OK for the next few weeks we are going to play a game called Bop a Mole.
Here’s the deal. For more than two decades a small group of scholars hashed out what became Modern Money Theory. We’ve written many books, a hundred chapters for edited volumes, hundreds of published articles, and thousands of blogs presenting the theory and defending it against critics.
Yet practically every day a Mole pops up to ask: “Why doesn’t MMT ever talk about XXX?” You’ve seen the claims:
Mole 1: MMT never deals with inflation.
Mole 2: MMT never talks about exchange rate effects.
Mole 3: MMT cannot relax the consolidation assumption.
Mole 4: MMT ignores the private banks.
Mole 5: MMT is just like slavery; it forces people to work for welfare.
Mole 6: MMT promotes unbridled growth, ignoring environmental sustainability.
We Bop one Mole and another jumps up. In fact, every possible critique of MMT has been addressed in at least a dozen different academic papers and probably a hundred blogs.
The problem is that the Mole Bopping is sometimes buried deep in the paper, perhaps in an argument that is too academic. Or it is too hard to find the exact blogs where we’ve dealt with the issue. Heck, I cannot remember 95% of the stuff I’ve written, much less find it.
So I thought we’d play a game, Bopping Moles, and try to keep these Mole Boppings organized for future reference. When Mole 1 Pops up again, we can just pull out Mole Bopping #1. No reason to re-Bop if you’ve Bopped ‘em once.
We’ll Bop a Mole today. I’ll open up the comments section to your suggestions for the next Mole Bopping.
Economonitor — Great Leap Forward
L. Randall Wray | Professor of Economics, University of Missouri at Kansas City
32 comments:
Bop A Mole #0: proponents of MMT are disorganized and forgetful.
Hopefully you'll nail that one with this 'new' approach.
"thousands of blogs presenting the theory"
Theory yes, data no. By contrast, Rodger Mitchell and Steve Keen routinely present data to back up their theories.
"the recognition that we cannot rely on natural quantity constraints on government finance to keep its spending low enough to prevent pressure on prices." BS. Australia maintained full employment and low inflation for 30 years. In my lifetime, there has NEVER been significant inflation caused by excessive government spending.
"we recognize that inflation pressures normally arise before full employment is reached." Show me the data?
Show me a chart that correlates full employment with inflation?
In fact, Australia's "golden years" suggest that there is no correlation between full employment and inflation.
As RMM has demonstrated, all inflation since 1970 has correlated to energy prices. RMM presents data, MMT presents armchair theory.
"So if we are going to pursue full employment, we need a better price anchor."
Please show data proving the existence of a so-called "price anchor"??? I call BS on the "price anchor."
"According to all of them, the unemployed serve as a price anchor ....We do agree with the mainstream that you need a price anchor."
Please provide empirical proof that minimum wage labor has ever been a so-called "price anchor."???
How tough would it be to make a FRED chart showing employment and inflation? (Hint: I've done that chart. The correlation broke down in 1970).
"There necessarily is, Always has been, Always will be, A buffer stock policy. Call that the MMT insight."
Please present empirical data demonstrating a correlation between your so-called "price" anchor" and inflation? If MMT wants to be taken seriously, they need to present data to back up their claims, as RMM and Keen have done.
Randy's blog does not present one single chart. There's no there there. It's all armchair theory.
Meanwhile, Mike Norman has said that it's practically impossible for the government to cause inflation. I agree with Mike.
Since WWII, US inflation has correlated to two things 1) powerful unions and 2) world-wide energy prices.
A buffer stock of any sort cannot prevent a powerful union from going on strike for higher wages.
A buffer stock of any sort (other than an energy buffer stock) cannot prevent oil producers from forming a cartel and jacking up their prices like they did in the 70's.
A buffer stock of labor in the US cannot prevent the Chinese from bidding up the cost of raw materials.
MMT does not have a handle on inflation. Before MMT can propose a "solution" to inflation, MMT first needs to undertand what causes inflation. MMT needs to go back to the drawing board.
Dan Lynch,
I agree there’s a lot of nonsense in that blog post of Randy’s. I left two critical comments there. Only half of one them appeared and the second didn’t appear at all. So that was a bit of a waste of time.
But I think you are wrong to criticise MMT as a whole. I think MMTers are ahead of everyone else when it comes to stimulus, monetary policy, fiscal policy, etc. In contrast, when it comes to JG / workfare etc, MMTers are no better than others: i.e. they’re in a muddle.
Randy Wray denies that JG “forces people to work for welfare”. But at the top of p.12 of Ch.18 of the Mitchell / Wray text book it says “We assume for the moment that the Job Guarantee policy does not offer an unemployment benefit…. These assumptions serve to simplify the analysis and relaxing them does not alter the basic dynamics of the system.”
Strikes me that a system under which people work on JG or get nothing is a system under which people “work for welfare”. And BTW I don’t object to making people work for welfare: I just object to pretending you aren’t advocating “work for welfare” when in fact you are.
Also, my jaw drops at the idea that the “basic dynamics” of the system are not altered by introducing unemployment benefit. Take home pay on UB in most West European countries is not much different to take home pay on a min wage job (which is the wage envisaged by Mitchell and Wray on JG). Now offering people say $175/wk for doing nothing when they previously had to work for say $200/wk is quite a temptation. Leisure is preferable to work for a sizeable proportion of the population in my experience.
A JG is an alternative to unemployment - nothing more. It's function as a 'price anchor' is part of an academic debate that may never be resolved.
Bill Mitchell has acknowledged that a JG does not protect against the effects of external supply shocks.
Show me a chart that correlates full employment with inflation?
In the 1990s economists were also claiming that the Clinton boom would lead to inflation and then no such thing happened.
Also, what's so bad about moderate inflation with full employment - if such a situation ever arises? Much preferable to the current environment of low inflation with massive unemployment, IMO.
It's hard to understand the obsession of some MMTers with the currently non-existing problem of inflation. Are they trying to put up a VSP image among their colleagues in the more orthodox academia - the Krugman and Stiglitz types? They should proceed instead with their great work on real life fiscal and monetary operations and stop fighting imaginary problems.
See Dan, there are these things called cost-push and demand-pull inflation. Randy is dealing with demand-pull. Next time don't assume everything is about everything, OK?
Also, what's so bad about moderate inflation with full employment - if such a situation ever arises? Much preferable to the current environment of low inflation with massive unemployment, IMO.
Wray has stated as much on his blog. I mean, what is this? A complaint the JG would work too well? If it employs everyone and also does a better job of generating price stability, that's a point against it?
That arguments against MMT are becoming more hysterical can only be a positive sign.
In open economies. It is becoming increasingly obvious that what happens in the global economy affects subsystems including nations.
The history of capitalism has been one of imperialism and colonialism, and now neoliberalism and neo-imperialism and neocolonialism. During these periods developed nations have reduced costs by importing resources and labor.
Without addressing this, I don't think that a solution can be arrived that is either sustainable or equitable. I think that we have to look at both the labor market and trade from the global perspective that is win-win rather than trickle down, claiming that everyone is getting better off and this is the best that can be done (TINA).
Neoliberalism, neo-imperialism and neocolonialism may be an advance beyond the economic liberalism, imperialism and colonialism of the past, but not all that much. One way or another, the people at the bottom of the totem pole bear the brunt of the top-heavy structure that is imposed institutionally so a privileged few can live in luxury.
From this point of view the MMT JG, floating exchange rates, and "imports are real benefits and exports are real costs" just improve an inequitable and unsustainable situation. This might be a step forward temporarily but it is not a goal.
Ralph,
“We assume for the moment that the Job Guarantee policy does not offer an unemployment benefit…. These assumptions serve to simplify the analysis and relaxing them does not alter the basic dynamics of the system.”
That doesn't say that they advocate a system in which people either do JG work or get nothing.
"I just object to pretending you aren’t advocating “work for welfare” when in fact you are."
Nothing in the sentence you quoted indicates that they are advocating "work for welfare".
"Leisure is preferable to work for a sizeable proportion of the population in my experience."
The JG concept seeks to eliminate involuntary unemployment, not voluntary unemployment.
Dan Lynch,
"In fact, Australia's "golden years" suggest that there is no correlation between full employment and inflation."
Dan, if you're correct then much of the time the JG 'pool' would be very small.
then much of the time the JG 'pool' would be very small
Unfortunately that is not the case, because developed world elites do their best to keep unemployment high and aggregate demand low. This disciplines workers, forcing them to servile and docile labor for the masters of the universe at ever stagnant real wages.
Paul Krugman had a couple of good postings on this some days ago.
Unfortunately that is not the case, because developed world elites do their best to keep unemployment high and aggregate demand low. This disciplines workers, forcing them to servile and docile labor for the masters of the universe at ever stagnant real wages.
And it is not just about economics or "the labor market." It's about power and maintaining political control as well, or even more so. Politics and economics are joined at the hip in a "market" society that bases distribution on power relationships that are grounded in wealth. It's how plutocracy maintains control in a democracy. When workers are made to feel dependent, it is simple to convince then of TINA using the carrot and stick.
Jose, I meant if a country implemented MMT type policies.
According to Dan Lynch you can have full employment with low inflation, without a JG.
If he's right, and a JG program were implemented, then much of the time the JG program would be very small.
It's possible to have full employment without a JG with global labor being fungible and with firms permitted to import embedded labor from places that there are no regulation of negative externalities or worker protections-benefits. Then, if the unemployed are not supported and there is no social protection, they will have to accept any work to stay alive. This has manifested historically as domestic help part of whose wage is room and board in the servants' quarters, and it is still the model in some parts of the world where the paternalistic system prevails.
Dan,
I see what you are saying here...
As far as a POV on inflation from the MMT folks, watch this video i linked to in this post a while back it has Warren, Bill and Randy addressing the issue of inflation including a definition and imo it agrees with a lot of the points you make about oil and labor...
http://mikenormaneconomics.blogspot.com/2011/11/infaltion.html
perhaps to your point not a lot of empirical data but that may be on their "to do list"...
Also I'd point out that this word "inflation" is a metaphor and probably a false one based on the metonymy that "economics is physics"...
I prefer "price stability" as what we should be concerned about, which ironically is the wording in the Federal Reserve Act... not "inflation" or "deflation" I think both of these are false metaphors that have worked their way into the discourse and are misleading at a minimum...
rsp
Y,
I agree that STRICTLY SPEAKING Mitchell and Wray don’t advocate a “work on JG or get nothing” system. Their exact words are “We assume for the moment” that the unemployed do JG work or get nothing. However, they don’t subsequently undo that assumption. So I think they need to come clean on exactly what they’re advocating.
Re your suggestion that unemployment benefit should be available with JG work being voluntary, I don’t have any big objections to that. But I do object to Mitchell & Wray’s claim that making JG voluntary would make little difference to the numbers doing JG. I.e. if people are offered the choice of $X/wk for doing nothing and about $X/wk for working, I’d guess that about 90% would choose leisure.
Ralph,
according to your argument about 90% of people currently working on minimum wage should instead be choosing to live on unemployment benefits.
Y,
If all those on min wages were told they could get say 90% of their current earnings for free off the state and do no work, I’d guess about 90% would take up the offer. But governments just don’t offer to keep able bodied people in idleness for decades on end.
Governments DO OFFER to fund those who have recently become unemployed, and for roughly a year. After a year or whatever, the offer is withdrawn (gradually or suddenly). E.g. 1.3 million Americans are due to lose their unemployment benefit soon. See:
http://rt.com/usa/us-unemployment-congress-aid-expires-936/
Ralph, IIRC, Bill is for the JG replacing the dole, while the US MMT economists would make the JG a voluntary alternative.
If it were implemented in Canada, I would be in favour of ending EI, which is acting as a slush fund for the federal government.
The option could be between social assistance and a JG, which would offer the chance to earn significantly more income.
Tom:In open economies. It is becoming increasingly obvious that what happens in the global economy affects subsystems including nations.
This is excessively obvious, excessively argued. It should be ignored more, not focused on. What needs to be seen more clearly is the truly obvious - but so often denied - that what happens in local societies affects the local economy, that they are not powerless subsystems. (Unless as enforced the old-fashioned way - by guns.)
From this point of view the MMT JG, floating exchange rates, and "imports are real benefits and exports are real costs" just improve an inequitable and unsustainable situation. This might be a step forward temporarily but it is not a goal. One can criticize any progress that way. It is singularly inappropriate for MMT & the JG.
For THE universal economic problem - causing poverty amidst plenty, mind boggling waste and stagnation is the psychotic belief and practice of forcing people to not work for their own & everybody else's benefit. Every nation in the world would benefit by adoption of functional finance, MMT & the JG, and from any other nation adopting them.
Abba Lerner called such ideas that things must be "solved" globally first, looked at from a global perspective first, "sentimental internationalism".
Basically, the whole world solved the problem during the postwar era - the greatest, truest boom the world has ever seen - but only in practice, but not decisively enough, simply enough, trivially enough, not enough in theory.
It seems to me that a big reason that inflation is no longer the issue it once was is due at least in part o the suppression of labor bargaining power through neoliberal policies, as well as ersatz immigration through embedded labor imported as goods from countries with low compensation, no benefits or protections, and no environmental regs. So there are "free markets," that is, markets free of real competition in the labor market, "free trade" in the sense of unlimited imported labor and exported externalities, "free capital flow" in the sense of investment abroad in low wage-no reg countries.
This loads the game against workers, and the proposed remedies like a JG don't address the actual issue, which is suppression of labor power by superior power of firms, especially the huge firms like Wal-Mart that other firms must compete against. I hear some small business owners saying that they would like to pay more but have to meet the competition.
I don't have to go into all the deleterious effects of this power imbalance in both importing and exporting countries, where workers get the short end of the stick regardless, since a great deal has been said about it, although not much in the mainstream. In fact, the public is now strongly biased against unions as "inflationary," so firms and the politicians they rent don't have to be concerned with suppression of labor power with the public sour on it.
The "bad" side of a JG/ELR is that it doesn't address the causal factors head on. The good thing about a JG/ELR, or BIG, is that these provide workers with a modicum of freedom wrt to job selection and bargaining. But the freedom provided is minuscule relative to what is required to correct the imbalance.
Without addressing the imbalance, solutions are not only buying into the dysfunctional system but also supporting it institutionally, making only minor improvements that don't really affect the status quo.
The problem is the status quo. One can envision a future in which the future of most workers is either low wage service jobs in the private sector or JG jobs amounting to about the same, supported by the public sector, with much of the income and wealth flowing to the upper decile and there unequally as well as the very rich get even richer.
It's true that a JG or BIG could increase labor bargaining power but that is never featured. In fact, it is usually suppressed in the literature as politically incorrect in a neoliberal environment.
The good thing about a JG/ELR, or BIG, is that these provide workers with a modicum of freedom wrt to job selection and bargaining.
I'm afraid - in the case of the JG though certainly not the BIG - that would depend on the political views of the government implementing the Job Guarantee.
A right-wing, chauvinistic administration could decide to use the JG for "solving" an economic crisis by instructing people to accept "jobs" in the military and then increase the level of aggressiveness abroad in projects designed to enhance US hegemony.
There's nothing like wars to restore full employment (see WWII, the unforeseen event that effectively ended the depression) and an authoritarian interpretation of the JG might facilitate the birth of a perverted version of "military Keynesianism".
Now I know this would constitute a travesty of the JG concept that couldn't be more alien to the well meaning philosophy and intentions of its present day promoters.
But history is full of nasty transformations and one should be aware of all the risks attached to the idea of mandating people to "work for a living" when aggregate demand is not strong enough to pay for a full employment economy.
Tom, I hope that you understand that I appreciate your thoughts well enough that you won't be offended when I say you are talking nonsense. Highly pernicious nonsense refuted by Lerner long ago, and perhaps without adequate reference, in modern MMTers' papers dealing with international matters.
I've quoted from him before. One way of saying it is that there simply isn't any such thing as an open economy, so there can be no magically bad open economy effects. An open economy is a special case of a closed economy, not just vice versa.
This loads the game against workers, and the proposed remedies like a JG don't address the actual issue, which is suppression of labor power by superior power of firms, especially the huge firms like Wal-Mart that other firms must compete against.
The JG addresses the actual issue, the causal factors in the most direct, most head-on way imaginable. MMT/FF policy, above all the JG is not "minor improvement" but colossal, decisive change. Firms' power to pay sub-JG wages, impose sub-JG working conditions is removed. Labor's bargaining power is immediately enhanced - and MMT academics do feature this. Everybody who wants a decent job - a decent lifestyle gets one. Low inflation, cheap goods doesn't load the game against workers, it helps them. Low or no pay hurts them. The JG does away with that. And the nation democratically decides on the JG wage.
But the freedom provided is minuscule relative to what is required to correct the imbalance.The freedom provided is enormous. Far more than is needed to correct the "imbalance". "Free markets", "free trade" and "free capital flow" are nothing, a joke next to the power of the JG and FF wielded by a nation of appreciable size. All they can do is benefit, not hurt such a sovereign nation - most especially the USA.
The oligarchy understands this perfectly well. Unlike everybody else but the MMT academics, they do the accounting right. So international divergences from neoliberal dogma are met with fanatical hostility, including military action. Because they know that FF/Keynes/MMT/progressivism/"socialism" works. And would provide what Chomsky calls "the threat of a good example."
"Sentimental internationalism" that sounds so right and touchy-feely and global ecological and all that - is a counsel of despair, a prescription for inaction because it baselessly claims the necessity of chimerical global action, and baselessly belittles the true, enormous power of each nation to tend its own garden - by stopping defoliating it. Sentimental internationalism is a potent tool in the hands of the oppressors.
I don't disagree with you, Calgacus, insofar as you are talking within the present system. Where I disagree is that the present system in inherently flawed in that it places capital (including land ownership) on top and workers in the category of resources, i.e., means. The purpose of the system is "growth," meaning capital formation, which is the basis of "trickle down." Everything is secondary to that because the rising tide is presumed to lift all boats.
This is ass-backwards ethically and sociologically. Not only are the premises wrong, but also the logic to the degree that economics is based on conventional models. The elite has already moved on to international institutions and transnational corporations. They get globalism and are using it for their purposes.
We need to view the world ecologically as complex adaptive system rather than as an aggregate of individuals organized into national economies that are the macroeconomic units.
There is no way to solve the major issues facing humanity this way. Modern managerial capitalism is a failed system since it accepts no limits to capital expansion and assumes there are no externalties involved that the market will not correct in the long run. Well, the long run is too late.
The outcome of this system is ecological disaster and international conflict
I have never said that an incremental approach is not the way to do. I have emphasized that short of political revolution or mass conversion owing to external shock such as climate change, social change is incremental and I accept that a JG/ELR is a step forward.
However, it is only a step. It does not address the pressing issues of the day, and it operates within the existing frame of reference.
That frame must be called into question because it is failing us as a species and even if it were not, growing inequality is inequitable and will lead inevitably to increasing social dysfunction. A JG doesn't change that outcome, or anything else that leaves workers in a secondary position. This is the point of "socialism" v. "capitalism." It's portrayed by capital to be about markets, command systems, communism, etc, but it's really about priorities, capital formation and preservation or quality of life for everyone. The assumption of capitalism is that this is the optimal way to higher quality of life for all. That is a highly questionable assumption, and one put forward by those who benefit most by it through ownership. In fact, the claim is TINA.
What ad hoc fixes do is co-opt workers enough to get them to put up with continued exploitation. If the ruling elite had any brains, they would jump on board a JG, and it's likely no accident that Friedman proposed a permanent income guarantee probably with this in view.
So I think that it is question of strategy and tactics. I think that most of us agree that this system is not working for many if not most people, even though "things are getting better overall" in that global poverty is declining on measures used in this system. Of course, that result is debatable in terms of quality of life.
I think we need to adopt a pragmatic approach and that means an incremental one at this time. However, I also think we need to raising the pressure for an overhaul of the system in terms of priorities.
Continuing, what I think people are best advised to do is 1) form there own alternative networks and link their network as a node into larger alternative networks, 2) work politically for incremental change in the system that improves quality of life and addresses challenges, and 3) work culturally and educationally toward shifting the current worldview to a view that is operationally sound, as Roger has been saying, for example.
That means developing an operational approach based complex adaptive systems and agile tactics capable of addressing emergent issues in a timely way. This is nothing really new, actually, militaries and top management have been developing this approach for decades, but institutional inertia has slowed down the process of implementation.
This can be done through local networks and distributed widely and relative quickly through networking. But it is also necessary to ramp it up institutionally owing to the global challenges that now face us.
The major problem is that the current worldview is largely shaped by 18th and 19th century ideas. That's why look back to Marx for solutions just delays the process. Not that there aren't good ideas in the past. There are lots of them. But we need a fresh approach that incorporates state of the art knowledge and pushes the envelope.
I admit that I am a radical, and also that I am practical enough to realize that radical ideas have little change of being implemented widely. But they influence the debate.
Radicals rush ahead and conservatives tug back. So change is relatively slow. I get that.
But if we let conservatives tug back and don't propose radical solutions that would plausibly work, then the Overton window won't move much.
Change occurs within the present context. Conservatives argue for reestablishing an idealized context of the past and radicals argue for establishing an idealized context of the future. Right now, conservatives have the microphone and radicals are marginalized. We need to change that.
Otherwise, the change that takes place will occur in a context that hobbles it out of the gate. For example, others have observed how simple it is to convert a JG to workfare even though that is not the intention of those proposing it.
But it's a political issue and politics will decide the institutional implementation. In a conservative milieu, A JG becomes workfare.
Well, here's evidence of a big score for BIG in Brazil:
http://crooksandliars.com/2013/12/cash-handouts-are-changing-inequality
In the developing world, a BIG and JG make sense as an interim measure to alleviate the huge social problems arising from enclosure and urbanization.
However, even in underdeveloped and emerging countries, this is against the background of tribalism and feudalism being forcibly transformed into capitalism in the sense that the chief priority is capital formation and preservation, using people as means. It's a let the poor eat the crumbs approach instead of putting people first.
The idea that people have to be treated as things in order to create a trickle down system is not only unethical, it won't work in the end because it creates inevitable conflicts that result in either revolt, suppression of dissent or wars, not to mention environmental predation.
Brazil is a poster child for this. Capitalist predation following on feudal predation > riots in the streets > co-optation aka "bread and circuses" and increased security to ensure control > continued predation along with "let them eat crumbs."
And as soon as possible TPTB take away the crumbs and get back to business as usual, as is happening in the US with the dismantling of the New Deal and in the EU with the the dismantling of the welfare society.
Brazil is a poster child for this
Two important points, IMO:
- The elites (or at least a substantial part of them) in emerging countries such as Brazil, Argentina, Venezuela, Ecuador, Bolivia, seem to be more independent of the power center of global capitalism (the U.S.) than the "developed" European elites, who have lately become simple appendages to the American powers that be.
- they do not even remotely dare to engender strategies to cause mass unemployment and impoverishment (such as the austerity of the eurozone); the situation in those countries is not "stabilized" enough - including in the sense of massive and successful brainwashing of the population in order to make it accept without questioning the dictums of "sound finance".
Both these aspects create a higher level of expectations among the populace - and hence important opportunities for people and political movements who want a more equitable model for the economic development of the region.
I agree that the emerging world presents opportunities to shake off neoliberal capitalism and develop something new that are more difficult in Western countries where the liberal tradition has been interpreted as neoliberal.
It's possible that this will arise in Latin America, but given the European origins of the elite, it would still be heavily influenced by that historical heritage. Nonetheless, Latin America has a an indigenously rooted population that counters this imported influence, but the largest and most politically powerful ethnic group is of European ancestry
India is similar in some respects, where years of the British Raj have left an indelible influence. However, India is a very large country with a rich heritage of its own, too.
China is similar to India although somewhat less so. The European influence on China is through Marxism-Leninism, which is still a 19th century European phenomenon heavily involved with Western culture and history. In addition, many of upcoming the Chinese learned class have been educated in the West and especially in the US.
The Islamic world presents a different paradigm altogether, since interest is forbidden by religious law. There is growing interest in Islamic finance owing to their growing financial clout. But so far, this is a blip on the screen and much of the Islamic paradigm is medieval. Difficult to see how that is going to influence development outside of Islamic nations.
So conditions in the emerging world are somewhat a mixed bag, with much of the same Western historical, cultural and institutional baggage that characterizes Western civilization, while simultaneously having local heritages, too.
So the development of these regions hold promise of departing from the Western paradigm, while at the same time they are developing within it, and in a strikingly Weberian context that underlies the development of neoliberalism owing to the Westernizing of the ruling elites.
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