wing, even right-wing nut jobs, in my view. But there are also centrist CR-ists, and even leftist CR-ists like Soros, and even more, myself and some friends of mine.
CR doesn't have such a tight connection to political ideology that it determines whether one's politics will be right or left. You can believe in very open knowledge processing and also in a very strong and activist government supporting economic well-being and much greater equality than we have now. I've done a good bit of work over the years extending Popper's philosophy into different areas, and not once have I felt any tension between his philosophy and my political views which remain firmly in support of FDR's second bill of rights.
"Most MMTers will line up on the nationalization side"
except neither Mosler, Wray, Fullwiler or anyone else apart from Bill Mitchell favours nationalization, to my knowledge.
Your claim is that Palley failed to cite a relevant paper. All I am asking for is the reason why it is relevant.
Because it addresses objections that Palley is making.
Look, if you are a professional and pick and choose things to attack opponents over and you don't cite responses to those objections that the opponent as made you look like a fool and no one in your profession who values rigor will take you seriously. It's akin to publishing a paper with a bunch of elementary math errors. And it was not just on instance. After I ran into several, which I've cited, I dismissed Palley as hack.
Bui I am using the criteria of my own and related professions. Maybe they do things differently in economics. I am coming to that conclusion for a lot reasons other than Palley.
My conclusion is that economics is just not a rigorous profession and the people that participate in it are for the most part hacks flaking ideology, and it appears that many are doing this for money and position. Actually I find it a disgusting betrayal of trust.
Jk i.e. capital = money, only when it is "advanced" in order to generate more money.
Yes, today we distinguish between financial capital, capital investment, and capital goods, that is, saving committed to future investment, investment spending, and the means of production. Land is now often included in "capital" so the factor of production are capital and labor, or capital, labor and management aka organization.
y, I am not disagreeing with your analysis. I am taking the position (as I understand it) of some who object to MMT's description that asserts the govt is a currency user in the sense that it has to get the "money" its spends by borrowing from nongovt.
Their argument is in terms of a temporal sequence, which I have laid out and which I don't think is controversial. We are arguing over what it implies.
I am saying that if one doesn't correctly understand the MMT conception of vertical and horizontal transactions and $NFA, one could very well become confused by the shell game, so to speak, which it appears that many are.
I have also attempted to suggest that their position seems to assume that the Treasury is govt but that the Fed is a separate entity. For example, the rb are created as Fed liabilities by the district banks, which the courts have affirmed are not federal agencies.
So this is not an off the wall argument and needs to be understood and met. I am not sure I fully understand it, and I may not be presenting as an MMT critic would. It was explored in some depth at Warren's in a famous thread called Marshall's latestMarshall's latest.
Sounds like he is writing about 'savings'.
Financial capital is savings earmarked for investment, e.g., retained earnings. So M > K > M prime > K prime.,,,
Matt Sounds like he is writing about 'savings'.
Financial capital is savings (M) earmarked for investment in capital goods as means of production (K), e.g., retained earnings. So M > K > M prime > K prime....
y in any logical sense
Yes, logical analysis v temporal sequence.
This is the point that I and others made in Marshall's latest based on what the MMT economists had said, quite clearly I thought. Apparently there are a lot of people that don't get the logic due to the temporal, or claim that the logic is wrong.
Dan K., I am talking about framing. It matters little if the use of the terms is "correct" in the political game. Of course, public capital is already in use. See the Wilkipedia article on capital.
What I am saying is that a large part of neoliberalism is about enclosure, now called "privatization." The real money is in transferring public goods into private hands for efficiency ("tragedy of the commons"). It has been argued that virtually all great fortunes are traceable to enclosure of the commons.
If you start talking about public capital, etc. then the political frame — neoliberalism is about politics rather than economics — will be "that's socialism," we need to "privatize" that capital for greater efficiency. This is one of their chief tool is advancing enclosure.
For Marx, the numeraire is labor time. That is to say the real value of money is the purchasing power in terms of exchange of labor time for another good. That is real cost of the good. It is by objectifying labor time in money, thereby alienating the actual labor from it that surplus is extracted as profit and rent.
Think of it this way. If workers were exchanging goods personally in markets then they would be exchanging labor for labor in a fair and equitable exchange. However, when money is used, then markets become impersonal, workers are alienated from their work through money valuation, and money valuation incorporates a surplus that is extracted by rentiers (those who don't work but profit from others' work). This is a sketch of Marx's view.
The important thing for Marx is not so much that the exchange is unequal but that it involves alienation. This alienation involves not only loss of material value but also of human freedom.
Marx is making an inherently spiritual argument rather than chiefly a material one, as he is usually assumed to be doing. This is key in properly understanding Marx.
His vision is not a person who is potentially free but one who is actually free to exercise freedom of choice for self-actualization.
Under a system of rents, only a few are free and the rest are their "slaves" to one degree or another, as in, would you prefer to be a slave or a serf.
@ Joe
No argument with that, Joe. As a matter of fact, I brought that up over there, and IIRC Mike answered that they are just getting started and it's too early to criticize them for not having everything worked out. Moreover, their stared objective is not policy, or macro, but a correct monetary description. So we will have to see how all that shakes out.
"Most MMTers will line up on the nationalization side"
MMT economists and allies like Bill Black and Yves SMith have written extensively, documenting bank's bad behavior, calling for accountability, and instituting reform. The main thrust is following existing law, which is being regularly flouted by govt and courts.
In the US "nationalization" has been equated to putting a bank into resolution, which is required by law when regulators determine that a bank has become insolvent. This use of "nationalization" was trundled out to the media to prevent the TBTF's from being put into resolution as the law required. Bill Black and Randy Wray have been very clear on this, as have others. Not doing so was a violation of the law, and Black and Wray charge that this illegal obstruction is still continuing under the present administration as a matter of policy.
Usually this is done at close on Friday and the bank opens under new ownership and management on Monday morning. No US MMT economist or professional has ever proposed permanently nationalizing the US banking system. Warren Mosler has a proposal for bank reform that has nothing to do with bank nationalization.
This is a canard. I regard it as on the level of trolling, whose objective is to confuse and distract. The people making this bogus charge are silent on accountability for the banks and seem to be fine with the status quo, from which the financial sector is profiting.
Tom: "The important thing for Marx is not so much that the exchange is unequal but that it involves alienation."
Right. Marx assumes each exchange is actually equal. It's assumed that there is no unequal exchange. The KEY is alienation. And it's understood by way of the difference between labor-power and labor.
"…the daily cost of maintaining labour-power and its daily expenditure in work, are two totally different things. The former determines the exchange-value of the labour-power, the latter its use-value. The fact that half a day’s labour is necessary to keep the worker alive during 24 hours does not in any way prevent him from working a whole day. Therefore the value of labour-power, and the value which that labour-power valorizes in the labour-process, are two entirely different magnitudes; and this difference was what the capitalist had in mind when he was purchasing labour-power…" (p300)
"The seller of labour-power, like the seller of any commodity, realizes its exchange-value, and alienates its use value. He cannot take the one without giving the other. The use-value of labour-power, in other words labour, belongs just as little to its seller as the use-value of oil after it has been sold belongs to the dealer who sold it. The owner of the money has paid the value of a day’s labour-power; he therefore has the use of it for a day, a day’s labour belongs to him." (p 301)
(Capital, Volume 1)
p.s. taking notes when reading is a good idea :)
Right, which means that the capitalist has an incentive to keep the exchange value of labor, the wage, as low as possible to increase profit share at the expense of labor share. This is the basic dynamic of capitalism that we see enacted today with the neoliberal push for wage reduction. It's also the basis for laws that undermine labor's bargaining power, e.g., "right to work" legislation.
The interesting thing is that the higher the wage, the greater the incentive to deploy technological innovation in order to increase productivity as a way to reduce labor cost.
Tom: "The interesting thing is that the higher the wage, the greater the incentive to deploy technological innovation in order to increase productivity as a way to reduce labor cost."
That's an interesting point.
What do you think are the best means to increasing labor's share of the surplus-value, outside of cooperative ownership?
Collective bargain and labor unions seem like the traditional means. The minimum wage is another. Progressive taxation.
What other means are you aware of?
"some who object to MMT's description that asserts the govt is a currency user in the sense that it has to get the "money" its spends by borrowing from nongovt"
That approach requires simply ignoring what money is.
What do you think are the best means to increasing labor's share of the surplus-value, outside of cooperative ownership?
There are three possibilityies: 1) tweak the system, 2) reform the system, and 3) change the system.
Collective bargain and labor unions seem like the traditional means. The minimum wage is another. Progressive taxation.
This is 1) tweaking the system. Basically increasing the bargaining power of labor and redistribution of profit and rent that is deemed to create drag.
What other means are you aware of?
2) Scandinavian model, more socialism in the mix.
3) various forms of socialism, like market socialism, or post-capitalism, such as proposed by PROUT.
That approach requires simply ignoring what money is.
Yes, that's why I enclosed money in quotes. Once one defines the terms technically the situation becomes clear. However, I should add that the opposition rejects the MMT technical analysis.
on what basis?
on what basis?
One faction sees reserves created by the Fed as the liability of a private bank, the district banks not being federal agencies and the reserves residing on their books.
Another faction thinks that banks create reserves by lending so that loans create both deposits and reserves (with Fed as LLR, I presume).
I have to admit that I may not be understanding the objections fully, since they seem wrong to me. So someone is wrong here.
"One faction sees reserves created by the Fed as the liability of a private bank"
Even if that were the case it doesn't strike me as having any significance when considering the Treasury's account.
If you think reserves are not government liabilities, the Treasury's balance is still just a promise to pay notes to the Treasury on demand, which the Treasury supplies to the Fed on demand. It's much of muchness.
(By the way Wray maintains reserve balances are government liabilities).
Reserves have to be borrowed or bought from the Fed by member banks.
Again, I may not be understanding the objection clearly, but it seems to be twofold.
First, the MMT contention of Treasury- Fed consolidation as "govt" — govt agencies acting in tandem — is denied. The claim is that this misunderstands and misrepresents the relationship.
Secondly, it is held that private banks don't need the govt to lend, i.e.,they create bank money directly, and since private banks create the vast majority of the money stock in the US, the govt borrows from the private sector when it issues tsys.
The way you guys talk about this stuff makes it seem like a scientist or mathemetician would be unable to understand the process without learning accounting first.
I don't think that's the case.
Accounting helps to keep score when a lot of different things are happening at the same time, but in this case at the top-level macro accounting is not necessary or even helpful. One just has to manage his signs.
You're adding a layer of abstraction on top of the basic relationship. One more time:
(G-T) + (I-S) + (X-M)=0. From there everything in MMT macro can be derived.
Like F=ma. From there everything in Newtonian physics can be derived.
Some of these discussions remind me of the old Kingston Trio song "The Man Who Never Returned".
How many times has anyone here read Bill Mitchell mention reserves? How in the world did he ever figure this stuff out?
paul, that applies at the macro level no matter what type of monetary system the country is running under. The issue under discussion is theory of money and money creation. The contentions are that Chartalism is either incorrect or incomplete as an explanation, and that a so-called currency sovereign is not a monopoly provider of the currency. It's saying that the theory of money and monetary description upon which MMT is based is wrong or inadequate.
Tom , I know that.
Sectoral balances apply to any system.
The question becomes...does the money creation arrangement for any country we look at have a choke-point?
For the western developed countries including the U.S., Canada, Ausralia, Japn, UK the answer is no. Show me evidence otherwise.
Unless I am completely full of shit (and that's entirely possible) that's what STF, Randy and others have been working on proving for years re the US. The definitive answer is no and to date there is zero evidence they are wrong.
The thing is, blog commenters fiddling around with accounting chains through rabbit holes and back aren't going to satisfy the naysayers or come up with a definitive answer.
Fortiunately they don't have to. The sectoral balance equation lays the problem out very simply...just by inspection one can see that the only choke point is the willingness of Congress to create new funds...(G -T)
If someone believes there is another choke point after that the burden is on them is to show us a time in history where Congress' appropriations couldn't be fulfilled because we ran out of money or couldn't sell bonds.
Then go off and do something more constructive with your time because you won't be hearing from them.
It's time for us to move forward and quit chasing these guys tails. Let them do it to themselves. Trust our academics to do the heavy lifting on the proof front.
And trust your own judgement that these guys are not going to disprove arithmetic any time soon. They are punching way above their weight class.
Thanks Tom, but I think my framing is going just fine. Anyway "framing" is just another term for bullshit.
We're supposed to go 40 more years of trying to repackage a progressive agenda into some bullshit box that doesn't contain the slightest whiff of socialism? Forget it. That's a hopeless campaign. Everybody who is intellectually honest knows that the progressive tradition, including the New Deal, represented a fusion of the liberal tradition and the socialist tradition.
That's all coming back. FDR was elected four times, and after a few more years of taking it in the ass from plutocrats and their parasitical money schemes to destroy the middle class, a very large majority of Americans are going to be fired up to do the same thing again. And the generation that spent part of their lives cowering in their bomb shelters worrying about the Evil Empire and socialism will be long gone. The next generation doesn't give a shit about those labels.
Eventually we'll all be able to say that we want "socialized medicine" again and "socialized retirement" with looking over our shoulder for J. Edgar Hoover.
By the way, has anybody ever looked at the politics of Framemaster Lakoff? It's the same crap Obama sells. Lakoff is just another mainstream center-left PR huckster, this time with a cognitive science degree.
Progressives don't need frames. They need blunt talk and fighting spirit. A little more: "Hey Wall Street, we're getting organized and the we're coming to take your money away. Frame that."
Hey Dan,
"By the way, has anybody ever looked at the politics of Framemaster Lakoff? It's the same crap Obama sells. Lakoff is just another mainstream center-left PR huckster, this time with a cognitive science degree.
Progressives don't need frames. They need blunt talk and fighting spirit. A little more: "Hey Wall Street, we're getting organized and the we're coming to take your money away. Frame that.""
That's pretty good framing. I like it!
Dan, if you want to tell it like it is, I am all for it. I am a a radical libertarian of the left as far as my politics goes, and what is don't see on the political scene is any viable radical position being put forward on the left as there is on the right by the proponents of Rothbard, Rand, and the neo-Nazis.
I am full on for anarchism, or social democracy, or neo-Marxism, or some such, that is not some Democratic Party "progressivism" that pretends to be radical and just tweaks the present system, The present system is corrupt to the core and needs to go. I prefer the strategy and tactics of Gandhi's non-violent passive resistance to revolutionary active resistance.
Do I think that America is ready for big change yet? No. Things aren't bad enough. But it's getting there, and it is high time to lay the groundwork for radical change that definitely puts a finish to neoliberalism and positions to the right it.
Tom, as as as I'm concerned anarchism and libertarism are just variations the ethos of capitalism without the suits. They're all about individual freedom and the pursuit of personal happiness, and not about social obligation and sacrifice for others.
Let me be more specific. I recommend returning all socially significant assets to the commons and creating an economic system based on sustainable flow rather than the present system oriented to increasing privately held stocks. That are a number of ways that could be configured and there are different ways to accomplish it. But that is my bottom line principle.
not about social obligation and sacrifice for others.
There are two separate but related issues here. The first is level of consciousness, which is what social obligation and sacrifice for other involve. That is cultural. I agree that the culture needs to change and that means simultaneously taking steps to raise the level of collective consciousness and altering cultural rituals and institutions to support it.
The other issue is social, political and economic institutions, and I believe that Marx got this essentially right. It's necessary to end propertarianism in order to move forward permanently. Raising the level of collective consciousness and propertarianism are incompatible. That means returning all socially significant property (excluding present needful use) to the commons and administering it consensually rather than hierarchically.
Tom, I was careful in my phraseology, and you quoted me out of context. I said ". . . but what if the issue of nationalzing the big banks comes to the fore. Most MMTers will line up on the nationalization side; most MR people on the ZOMG it's socialism."
That's an if-then conjecture. Right now "nationalization" isn't an issue. But if it becomes one, which it one day may, if enough of the banksters are arrested, indicted, and convicted, and public opinion shifts into 1930s- like mode, then I think that MMT economists would have no problem with "nationalization." Warren has often used the motto "the financial sector is more trouble than it's worth!"
On the other hand, I say again that I think MR people would have a problem with nationalization of banks, because I think that they are ideologically committed to capitalism, while I think MMT people are pragmatic or agnostic when it comes to public vs. private ownership. I believe that we would evaluate proposals for one or the other based on performance track record in the economic area of concern and analysis, and would never say that either type of ownership was unacceptable based on a prior ideological commitment to either capitalism or socialism.
What I'm saying is that we're about what works; and I think they're constrained by a bias toward private, profit-making organizations, as somehow inherently better than public ones. And that's a big reason why they oppose the JG
BTW, these are not my original ideas. There is a huge literature in social and political thought extending back millennia. There is also a lot of relevant research in the cognitive and social sciences. Right now we are living in some nut cases' fantasy.
I see things a bit differently, Joe. I think that probably only Bill Mitchell is ready to suggest moving beyond capitalism, which is what permanent nationalization of banking would involve.
BTW, the press and pundits are now talking about moving into a "new progressive era," and the country is now passing into dictatorship, as Fabius Maximus is shouting. The contributors at FM are mostly retired or serving DoD. They recognize a coup when they see one.
only Bill Mitchell is ready to suggest moving beyond capitalism, which is what permanent nationalization of banking would involve
No way. Just have a look at China - its banks are owned by the State yet the country is certainly (some would say, brutally) capitalist.
I'd put it the other way around: maybe a government-owned (or at the very least strictly supervised) banking sector is a necessary condition for capitalism to prosper and reach its full capabilities as an economic system oriented for growth (as opposed to never ending boom-and-bust, wealth destroying cycles).
I agree, José, which is why I do not favor nationalization without changing the existing system. After all, the US is now a dictatorship. Nationalization would be step toward greater centralization and statism. A disaster for the both the US and the world.
There is a huge difference between nationalization and returning ownership to the commons, whence enclosure arose. To return ownership to the commons there has have to be institutions embedded in a culture of the commons, and an aspect of that is political institutions based on consensus rather than hierarchy.
capitalism to prosper
Capitalism is a plan for distributing the economic surplus in which the greater share goes to rentiers and the lesser share to the workers that create the surplus.
Capitalism is all about growth and it equates growth with prosperity regardless of distribution.
Capitalism is all about growth
It used to be - in the past.
But right now, US and EU capitalism seem to be stuck in a decidedly no growth stage. With the elites quite happy about it.
Yet such a state of paralysis cannot last. The masses got used to growth and to its rewards in terms of improved living standards - and thus prolonged stagnation (which is precisely the recipe being offered on both sides of the North Atlantic) is bound to threaten the survival of the system.
Strangely, the left is not leading the demand for pro-growth policies. In Europe, the social democratic parties are now merely neoliberal mouthpieces, totally captured by the austerian mindset. Whereas in the US the left is invisible for all practical purposes.
So it should not come as a surprise to watch the banner of revolt against the system being more effectively captured by the likes of Berlusconi.
He stands for a kind of populist, slightly mad leader that is capable of telling the electorate what it wants to hear in moments of crisis. An unpopular tax? I'll scrap it. An unpopular currency? Maybe it's time for Italy to threaten to leave the euro. Etc.
Compare this to the platitudes coming out of the traditional Italian left.No wonder the man is rising in the polls.
Of course, there will not be a return to the 1930s. Every time is different from the past. But when democratic leaders lose touch with their electorates, expect pragmatic demagogues to fill the void.
And instead of attacking the demagogues - or even worse, those who elect them - the left would be well advised to drastically change course and start proposing policies capable of addressing the concerns of those it claims to represent.
And instead of attacking the demagogues - or even worse, those who elect them - the left would be well advised to drastically change course and start proposing policies capable of addressing the concerns of those it claims to represent.
As Marx observed and asserted strenuously, there is a great difference between the naive left and a mature left. The naive left thinks that it can just impose theory, inspire those that are down, etc., without laying the groundwork in raising consciousness. The masses are brainwashed by the propaganda of the elite telling them what is good for them to the degree that that they are unable to realize their real interests and how to achieve them. This is in large measure why there is no left to speak of at all in the US. Ordinary people are baffled by the BS.
Just look at the pushback against MMT for saying that it's not affordability that is at issue but availability of real resources: The govt can always afford to purchase private resources for public use, especially when they are idle and their acquisition by govt presents no inflationary threat.
TPTB understand full well that "availability of real resources" and affordability not being an issue means "redistribution of real resources," which are now distributed privately and rationed by affordability.
So, of course, anyone with a stake in the status quo is going to run away from MMT and accuse those who propagate it of being "socialists" or "communists." This should hardly be surprising.
Again, Tom you're talking past my argument. You said:
"I see things a bit differently, Joe. I think that probably only Bill Mitchell is ready to suggest moving beyond capitalism, which is what permanent nationalization of banking would involve."
But, my condition was that the issue of nationalization comes to the fore, and then I suggested that MMTers prefer nationalization. Few of us are willing to actually propose it or seriously suggest it; but given the right political context, I conjectured that many of us would favor it.
I also suggested that the MR people would never favor it and that this is a way in which they quote different from MMT.
Finally, I also ask why permanent nationalization of the big banks is "beyond capitalism"?
The smaller banks would still be private, and private businesses would still be more than half the economy, even after we passed Medicare for All and put the health insurance companies out of business. -:) -:) -:)
Joe, I would oppose bank nationalization under the current dictatorship. I'd rather go with Jamie Dimon and Lloyd Blankfein than Obama.
why permanent nationalization of the big banks is "beyond capitalism"?
Finance capital is presently allocated by the banks and financial sector based on risk management. With government it would be a matter of picking winners and losers. The potential for corruption is orders of magnitude greater.
Coming back to the T. Palley essay for a moment, he writes on page 9:
"Many European governments, aided by the IMF, are seeking to return to full employment output with a budget deficit target. Broadly speaking, they appear to be looking to cut taxes to stimulate output and reduce government spending to hit the budget deficit target. That assignment is unstable".
IMF seeking full employment in (presumably, southern) Europe?
Wanting to implement pro-growth tax cuts?
What the hell is is talking about? Has he never heard of the austerity packages that are devastating the economies of peripheral Europe?
Such lapses and sheer ignorance - quite apart from whether one likes or dislikes his positions on MMT - are beyond excuse in an economist of his calibre.
"TPTB understand full well that "availability of real resources" and affordability not being an issue means "redistribution of real resources," which are now distributed privately and rationed by affordability.
So, of course, anyone with a stake in the status quo is going to run away from MMT and accuse those who propagate it of being "socialists" or "communists." This should hardly be surprising."
It's not surprising; but so what? We can't control the lies they tell about us. But we can refute the lies!
It's not surprising; but so what? We can't control the lies they tell about us. But we can refute the lies!
Yes, I agree that we need to do every little bit we can against whatever odds and knowing that powerful forces will be immediately set in motion to reverse any victories we win.
What I am saying is that for permanent positive change in the US and world, Marx was correct. Ordinary people have to reeducated not about this and that but in terms of the big picture.
The longer cultural and institutional biases last, the deeper the hysteresis. Eradicating neoliberalism will take many decades after it has been eliminated from cultural rituals and institutional arrangements.
The siren song of "freedom" is very seductive, regardless of whether it means personally and socially destructive behavior when conceived merely as freedom from responsibility and freedom to choose at others' expense.
Because it addresses objections that Palley is making.
In other words, the reason it's relevant is that it's relevant?
It shouldn't be hard to say what part of Palley's paper it addresses. Otherwise, it's quite hard for me to evaluate your argument. Has Palley really missed something important?
My conclusion is that economics is just not a rigorous profession and the people that participate in it are for the most part hacks flaking ideology, and it appears that many are doing this for money and position. Actually I find it a disgusting betrayal of trust.
I don't know, that is quite a remarkable statement. Do you really mean it?
My impression is that you are not particularly interested in economics, so it seems weird that you could come to such strong conclusions about the motivations of the people involve in it. I would be very surprised, for example, if you could even tell me what field the modal economist works in.
vimothy, where are you 'coming from', so to speak: new classical, new keynesian, post keynesian...?
vimothy, ca can't see the forest for the trees. You are exactly the problem I am talking about. You are coming across as obtusely defending an obviously deficient position.
1. Many people in addition to me have cited deficiencies in Palley's paper, some just related to poor scholarship other factual errors regarding data. The paper meerits a D if not an F. Truly, I am embarrassed for the man.
2. The Queen of England asked her economists how they missed the the onset of the crisis. Their answer was that their models didn't predict. Change the model? Nah. Cameron kept right on going with it and is running the UK into the ground as result.
I could go on an on, but I and others already have.
You and they need to get out more.
In fact, vimothy, I'll be even more specific about my objection to Palley and many if not most mainstream economists. It's called "making shit up."
I am not the only one making this objection either. About every third Krugman post these days is a complaint about "experts" just making shit up.
I think Palley makes shit. Notice the places in his paper where he talks about MMT "implicit models," and then proceeds to knock them down?
I think it would be best if one of the MMT economists responded thoroughly to Palley's paper, instead of just ignoring it. Even if they do that by just referring back to previous papers, doesn't matter.
it would be best if one of the MMT economists responded thoroughly to Palley's paper
Well, they didn't respond thoroughly to the much better argued Lavoie and Fiebiger criticisms, so I guess your legitimate wish will likely go unfulfilled.
Here's Fiebiger complaining about the lack of a direct response:
That Fullwiler, Kelton and Wray (2012) did not make a solitary reference to Lavoie’s positions or mine in their five-thousand word response to critics was unusual...(they) mention Lavoie and myself only once: “It looks to us as if they have not understood our arguments.”
I think it would be best if one of the MMT economists responded thoroughly to Palley's paper, instead of just ignoring it. Even if they do that by just referring back to previous papers, doesn't matter.
I can't speak for them, but if it were me, I'd consider criticism that has been either refuted in publications or already responded to elsewhere as trolling and ignore it.
Someone is supposed to waste their valuable time cleaning up someone else's self-created mess because the person is unwilling or unable to do competent research is or actually trolling?
If someone does respond to in my field the response is often ridicule. I remember going to my first professional conference and seeing people brutally ripped apart and being made fun of for making mistakes. Professional argumentation is not beanbag in many fields. If you climb in the ring, don't expect mercy. No quarter is given to the MMT economists, and they have to make the decision to respond in kind or to ignore it.
Warren often deftly responds, "Have you read ....?" While that sounds polite, it is telling the other person that they haven't bothered to actually do the research on critique what they purport to criticize — in other words, they don't know what they are talking about and are making stuff up. They should take it as a public embarrassment if they are professionals.
Jose, the MMT economist know Lavoie and the other Circuitists personally, and I believe that some time ago they began working out their differences directly with each other in order to be able to present a united front. The detente with Steve Keen was part of that effort.
But in the final analysis, people even in the same school of thought do disagree with each other over some things regarding which they cannot come to agreement based on shared criteria. For example, the same factual evidence can be interpreted differently.
"I think it would be best if one of the MMT economists responded thoroughly to Palley's paper, instead of just ignoring it. Even if they do that by just referring back to previous papers, doesn't matter."
I feel comfortable about by ability to respond effectively to Palley's paper, but it would probably take me a few days of careful work to do so. That would be days taken away from other things, like writing things about the upcoming sequester, budget, and debt ceiling conflicts. So, I have to look at time commitments and evaluate whether that kind of time commitment is worthwhile. Right now, I'd say no; but if Palley's paper became more widely cited, then I might change my mind.
vimothy, ca can't see the forest for the trees. You are exactly the problem I am talking about. You are coming across as obtusely defending an obviously deficient position.
But I'm not defending any position. I'm asking you to explain why you think Palley should have cited the paper that you say he should have cited.
I think this is a straightforward request that shouldn't be a problem for you.
The Queen of England asked her economists how they missed the the onset of the crisis. Their answer was that their models didn't predict. Change the model? Nah. Cameron kept right on going with it and is running the UK into the ground as result.
I'm not sure how this is relevant. Is this why you think economists are all hacks?
In fact, vimothy, I'll be even more specific about my objection to Palley and many if not most mainstream economists. It's called "making shit up."
That doesn't seem very specific. What did he make up?
vimothy, where are you 'coming from', so to speak: new classical, new keynesian, post keynesian...?
I'm not sure that I'm really coming from anywhere. The different schools you refer to are all just modelling approaches at the end of the day and they all have something to offer. I've tried to learn from all three, and from others.
ok, that's a good approach. Just thought I'd ask.
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