Friday, May 10, 2013

Bill Mitchell — Buffer stocks and price stability – Part 2

I am now using Friday’s blog space to provide draft versions of the Modern Monetary Theory textbook that I am writing with my colleague and friend Randy Wray. We expect to complete the text during 2013 (to be ready in draft form for second semester teaching). Comments are always welcome. Remember this is a textbook aimed at undergraduate students and so the writing will be different from my usual blog free-for-all. Note also that the text I post is just the work I am doing by way of the first draft so the material posted will not represent the complete text. Further it will change once the two of us have edited it.

Buffer stocks and price stability – Part 1 
Chapter 13 – Buffer Stocks and Price Stability
[Continuing from Part 1]
13.2 Measuring the costs of unemployment buffer stocks
Bill Mitchell – billy blog
Buffer stocks and price stability – Part 2
Bill Mitchell

7 comments:

Ralph Musgrave said...

The entire “buffer stock” notion is irrelevant to JG. Reason is that if there’s no JG, the unemployed act as a buffer stock. But if you have JG then JG people act as a buffer stock. So “buffer stock” applies in both cases. Ergo it’s irrelevant to the question as to whether to implement JG.

Moreover, the purpose of a buffer stock is to stabilise prices or ensure a minimum price. But the latter role is performed by minimum wage laws. And that makes the buffer stock idea doubly irrelevant to the JG debate.

Matt Franko said...

Ralph,

In IT, a "buffer" is used exclusively to maintain valuable information that may feed in to the CPU faster than the CPU is designed to process it...

So the key take aways are:

1. The info that is temporarily stored in the buffer IS VALUABLE...

2. The info is MAINTAINED until it can be used...

So (to me) to say "a buffer stock of unemployed" is technically an oxymoron...

Folks that are involuntarily unemployed are by definition:

1. Deemed NOT valuable...

2. NOT maintained...

Did a short post a while back demonstrating some of these principles from the IT systems perspective:

http://mikenormaneconomics.blogspot.com/2012/01/information-system-diagram-employing.html

This is another textbook example of how f-ed up the academe of economics is wrt both mathematical insight and moronic terminology...

rsp,

Tom Hickey said...

Ralph, according to MMT economists there is always a buffer stock wrt employment and an anchor wrt to price stability.

What kind of a buffer and what kind of price anchor is a policy choice.

There are good policy choices and bad policy choices based on different criteria.

The policy criteria that MMT uses are public purpose, general welfare and common good, so it recommending choosing a buffer stock of employed in stead of a reserve army of unemployed and destitute, and an hour of unskilled labor as the price anchor instead of a Taylor rule to guide monetary policy in controlling inflation.

Ralph Musgrave said...

Tom,

What you say is perfectly true. But my point is that the “buffer stock” notion is surperfluous.

To make an analogy, instead of the phrase “unemployed” and “JG employees”, you could refer to “a collection of human beings, most of whom have two arms, two legs, two eyes, two eyes and a digestive system…..”.

That stuff about arms, legs, etc is just surperfluous, isn’t it? E.g. if someone has just one eye, what of it? They ought still to be able to get a job: a JG job or a regular job.

Tom Hickey said...

Ralph, I think the difference is that JG is conceived and used as a buffer stock. The reserve army of unemployed is not conceived in those terms, but rather it is used as a buffer against inflation on one hand and a cheap pool of labor with no bargaining power on the other.

I would say that the concepts of buffer stock and price anchor are key to the MMT narrative and make clear what is actually happening and how it could be different with different policy choices.

I see MMT as pretty much about policy space, how much of it to use, how to use it, and the decision criteria wrt policy choice.

paul meli said...

"Buffer stock" doesn't have any meaning to me but looking at the JG as an automatic stabilizer does. Maybe they are one and the same.

Tom Hickey said...

Automatic stabilizer has a different meaning. The JG is a particular type of automatic stabilization using a buffer stock. But it is also more than an automatic stabilizer in that the MMT functions as a price anchor as well.