There’s been much talk about Trump’s plan for jobs and infrastructure that entails over one trillion dollars in new spending (without tax increases) and promises to employ thousands of American workers. Because it looks like this would require significant deficit spending, it has drawn stiff criticism: even Trump’s the own conservative supporters have expressed concern.
Among advocates of Keynesian spending and Modern Money Theory (MMT), however, some precautionary excitement can be observed. Their perspective is different because they are unafraid of a government deficit, and in favor of direct job creation. They understand that deficit-spending is not inherently bad, and that the US government will never have to default on its debt. When the economy is not at full employment, increasing the deficit would actually be helpful, not harmful.
A fiscal stimulus aimed at reducing unemployment is timely and necessary. Despite the confidence expressed by the Fed about the latest employment numbers, the situation for those who are jobless is not looking good. One of the reasons for the latest rate hike by the Fed was their positive outlook on unemployment numbers. Chairman Yellen has gone as far as saying that (at 4.6% unemployment rate) we are close to full employment and fiscal stimulus is not necessary to reach that goal.
However, the low official joblessness rate hides the fact that an increasing number of Americans have left the labor force altogether; for example there are currently over 5 million Americans who are not in the labor force but have reported that they want a job. This is where a Job Guarantee program could come in handy. In short, the government would act as an Employer of Last Resort, effectively guaranteeing a job to all of those willing and able to work.
And if Trump uses the deficit-spending towards jobs in infrastructure, it might result in something that resembles the job guarantee policy that America needs**. I argue, however, that the financial feasibility should not be the only criterium for a successful implementation of the job-guarantee. It also has to be sustainable. If we’re going to be at full employment, we have to do it in a way the planet can handle.
“There’s been much talk about Trump’s plan for jobs and infrastructure that entails over one trillion dollars in new spending (without tax increases) and promises to employ thousands of American workers.”
ReplyDeleteIf Trump has an infrastructure plan, I have yet to see it or hear about it. Mostly he has talked about “public-private partnerships,” meaning he would like to use government money to build highways and bridges, which he will then give to the rich so they can charge tolls forever. (The article agrees with this at the end.)
“Because it looks like this would require significant deficit spending, it has drawn stiff criticism: even Trump’s the own conservative supporters have expressed concern.”
Conservatives only scream when deficit spending helps average Americans. Conservatives have no problem with deficit spending for wars and weapons makers. They have no problem with deficit increases caused by tax cuts for the rich.
“MMT proponents understand that deficit-spending is not inherently bad…”
An increase in deficit spending is necessary when the national economy is in a recession. There is nothing “inherently bad” about deficit spending if the government can create infinite money out of thin air, and if that money is used to help everyone, not just the rich and the weapons makers.
As I see it deficit spending is useless and even detrimental if it it is just to benefit the rich who will only spend their excess by buying up assets. I know that such talk is anathema to MMT but I can see it no other way. Look at Trump 's tax cut for the wealthy, that won't help the economy no matter how it is justified because it doesn't spend money into the economy. What this country needs is government spending on capital investment such as education and infrastructure along with higher wages and lower taxes for the rest of us and higher taxes for the financial sector. We needs a progressive tax system. I really don't agree with the idea of deficit spending as a cure all.
ReplyDelete"However, the low official joblessness rate hides the fact that an increasing number of Americans have left the labor force altogether;"
ReplyDeleteThe Trump policy is now bringing them back into the workforce this was just out this week... 213k jobs were created BUT the UE rate went UP back up to 4.0% here:
https://www.investors.com/news/economy/economy-june-jobs-unemployment-rate-rises/
MAGA is not a step function...
The crop of Kelton trained MMT economists / political activists coming in lack humility needed in economists and are so sure of their mission and policies, completely intolerant of opposition, criticism and the humans who oppose their ideas, just watch them interact, dismiss conflicting evidence, and draw clear lines of US vs THEM, rather than fine shades -- they are very much on a mission and believe they are self enlightened with a fervor, ignorance and determination I've not seen in my lifetime but recognize from the Russian and Chinese revolutionary stuff I've read. If their ilk come to power, I'm absolutely convinced after having interacted with them, that they will stop at nothing. They have the crazy left authoritarianism down pat. If this is what behavior MMT leads to, it's pretty toxic, worse than the corrupt messed up system we have now. I'm sure they will moderate, the system is designed to contain fanatics. In silly historical comparisons, Wray will be Trotsky and Kelton Stalin while Mosler is marx.
ReplyDelete@GLH: “As I see it, deficit spending is useless and even detrimental if it is just to benefit the rich who will only spend their excess by buying up assets. I really don't agree with the idea of deficit spending as a cure all.”
ReplyDeleteAgreed. Deficit spending can be detrimental to average people if the money is not properly allocated. For example, it can cause people to have more money to spend on rents and mortgages, which in turn will cause more money to be sucked up by the bankers. (We could solve this via rent controls and housing price controls, but bankers have bought all local politicians in order to prevent this.)
On the other hand we cannot build mass momentum to support social programs until we first show enough people that all claims that the U.S. government is “out of money” are lies.
The U.S. government sets news records each year in giving federal dollars to the executives of military contractors. Most Americans accept this insanity, because most Americans are insane. They worship war as a team sport. Our movies, TV shows, and halftime shows at football games are full of war-worship and CIA-worship, and drug-war-worship. It's mass depravity.
Meanwhile politicians promote the lie that the U.S. government has a “debt crisis.” This lie keeps the peasants in their place.
When, for example the peasants ask for things like Universal Medicare, politicians respond with, “Shut up, or we’ll make you start paying on the national debt!"
As I see it deficit spending is useless and even detrimental if it it is just to benefit the rich who will only spend their excess by buying up assets. I know that such talk is anathema to MMT but I can see it no other way.
ReplyDeleteAlso have to address economic rent and rent-seeking. Either preempt economic rent, or tax it away.
This is also good economics because economic rent is the result of systemic inefficiency. It also reduced the effectiveness of the system as an economic system.
This is before considering the highly consequential social and political ramifications of economic rent and rent-extraction on the system as a whole — social, political and economic.
I agree. I am not disputing the idea of the government going further into debt, it is just that it should be done intelligently.
ReplyDelete@ Ryan
ReplyDeleteNuance is perfume in understanding, poop in persuasion.
To be successful political one has to exude certainty and confidence.
The mission of the MMT folks now is clearly political — the shift to Twitter and FB shows this.
The strategy is suited to the goal.
Hi Konrad, It's not the ideas. It's the people promoting the ideas. As a rando/anon on a blog we are powerless but for ideas so we can be fierce, dismissive, bombastic. No biggie. I knew the historical comparison to marx was horrible. But I was horrified at the moment.
ReplyDeleteI was watching a few interact with a well know trade economists, finance professor and couple others this weekend. The MMT activists behavior was worse than orthodox economists were to MMT people early on.
Seems when these activists get appointments, win elections, work as staff and are powerful not in their ideas but in their person acting respectful to the PTB is more important even if significant ideological disagreement exists.
Mosler, Kelton and Wray are great, don't mean to implicate their behavior. Some of these political people that surround them from the left political activist scene are serious wack jobs. Progressive radicals are the force promoting MMT right now, but MMT itself describes the existing system and (prescribes a few changes to laws that would make the system work better) in a fairly non-ideological way that is not incongruent with the intellectual/ideological underpinnings of finance and trade. To dismiss experts in those fields as ignorant of MMT, as basically enemies, struck me as a new phase of the POLITICAL movement growing around MMT. These people are now mocked and ostracized by what I call "the Kelton kids (radical leftists activists)." The orthodox academics are hardly irrelevant and are actually the people that probably were publishing ideas that developers of MMT were reading as they thought. Anyway, moment is over now, hopefully they improve with time.
Probably right, Tom. Shocking to watch tho
DeleteRegarding some MMT activists, I agree. True believers. And true believers can be dangerous in positions of power and control, when understanding of nuance is essential.
ReplyDeleteThe MMT economists understand nuance but often states positions simply and boldly in terms of the context. That's OK since they ave the background to understand the the nuance. A lot of activists don't. As Matt would say, "unqualified."
On the other hand, activists tend to be highly motivate and sharply focused. A strong base of committed activists is a plus politically so it is good strategy overall to cultivate the base.
ReplyDeleteBut it is necessary to calibrate for success. DJT is a good example, and he is now the competition.
“and draw clear lines of US vs THEM”
ReplyDeleteWell this is not bad imo as long as what “us” is saying is true and what “them” is saying is false...
MMT is currently saying everything is going to hell .... meanwhile things are improving...
ReplyDeleteMMT is currently saying everything is going to hell .... meanwhile things are improving...
ReplyDeleteAgain, for whom?
What does the distribution look like.
Per capita GDP says little or nothing about distribution, for example.
Aggregates such as employment can be highly misleading if they are not deconstructed.
“What does the distribution look like”
ReplyDeleteIt looks like ‘trickle down’ ... and it works... you deny this you look like an idiot...
If you have an improvement to a process you’re not gong to get it by denying the current one isn’t working at all...
"Trickle down" is BS. Doesn't work. The top of the town — distributed among the top 20% with the percentage increased toward the top — has reaped almost the recent gains in the past decade and the rest have remained stuck.
ReplyDeleteThere would have to a whole of trickle down to be noticeable. I haven't seen evidence of it yet.
As I said, deconstruct the aggravates and let's put some numbers on it instead of waving hands in the air with claims like trickle down.
"doesn't work" needs to be qualified to doesn't work if you have free trade.
ReplyDelete"Doesn't work" is shown by the historical evidence of results of so-called trickle down. Instead of a rising tide lifting all boats proportionately (as tacitly implied) some boats are lifted to the crest of the wave while others remain the trough of the wave, and yet others are swamped or beached.
ReplyDeleteDumb analogy.