"Unemployment is a monetary phenomenon."I couldn't help but notice how similar sounding this statement was to one famously made by Milton Friedman, some years ago:
"Inflation is always and everywhere a monetary phenomenon."
On one side, we have people who desire the best in regards to our country's twin domestic economic outcomes: employment and output. And on the other side we have people concerned with protecting the value of what they perceive to be something they call our 'money'.
This is a moral battle; this is a "values" issue; it is as important an issue on these terms as any others current in politics.
The desire to protect, or be concerned about the perceived value of "money", to the detriment of our domestic employment and output is immoral. The desire to protect, or be concerned about the perceived value of "money", to the detriment of our domestic employment and output cannot be reconciled with Judeo-Christian faiths, beliefs or values.
There are many on the Political Right who need a major "wake up call" on this.
This is basic, Matt. Capital is interested in its preservation, hence, highly adverse to inflation. Labor is also interested in its preservation, hence, is adverse to unemployment.
ReplyDeleteEconomics is supposedly a positive science, hence, amoral, i.e., non-normative. So neoliberals argue that capital takes precedence, since investment creates income. This is the putative reason for the rescue of the financial sector, not to bailout the people that made the mistakes.
That is the neoliberal position: Capital is to be saved no matter what, since it is not only the primary scarce resource, labor being abundant, but also it is the sine qua non of modern economics, which is leading the world from poverty to plenty. Sounds perfectly reasonable, but the reasoning is specious.
The countervailing position is that economics is not a positive science in that it does not deal with the natural world. Once human beings enter the picture, uncertainty results due to freedom. Economic explanations have not shown themselves to be reliably predictive, and most models cannot be tested empirically because of their assumptions.
Western civilization is based on the idea that human beings are ends in themselves and must never be treated as means. The implies moreover that human beings have rights.
According to the Declaration, those rights include life, liberty and the pursuit of happiness. The right to life implies a subsistence wage in a monetary society in which money is required to participate. However, workers that only earn a subsistence wage are not free in that they are dependent on their employers. This argues that a subsistence wage independent of coercion must be provided as a right of liberty, e.g., through a negative income tax or employment assurance in monetary economies without a frontier for settlement.
The present system under NAIRU uses a buffer of unemployed as a tool to target inflation. Under neoliberal principles, this is protecting capital and using labor as a policy instrument to do so. This makes an invalid presumption that labor is simply an economic factor, and one that is less valuable than capital because it is less scarce.
This flies in the face of the fundamental principles on which Western civilization is built, and which are stated in the founding documents and writings of the founders. If government is "of the people, by the people and for the people," is the economy any less so?
Exalting capital over natural personhood and human rights is simply beyond the pale and should be rejected by reasonable people as not only absurd but also abhorrent. Arguing that legal persons like corporations are equal to natural persons and have the same or similar rights is also obvious sophistry, when such legal personhood is clearly fictional.
Persistent high unemployment with insufficient protection against unemployment violates Article 23 of the Declaration of Human Rights. End of story. There's no need to resort to some Judeo-Christian faiths, beliefs or values. It's troubling to read this sort of argument in a time McCarthy-style committees are on the way to investigate an alleged conspiracy of US citizens just because they are Muslims. Especially given one of the leading proponents is a hypocrite who claims the IRA is a heroic liberation movement. If you insist to make such an argument then please talk about Judeo-Christian-Islamic faiths, beliefs or values.
ReplyDeleteTom,
ReplyDelete"The right to life implies a subsistence wage in a monetary society in which money is required to participate."
This gets to the important point. I bet that most who would read your statement here would think this is a normative statement, in other words, that is your opinion. But I do not believe your statement here is normative, rather it is a mathematical fact. It can be shown to be so mathematically.
What people have to understand, what they have to "see", mathematically, is when the govt establishes a tax in order to impart value to "money", EVERYONE is immediately unemployed, because they do not currently possess a job that pays them the "money" they need to now escape the wrath of the tax collectors. Life can quickly devolve into solely a limited battle to acquire stock measures of "money" in order to avoid that wrath.
A person needs a high level of Mathematical Maturity to be able to grasp this though.
As long as we establish policy that results in an outcome like you describe, a "subsistence wage independent of coercion", we can make this work.
I believe this is what Christ meant here: "Exhibit to Me the poll tax currency." Now they bring to Him a denarius.
20 And He is saying to them, "Whose is this image and the inscription?"
21 They are saying, "Caesar's." Then He is saying to them, "Be paying, then, Caesar's to Caesar, and God's to God." (Mat 22:19)
"God's to God" was the outcomes we can have, as you say "independent of coercion", the "Caesar's to Caesar" part was the "coercion". We can avoid letting this devolve into depravity, as long as we recognize the "dangers" if you will, of using the coercive authorities of taxation in a monetary economy.
Our govt (in the person of Rep. Michelle Bachmann, former IRS Attorney/Prosecutor, she was a dreaded "Tax Collector" Boooooo ...Hissssss.... can you believe these T Party people, many who are 'holy rollers' dont see the irony of this? LOL!) seems to only enforce the first part ('Caesars's to Caesar'), govt is good at implementing the coercive authorities. Govt ignores the second half of that verse, the "God's to God" side.
Resp,
Stephan, while what you say is evident, the problem is that in the US a great many people do not accept the UN as a legitimate political institution and think that the US should not pay any attention to such things as its declarations — unless they are proposed by the US in the US national interest, of course. The right wishes the US to withdraw from the UN and has been agitating for this for years. If you travel in the southern states of the US, you will see roadside billboards demanding that the US withdraw from the UN.
ReplyDeleteThis is not so much capital versus labour as “conservative economic thinking” versus rational or “Modern Monetary Theory” thinking. For example, most citizens have very conservative ideas on economics compared to MMT ideas. E.g. most people, including the least well off, think that cutting the deficit is paramount, and that under no circumstances should a government print money.
ReplyDeletePlus, maximising GDP enables capital to maximise profits, doesn’t it? If maximising GDP requires inflation to be 1% above its present level, why should capital complain about a slightly higher rate of inflation?
Ralph,
ReplyDeleteI know you are an expert in economics and understand how macro truly works. I also know you are a just person as you identify your blog as dedicated to Abba Lerner (and hence his Functional Finance).
But, I think it now apparent that the empirical arguments are slow to work. Especially when the people you are trying to convince possess little to any Mathematical Maturity.
I'm taking a bit of a lead here from Prof. Wray: "Rep. Paul Ryan is correct when he admits that deficit hysteria is really about morality, not economics. It is time that the rest of the deficit-cutting crowd join Ryan. Let them make their best case for morality. Let them tell the American people that they oppose taking care of the sick, the poor, and the aged. They do not want American kids to get a first class education. They do not want Americans to have a 21st century transportation system. They do not agree with President Obama that America should avoid being left behind by China. It offends their “morality”. Let's try their morals in the court of public opinion."
Link here.
I'm not giving up on the empirical, even though I come down on the side Tom identifies that economics is not a science. I just think we have to open up a new front, and hit these people where it may hurt the most, have the most impact on them. Perhaps snap them out of this.
They are hypocrites.
Resp,
Tom,
ReplyDeleteI look at it as those morons want us to withdraw from the UN because they think they are paying for it.
They do not understand that taxes dont "pay for" anything. They cannot "see" this. You cannot imagine what it is like to be them. You know how all of this macro truly works, you can "see" it, they can't.
This is perhaps a massive quantitative cognition problem (of Biblical proportions as I see it ;). For instance this woman could probably explain this better than I can, it looks like it is a recognized field of study in Anthropology, but I think I can at least see the real communication problem here. It is extremely hard to impossible to communicate these quantitative macro concepts to these people verbally.
Resp,
Regulatory policies and changing demand for housing continues to displace workers from building products, construction, finance, and other real estate related employment to areas of greater demand like health care, manufacturing, services. These shifts in employment and capital flows occur regardless of monetary policy. There is some truth to the unemployment rate being a function of monetary policy but that over simplifies things. Fiscal policy, Demographics, Geographic shifts in population etc muddy these moral waters in which you tread.
ReplyDeleteMatt: I look at it as those morons want us to withdraw from the UN because they think they are paying for it.
ReplyDeleteThat is one aspect of it. Americans think that foreign aid is about 25% of the budget when it is less than 1%. I suppose they see the UN in this light.
However, what I pick up is that the primary objection involves preservation of US sovereignty. These people fear that the leadership of the US is conspiring to create "a new world order" under the auspices of the UN, which would cede US sovereignty to an international body.
This is definitely the stuff of conspiracy theories the way it is understood, although there is a germ of truth to it in the push for international institutions run by unelected and unaccountable central bankers and technocrats.
The good thing is that it will make it more difficult for an international elite to dominate globalization and define it along neoliberal lines under the direction of international institutions. The bad thing is that it will make a sane approach to the development of a global economy that benefits humanity more difficult, too, since this position is xenophobic.
Ralph, I agree that the present positions, both liberal and conservative, are contradictory and make no sense once one grasps monetary sovereignty. The pie could be much bigger and tastier, and everyone could be much better off.
ReplyDeleteThe problem is that ideas have momentum and are difficult to change or deflect. Both conservatives and liberals are laboring under the illusion of neoliberalism and are unable to grasp the implications of monetary economics.
@ TomatoBasil
ReplyDeleteWarren Mosler observes that the issues are institutional in addition to monetary and financial. Institutional change is also required. Monetary economics shows that this is possible in ways that the mainstream economics excludes. But in the final analysis, policy decisions are political decisions.
As George Lakoff has pointed out that these political decisions are generally value choices involving morality rather than rational choices involving economic efficiency, regardless of the superficial rhetoric.
Notice, for example, that the argument against the debt and deficits is a moral one rather than an economic one. In fact, no economic argument is actually presented when the rationale is analyzed. It is pure rhetoric. Moreover, there are counterexamples showing the claims to be false.
Those who win the political argument at the voting booth generally do it by appealing to deeply felt values rather than superior reasoning. Failing to pay attention to the normative dimension of economic discourse as it applies to policy is a recipe for failure.
The whole point of monetary economics is that affordability is never the issue when the federal government is involved. The issue is availability of real resources and how to allocate them. When the market is failing, as it a persistent recession, then government needs to step in as a matter of public purpose. Why should construction workers be left idle when infrastructure needs are so high? "Lack of money?" It makes no sense.
No communication problem - it's just that too few people are suffering economically to warrant a change in the status quo. This is not to suggest the current course is sustainable - civilization may muddle through, end in revolution, or just end.
ReplyDeleteIf there is a social revolution, then and only then will most people 'get it'. That is when morality is redefined, old assumptions are discarded and a new reality becomes accepted. Then we get on with our lives.
Until then, no change will be forthcoming from the top down. Ordinary people from all walks of life have no meaningful input into socio-economic policy. It is up to the power elite to blunder their way into a disaster or be 'mathematically mature' enough to avert one.
I think you're all missing the point that inflation basically hurts middle, lower income and senior citizens while actually benefiting the wealthy who are far more likely to have assets that generally benefit from inflation (real estate, art, precious metals et al. I'm not so sure that the wealthy fear modest inflation. Those without an MMT perspective fear the taxes they are sure will be raised to deal with the deficits so your Mosler vs Friedman duality is flawed in terms of the motivations of people that oppose deficits.
ReplyDeleteThose with modest savings fear inflation as it does hurt them and the wealthy fear it because they see the end result as higher taxes.
@ Red Rock
ReplyDeleteGenerally agree with what you say. But inflationarey expectations is what drives the capital markets. Ordinarly people don't think of inflation until there are observable price rises, and then they often confuse inflation with price volatility in certain areas.
But the bond market is especially attuned to inflationary expectation due to interest rate risk. If inflation is expected, then bond prices will fall to discount it. Bondholders obviously don't like this, and bondholders tend to be governments, banks, and large institutions.
Of course, many of these institutions hold funds that affect ordinary people, like pension funds. But still, it is the bond vigilantes that are constantly on the look out for rising inflationary expectations and react quickly to them.
@ Laura
ReplyDeleteGenerally agree.
But Lakoff's point about moral arguments is that conservatives have been good at using them. They don't even need to be related to actual issues to win elections vide, "God, guns, and gays." On the other hand, progressives tend to argue wonkishly, and come across as "girlie men," in the Governator's terminology.
Lakoff is saying that economic issues are also deeply moral and progressive should present them that way instead of being deterred by the fear of their opponents accusing them of "class warfare."
BTW, maybe the limit is being reached.
Wisconsin Firefighters Spark 'Move Your Money' Moment
Activists Shut Down BoA Branch in DC in Tax Protest
Are Anonymous Hackers About To Expose Something Awful About Bank Of America On Monday?
The issues here are 1) an attack on rights, 2) unshared sacrifice (tax breaks for the wealthy and corporations, and austerity for the rest), and 3) a perceived assault on the middle class (growing inequality and the rise of a superclass). This is also related to the growing perception of a double standard and the rise of a privileged class.
Is this the beginning of something? If you've read Ravi Batra's The New Golden Age: The Coming Revolution against Political Corruption and Economic Chaos (2007) is sounds familiar.
I'd say watch what happens when the weather gets warmer. I expect to see more protests unless the economic situation of the middle class improves dramatically.
Rock,
ReplyDeleteLet us put the fiscal issue aside for the moment, Prof Wray addressed the fiscal channel in his article I linked to above. (And btw I agree with him there on the moral imperatives on fiscal).
WRT monetary, I view Mosler's point as a technical one that puts focus on the issue for me. Warren does not necessarily make the moral case. I am making the moral charge that the priority (ie moral priority) in a monetary economy is to prevent the unemployment and loss of output that naturally occurs (yes it NATURALLY occurs and you need mathematical maturity to recognize this fact) as a result of implementation of govt monetary authority thru the coercive force of taxation.
I view Friedman's statement perhaps also as a technical one (and to be fair to Friedman, he said this when we were on a gold standard of sorts) but that does not deter the non-mathematically mature inflationistas of today from invoking this relic of a statement to support their immoral policies to protect the value of "money" to the detriment of us all. Hence the depraved "dual mandate" of the Fed to promote maximum employment with price stability, (and the Fed's depraved view of fiscal policy in Congressional testimony).
This dual mandate I believe is a newer mandate on the Fed, and btw there are currently depraved, immoral political forces in the GOP who actually advocate removing the maximum employment part of the dual mandate and let the Fed just focus on price stability can you believe it!
They are so depraved, so apostate, so immoral, so outside of the truth with this proposal for the single mandate that they do not realize that it works backwards to what they believe the policy results would be, ie, higher interest rates are actually STIMULATIVE in that they raise incomes thru the interest income channel.
Again, being not only depraved, they are also not mathematically mature, they have severe quantitative cognition problems and dont even realize that this is the reality, if they ever decide to "put the brakes on" by raising interest rates, they will be actually hitting the accelerator.
These are depraved, dangerous, blind, hypocritical people.... Did I forget anything? ;)
Resp,
Tom,
ReplyDeleteNice to see union members in Wisconsin articulating their views and backing it up with action. I hope they don't shoot themselves in the foot by trying to drum up support for the Democratic Party.
Moral arguments are nice to wrap yourself in, but it takes power, in real economic and political terms, to decide who wins and who loses. Unions can be crushed because they no longer have economic bargaining power.
Anyone can engage in rhetoric. Conservatives can claim to be for the little guy, and for small business, while advocating changes that would hurt both groups. Politics is more about opportunism and strategy than unchanging moral conviction. Anyone remember the Dixiecrats?
Oh yes, California has a new governor, a Democrat. From what I've read he's about to show his constituents that he's no 'girlie man'.
I wish I knew what the future holds. I am worried.
Tom wrote: "progressive should present them that way instead of being deterred by the fear of their opponents accusing them of "class warfare."
ReplyDeleteAnother angle is that I perceive Progressives to be perhaps generally "uncomfortable" with moralizing (our friend Stephan :) reflexively recoils from it in his comment for instance, goes to the UN rules for guidance instead), because I think you have to be Authoritarian to a certain extent to do it, and there is a lot of Libertarianism on the left. (I think many Progressives have a hard time with Authority, not saying that is a bad thing per se just an observation)
I was pleasantly surprised to see Prof Wray make this moral argument wrt fiscal in his article I linked to above. And I have heard Prof Wray reiterate the phrase "euthanize the rentier", which is a very authoritarian statement imo. Prof Wray seems a bit more Authoritarian than many other Progressives imo.
Also, long story short, there is waaaaay too much Libertarianism on the right for my taste. Perhaps both sides need less Libertarianism as too much leads to apathy/chaos/anarchy and then the unjust take advantage of the situation.
Matt, Randy is quoting Keynes with "euthanize the rentier." I just posted this over at heteconomist.com (a great MMT blog, btw):
ReplyDeleteActually, Keynes preferred more consumption and less saving anyway, because consumption is about flow, and saving, being a drain, interrupts flow. A certain amount of saving is required due to planned postponement of consumption and uncertainty about the future resulting in the need to prepare for eventualities. But hoarding just slows things down and creates a rentier class that lives off the work of others. This is not healthy for the economy or society. (source)
The libertarian issue is important for understanding economics as well as politics, hence economic policy, too. I have it mind to do some posts on this because it involves both economic ideology and contemporary policy debates.
There are libertarians of the left and right, and there is a whole spectrum of libertarianism. At the extremes of left and right, both spill over into authoritarianism by attempting to impose their views on others.
Libertarians of the right emphasis individual sovereignty whereas libertarians of the left emphasize the right of self-determination. While they agree generally about personal liberty, they disagree over the nuanced meaning of this. "The devil is in the details."
For the right, "liberty" means freedom, and for the left, "liberty" means rights. Freedom is individual, where as rights are social. Libertarians of the right are all about individualism and the spirit of the frontier, whereas libertarians of the left are fierce defenders of human rights in terms of social justice.