Tuesday, June 28, 2011

Thought for the Day: The Pursuit of Happiness

What is the American Dream?: Dueling dualities in the American tradition by James Gustave Speth at New Deal 2.0 examines a key philosophical and normative fundamental that is central to the conception of economics, especially as it relates to policy formulation. It is worth a read in entirety. I intend to address these issues in future posts, since it involves the philosophical foundations of economics.

The American Dream is summarized in the Declaration:
We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable rights, that among these are life, liberty and the pursuit of happiness. That to secure these rights, governments are instituted among men, deriving their just powers from the consent of the governed.
This is elaborated in the Constitution, and summarized in the Preamble:
We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America.
It is evident that both national security and a legal system based on order and justice are prerequisites preserving life and liberty, and that a democratically elected government responsible to the people is required to ensure that the benefits of good government are extended to all.

But the meaning of "the pursuit of happiness" is less clear. Speth lays out the different visions of happiness that have shaped political interpretation of it.

This is key for macroeconomics, especially, since it deals with government as a key economic factor. Accordingly, the conception of the purpose of both life and government underlie the assumptions of a macroeconomic theory, since macroeconomists shape their theories with an eye to policy formulation. Economic theories and especially macroeconomic theories can be viewed as providing the rationale for policy proposals that are normative through and through, in spite of being disguised as being entirely positive, e.g., neoliberalism.

Therefore, economics presupposes views of metaphysics as the study of what is, epistemology as the study of what we can know about what is, ethics as the study of what we ought to do about what is, and aesthetics as the study of how we should feel about what is, in addition to using science as an empirical method of testable explanation of how things stand and change state, and what this may imply causally.

Without a critical approach to economics through the philosophy of economics as a method for clarification of assumptions and other aspects of thought and language that remain implicit, economic reasoning is not only unclear but can also be misleading.

For example, there is growing interest in examining the assumption that growth is an adequate criterion for economic progress when it may not be related to happiness. Happiness is an ambiguous concept, so it must be clarified first. On examination, Speth shows, growth as an economic criterion is based on a conception of happiness that well-defined in terms of the survival of the fittest. Therefore, "growth" as a criterion can be determined by GDP change, regardless of distribution. This is the neoliberal assumption that has become conventional wisdom.

The problem with this is that the US has the largest GDP globally, but it is the lowest in many key social indicators that involve happiness considered as "utility," i.e., relative material satisfaction. On many measures, the US is not the happiest nation on earth, "American exceptionalism" notwithstanding.

A key concept of Modern Monetary Theory is public purpose. Certainly, this must relate to the founding documents, and in particular to key statements from those documents cited above.

How then should MMT define itself wrt "the pursuit of happiness"?

The neoliberal view is that maximum utility is the criterion of action, presuming homo economicus to be a rational actor pursuing self-interest and capable of being modeled econometrically in terms of a representative agent. This is presumed to be self-evident, but it is contradicted by research in both cognitive and social science, as well as having been dismissed as actually irrational by thinkers for millennia because it overlooks the inherently social nature of human beings.

Maximum utility is based on methodological individualism. It is called "methodological" because the assumption of self-interest as the guiding principle of human motivation is a methodological presumption. However, this presumption is often if not generally presumed to be ground in ontological individualism, that is, that individualism is constitutive of human nature. Some economists leave this implicit, while others, especially the Austrian School, make it explicit.

Others claim that such presumptions ignore society as a complex web of relationship, involving interdependence in modern societies, and now global society. This is called "community," and it is the meaning of "fraternity," in the Enlightenment political ideal of "liberty, equality and fraternity." Now "fraternity" is called "solidarity in Europe.

Modern Monetary Theory based itself on a broader view of methodological individualism than neoliberalism or Austrian economics, in that it agrees that individuals are the elements in complex social system, and explanation must be ultimately grounded in causal mechanisms that stem from individual action. However, it accepts that other factors are at work in shaping individual decisions other than rational self-interest as generally conceived by methodological individualism that presumes ontological individualism. Ontological individualism is an oversimplification of human complexity.

According to MMT, the purpose of government is public purpose, that is to say, government is to serve the public interest rather than dominant private interest groups. The public interest is distributive. Economic happiness is only one aspect of human happiness and it involves prosperity.

Microeconomics is about prosperity of households and firms, whereas macroeconomics is concerned with the prosperity of entire societies and in the age of globalization, with global prosperity. At the macro level, prosperity is necessarily distributed. Public policy is about achieving this distribution through government pursuit of public purpose, which complements the pursuit of private purpose by individuals and interest groups, such as firms.


Anonymous said...

"The public interest is distributive." What exactly does that mean and on what basis do you make that claim??

Crake said...

I would take it to mean the economy should work for our benefit, a tool for the benfit of society, not the situation of us working for its benefit.

Tom Hickey said...

""The public interest is distributive." What exactly does that mean and on what basis do you make that claim??"

I thought I explained that. The public interest is about serving the people as a whole rather than dominant interest groups (as it often does now). Public monies allocated for public purpose should be directed toward the public good rather than private interests, although private interest is necessarily involved in public expenditure since someone gets public funds deposited in a private account.

Normatively, this is called "distributive justice" aka "fairness." It doesn't imply arithmetic equality but it does mean avoiding extreme inequality, which research shows to produce poor social outcomes and over time is economically damaging as well.

Matt Franko said...

"endowed by their Creator with certain unalienable rights, that among these are life, liberty and the pursuit of happiness. "

I think they could have added something here to include 'access to a means of subsistence' or along those lines....

Tom, lots of ;Reaganesque' imagery in the post at ND2.0 but the author there draws an interesting contrast between the 1st Republican President (Lincoln) and then what we got in the 20th century:

"Garfinkle recounts the many ways Carnegie’s Gospel stood Lincoln’s vision on its head: “Whereas in Lincoln’s America, the underlying principle of economic life was widely shared equality of opportunity, based on the ideals set forth in the Declaration of Independence, in Carnegie’s America the watchword was inequality and the concentration of wealth and resource in the hands of the few. Whereas in Lincoln’s America, government was to take an active role in clearing the path for ordinary people to get ahead, in Carnegie’s America, the government was to step aside and let the laws of economics run their course. Whereas in Lincoln’s America, the laborer had a right to the fruits of his labor, in Carnegie’s America the fruits went disproportionately to the business owner and investor as the fittest. Whereas in Lincoln’s America, the desire was to help all Americans fulfill the dream of the self-made man, in Carnegie’s America, it was the rare exception, the man of unusual talent that was to be supported.”
Since the Reagan Revolution, of course, the Gospel of Wealth has returned with a vengeance. Income and wealth have been reconcentrated in the hands of the few at levels not seen since 1928, American wages have flatlined for several decades, the once-proud American middle class is fading fast, and government action to improve the prospects of average Americans is widely disparaged. Indeed, government has pursued policies leading to the dramatic decline in both union membership and good American jobs. In a sample of its 20 peer OECD countries, the United States today has the lowest social mobility, the greatest income inequality, and the most poverty."

I think he has Reagan in here as guilt by association. It's a bit unfair imo. Reagan had labor on his side in both elections and fought the globalists as best he could, he used to jawbone Japan to put a lid on their exports for instance.... then he was losing his mental faculties I believe for sure during his second term and he didnt have the fight in him anymore.

The Bushes (Globalists) have been a disaster for the GOP (my party) and America.


Tom Hickey said...

Whenever someone briefly summarizes a position it is generally overly simplified because broad brush strokes are used. But I would suppose that he is thinking of what is generally remembered as Reagan's prototypical stance that has guided conservative thinking, namely, that: government is the problem rather than the solution.

This was interpreted by many conservative as calling for the elimination of government other than to provide national security by protecting life, liberty and property, and letting the free (deregulated) market take care of the pursuit of happiness, allowing the chips to fall where they may.

The fundamental problem with this position is that it depends on a skewed view of equality, that is, that all are equally responsible for their own welfare. this assumes that all are more or less equally qualified, have more or less equal opportunity to succeed and access to the wherewithal, that resources are more or less equally available, and that the playing field is more or less level, as well as that there are no supervening conditions strongly affecting individuals.

The conclusion is that if anyone fails, it is their own fault. This is doesn't fit the conclusions of the other life and social science, which are based on empirical findings rather than assumption. That assumption doesn't hold water.

There is no representational agent that is a rational actor with perfect knowledge making choices based on individual preferences in perfect markets. That model describes a conceptual world that differs markedly from the actual world in which we live.

The position I have just stated is often attacked as denying individual responsibility. That is not the case. It is simply to say that many factors are involved that influence individuals, which the law recognizes to some degree, for example. The extreme view of individualism and individual responsibility emanates from people whom I would conclude missed out on learning social skills and civics.

Craig Austin said...

Hola Tom. You can market "MMT" by promoting "public interest", "cooperation", and "pursuit of happiness" or you can market MMT by appealing to good ol' self-interest. I recommend the latter. A perfect example of this is George Friedman from "The Next Decade". He appeals to the reader's self-interest and next thing you know is recommended very progressive policy....just reframed in a very Machiavellian way. The dude is a marketing genius - love his book too.

DollarMonopoly.com - check it out MMT people!

Tom Hickey said...

Hi Craig, not talking about marketing in this post but the concept of happiness as it relates to economics. In addition, I'd say my summary of the MMT position about public purpose mirrors what MMT developers have written and said. They clearly reject a narrow view of individual self interest, in that they are institutionalists rather than strict methodological individualists. I will explore this in future posts.

Matt Franko said...


"government is the problem rather than the solution."

To your point, I believe Reagan gave a speech once where those were nearly his exact words. I hear that line often replayed in Right wing media.

Maybe its that I notice that ND2.0 often takes partisan shots that I grow tired and irritated of. It cheapens the issues. Maybe it figures that the Roosevelt Institute has been shown to be intellectually corrupt....

But back to YOUR post...If you look at your writing in your post, there is no partisanship. You focus on the real issues at play here, above petty politics. This is a great intellectual thought provoking post.

What MMT proves empirically which is very important to me is that the current system as designed and operated GUARANTEES that at any time a certain significant segment of our fellow human beings will be deprived of their access to their means of subsistence... through no fault of their own.

You wrote in your comment above that many today (falsely) conclude: "The conclusion is that if anyone fails, it is their own fault." MMT empirically proves that this is without a doubt a false conclusion, that anyone with basic arithmetic skills should be able to discern out of the sectoral balances equation.

We are under a truly diabolical globalized economic system these days that in many ways has no true equivalent in the history of the west.


Anonymous said...

No mention of food and shelter in your sacred documents?
I'd say the pursuit of happiness wears a little thin when you don't have either of the above. This is by design, and this is the society we live in, despite the fact there is enough food and shelter for everyone.

Tom Hickey said...

Good point, Laura. A good case can be made that basic necessities are included under the right to life. A case can also be made that the rights to life and liberty include a subsistence wage and basic needs such as education, health care, etc. that are requirements in a society in which money is needed for survival and money is derived from income.

This is an argument for a JG as a basic right. When the basic wage is below subsistence or a buffer of unemployed is used to "control inflation," that is, to protect wealth, then the people at the bottom are not free. Similarly, a society organized to favor rent-seeking and drive people into debt peonage is also one in which the right to liberty is violated.

While this relates to the pursuit of happiness, too, the right to life is most fundamental, and the right to liberty next. So arguments based on these rights are more powerful.

Anonymous said...


Are you proposing a legal argument?

Tom Hickey said...

"Are you proposing a legal argument?"

Yes, in the sense that the right is mounting a constitutional case against the extension of the concept of right. A fundamental question in the philosophy of right (law) is the concept of rights.

Differences in philosophical viewpoint reagrding such matters divide the parties and account for the kerfuffles over confirmation of judges and especially justices.

Strict constructionists hold that the only rights are those granted specifically in the founding documents and interpretation should be in terms of controversies of that time. Loose constructionists argue Hamilton's view that what is not specifically prohibited is allowable.

Strict constructionists have difficulty defending the notion that only rights specifically granted in the constitution are allowable, when slavery was permitted. Obviously, the national conception of "right" has changed over time in this case. Moreover, historically, the notion of right is a developing one.

Without a frontier and in an increasingly urbanized economy, the concept of right must keep up with conditions that prevail. So, yes, this is a legal issue in addition to an economic one. It is through policy and positive law that the normative (ethics and morality) is blended with the positive (how things stand) in a society.

So I don't think that this is only a policy question, and I don't think that a lot of other people do either.

Calgacus said...

This is an argument for a JG as a basic right. The more monetary an economy is, the more necessary for life money is, the more the JG is obviously a right. Today, having an economy without a job guarantee is insane. ("logically absurd"- Mosler) The only conceivable rational alternative is a citizen's dividend, like stone pushes down at billyblog. Otherwise, it's your government asking you for something only it can ultimately provide, which you need for life itself, and refusing to give it to you, to trade with you for it.

Abba Lerner, imho very enlighteningly presented this dilemma in the context of a socialist command state. Involuntary unemployment there is the state saying : the people's bank refuses - just because it can - to print enough rubles to pay the workers for their work in this, the worker's state. Residents of our free-market capitalist postcommunist paradises can see that that is plain crazy - buy they have not yet (re)realized that that is what unemployment always is in a monetary economy.

In the USA, there is a decent legal argument for a JG right based on the Employment Act of 1946 and the Humphrey–Hawkins Full Employment Act.

Anonymous said...

In theory you may be correct, but in practice, would a legal challenge stand a chance?

The usual role of the courts is to sanctify, after the fact, changes in policy. Otherwise you hear comments decrying 'activist' judges.

Humphrey-Hawkins and the Employment Act of 1946 are not being implemented due to political interference. It is insufficient to have laws on the books, additional lobbying is required to have them enforced. This sort of corruption is typical and not limited to the US.

A JG, like the Civil Rights Act, must be fought for in the political arena. To be handed an opening from the courts seems unlikely.

Anyone willing to add their legal expertise to what has been said?

Tom Hickey said...

I suspect you are correct in the scenario, Laura, but remember Brown v. Board. It can happen the other way, too. However, this is unlikely with the Roberts court, unless the balance should change.

If the "new normal" is high unemployment then it is going be a political issue that politicians will have to address. Tim Duy, for example, thinks that unemployment is probably going to be a persistent problem.

The Lost Jobs Opportunity

Tom Hickey said...

I should add that questions regarding rights are generally cultural issues in addition to political and legal. When a culture shifts, so do its institutions. We are seeing this in the area of privacy, equality, and health care, where the tendency is to expand rights as the culture liberalizes and shakes off tradition and changes convention. The current debate in the political arena over universal health care is framed in terms of whether access to care is a right or a privilege.

There are also economic rights, such as labor rights. The kerfuffle over collective bargaining is being framed more as a rights issue than "union-busting."

While rights are ultimately legal entities, they don't start as such. They have to be won, either in court or socially and economically through activism in the political process, in order to enshrine the right in law.

The basic American value is freedom. Different schools of thought understand "freedom" differently. Some understand liberty as freedom from politically imposed constraint, where as others define liberty in terms of personal, civil and human rights. So we now have a controversy over the putative right of business to hire and fire as they please, and to pay what they wish versus labor rights. I would say the the JG is an aspect of labor rights and will probably be presented this way.

Matt Franko said...


Did Lerner ever indicate thru any of his writings/interviews where he got it? What were his motivations?


Calgacus said...

Laura:In theory you may be correct, but in practice, would a legal challenge stand a chance? Not of a snowball in hell, I think. I wasn't thinking of the courts, but the executive. What I meant is that these acts give the executive enough power that with the bully pulpit, in this economy, a real JG could be permanently established. To an FDR, this political problem would be child's play. CETA particularly in the Carter years, was probably the closest the US came to giving real meaning to these laws.

Matt: Lerner generously attributed the ideas of functional finance to Keynes. In the preface to Economics of Control he says "I owe a special debt to Mr. R. F. Kahn and Mrs. Joan Robinson for the great pains they took in getting me to overcome my prejudices against Mr. Keynes's great advancement of economic science." I believe he was originally a very classical, Austrian even, kind of guy.

Not entirely sure what you are asking. Someone called him a "great Keynesian logician" & I think this precisely correct. He very clearly thought like a mathematician or logician, and with the same ultimate motivation- penetrating, lucid, coherent understanding - particularly obviously when he wrote words only, without the mathematical-appearing decoration of so much bad economics.

Anonymous said...

Calgacus: President Obama could have instituted a JG, or a variant of it, based on the legislation you mentioned - and it would have been supported by a majority of Americans. Not too implausible a scenario, in my mind...

But to go further, and instill JG policy as something more permanent, as a right, is just outside current ideology. This concept of rights is new to me, prior to this discussion I would have advocated a JG merely as a mechanism, whose merit would be judged on how effectively it achieved its stated purpose.

I guess I prefer the functional to the legal. If a particular policy doesn't work, enshrining it as a right wouldn't protect it.

I believe the US is ideologically driven, with mainstream economics playing a major role. In my view, this is the battlefield. The courts, the judiciary, the constitution don't lead the way, they follow the winner.

Tom: Brown vs. Board was a landmark decision. I doubt whether precedents of that magnitude are still possible in the US supreme court of today. In Canada, I believe our judicial system still plays a role in our societal development. Our process of nominations is different to yours. We would'nt want to lose what you have lost, thanks to your "confirmation hearings".

Matt Franko said...

Calgacus thanks.

Just want to know if Lerner ever wrote on his personal motivations in this...


Tom Hickey said...

Lerner was originally businessman and a socialist. He decided to attend the London School of Economics to gain the knowledge needed to express his view. He studied under Hayek there and was also impressed with New Classical economics (marginalism). He spent six months at Cambridge, where he encountered Keynes.

As far as I can tell, Lerner's thinking, e.g., functional finance, was quite original, although all thinking is influenced by past thinking, e.g., Chartalism.

Calgacus said...

Tom, yes, that's right. I forgot. Lerner went left, right, left - and got something from each step.
In Economics of Employment Lerner says: "Lord Keynes, the originator of the basic ideas of functional finance" p.178 & "Keynes, the original source of the principles of functional finance" p.289. He was generous, but there is truth to it. Keynes was the (academic) pioneer, whose books were muddled, but were the key steps in integrating the whole picture. Lerner took many of these ideas, which were old when Keynes treated them, and took them to their limits and polished them into an irrefutable, simple, logical structure. I don't think there is much if anything that the mature Lerner said that was wrong or confused, and I wouldn't trust myself to make that judgment yet.

Laura:But to go further, and instill JG policy as something more permanent, as a right, is just outside current ideology. Ideologies change. The key steps are to do it, as we agree that Obama could have AND to re-explain, in the simplest, truest terms possible, to everyone - to third graders - that not having a job guarantee in a monetary economy is stark raving mad. (Madness in individuals is something rare -- but in groups, parties, nations, and epochs it is the rule - Nietzsche)

This concept of rights is new to me, prior to this discussion I would have advocated a JG merely as a mechanism The JG (or some way for anyone to get money) is equivalent to the right to life in a monetary economy. Think sci-fi. A monetary economy on a space station, where as some stories have it, people have to pay for the oxygen they breathe. Being unemployed means you get thrown out the airlock and die. Involuntary unemployment is the state, the bank, the monetary authority, the company, murdering you.

If a particular policy doesn't work, enshrining it as a right wouldn't protect it. By definition, a JG always works for the otherwise involuntarily unemployed. Concocting conditions where it would not work for a society as a whole is hard work, and they are never seen in the real world.

Anonymous said...

Calgacus: I wonder if Bill Mitchell has written about rights in his blog. He mentions the damaging effects of unemployment, and the implementation of a JG as a better solution. I don't recall him ever bringing this up as a rights issue.

p.s. With the recent postal strike, I learned that Canadian workers have no constitutionally protected right to strike.

Calgacus said...

Laura: Here is Mosler saying "logically absurd" : Exchange Rate Policy and Full Employment. If a government imposes a tax payable its own currency, it is logically absurd to not give the private sector a means of obtaining the units of currency desired to both pay the tax and net save that unit of account. The BSE is a means of allowing the private sector to earn the currency units it desires above and beyond that provided by the rest of the government’s spending."

Two other notable things Mosler says: "this is a Bill Mitchell conference" - I am looking for his and other contributions. And "Let me add that the base public service job has nothing to do with any inalienable human right to work." As is frequently (generally) the case, the best interpretation of "nothing to do" is "everything to do". :)

For jobs as a right, see also Why does the Job Guarantee advance human rights? part of a FAQ from COFFEE, likely Mitchell, & Advocating full employment at billy blog from guest billyblogger Victor Quirk [the url ends in /?p=12499]

7th try of posting this! I removed the URLs as the blog seems to be eating my recent posts with them.

Calgacus said...

Laura: Here is Mosler saying "logically absurd" :
Exchange Rate Policy and Full Employment. If a government imposes a tax payable its own currency, it is logically absurd to not give the private sector a means of obtaining the units of currency desired to both pay the tax and net save that unit of account. The BSE is a means of allowing the private sector to earn the currency units it desires above and beyond that provided by the rest of the government’s spending."

Two other notable things Mosler says: "this is a Bill Mitchell conference" - I am looking for his and other contributions. And "Let me add that the base public service job has nothing to do with any inalienable human right to work." As is frequently (generally) the case, the best interpretation of "nothing to do" is "everything to do". :)

For jobs as a right, see also Why does the Job Guarantee advance human rights? from COFFEE, likely Mitchell, & Advocating full employment from guest billyblogger Victor Quirk.

8th try of posting this!

Craig Austin said...

@calgacus - clear your browser cache. it worked for me when i had trouble posting

Calgacus said...

Thanks. I tried it, probably helped, but this blog was still acting weird. I could post to some threads, but not others. Tried both with and without URLs, which could be interpreted as spamming.

Anonymous said...

Thanks Calgacus :)
The COFFEE link doesn't work, maybe this is related to the hardware crash they had recently?

Mario said...

The problem with this is that the US has the largest GDP globally, but it is the lowest in many key social indicators that involve happiness considered as "utility," i.e., relative material satisfaction. On many measures, the US is not the happiest nation on earth, "American exceptionalism" notwithstanding.

and not only this but I've seen studies come out through CPA's and CFO's that those "too big to fail" companies are actually "too big to succeed" in that they they are so large and cumbersome and inefficient that they cannot grow and cannot improve themselves and their operations, etc. We live in a time when the irony is so thick it's deplorable.

great post here Tom...although anyone who really needs to hear it will likely "turn off" their brains while reading it...but still great post none-the-less in laying the foundation for a real understanding of the purpose of government.

Craig Austin said...

You can promote MMT using "rights" and "justice" or you can promote MMT by appealing to good ol' self interest. Remember Illinois only voted a free state when poor white farmer realized they didn't want to compete with slaves.

Still flushing things out but here's a start:

Fiscal policy is ultimately a political decision that directly influences the overall output level of the economy. Failing to maximize government debt within a resource constrained marketplace leads to excess production capacity, reduced throughput, poor labor utilization, and high opportunity costs. Exceeding those real resource constraints, such as production capacity, will cause inflation and price instability. The costs of not maximizing our economic throughput is the missed opportunity of deep R&D investments that could subsidize next generation technology for the private sector.

ultimately, the ignorance of the economic profession is hurting the interests of the ownership class. people shut down when it comes to debt. until MMT directly challenges their concept of issuer debt...there is no chance MMT will succeed.

Tom Hickey said...

I don't see it as either/or. There are constituencies for which each is important. There is no contradiction in arguing for both efficiency and effectiveness. Efficiency is "doing things right" and is concerned with means. Effectiveness is about "doing the right things" and is concerned with achieving goals. Choosing and prioritizing goals involves normative criteria.

Craig Austin said...

@Tom your absolutely right. different messages from different folks. however, the ownership class and the working class have many common interests. i'm just trying to position in a fashion that will appeal to both.

issuer debt is different than household debt. without cracking that nut the whole MMT movement is pinned down even if it does accurately model the system.

Craig Austin said...

i'm approaching the whole problem as an engineer. at the end of the day MMT is an optimization problem within resource constrained marketplace.

Constraints must be kept at full capacity to maximize production of goods and services within the economy. Exceeding those real resource constraints, such as production capacity, causes inflation and price instability.

Failing to optimizing government debt within a resource constrained marketplace leads to excess production capacity, reduced throughput, poor labor utilization, and opportunity costs.

Tom Hickey said...

I agree with your approach, Craig and you are doing a good job with articulating it. Stock/flow management is an engineering issue with many cross-discipline parallels.

At the same time the normative aspect is very important for progressives, who often do not respond well to economic argument and also often stumble over themselves because of lack of appreciation for it.

While it is important for them to understand the economic reasoning, if they do not see the moral reasoning, too, they will not be as enthused about it. In order to get them on board with MMT, it is necessary to show them both how the positive and normative converge in the MMT solution.

Mario said...

really you are both totally accurate in all your points. A comprehensive analysis and consideration of MMT from all the various vantage points is crucial for people to truly understand the meta-game at play here.

It's big and it needs all the help (and steam) to get it really rolling with more and more people asap.

I sense that people feel "uneasy" about things and possibly even suspicious but they really don't know where to turn. MMT is where to turn.

The biggest thing is that people, for some reason, have an anathema towards government deficits. To say to a person that "nominal deficits really don't matter" comes off as irresponsible to them...and the output gap/inflation argument that follows always seems to fall on deaf ears b/c they have already "shut off" such a concept as being totally ludicrous and "surely impossible."

Tom Hickey said...

Mario, the important thing for people to realize is HOW deficits matter, i.e., as an offset of demand leakage to saving desire (domestic + external) iaw the sectoral balance approach.

It's simple to understand in terms of circular flow of income and expenditure, in which everyone's spending is someone else's income. Saving constitutes leakage from the circular flow, and that can only be offset by the government deficit when both the domestic private sector and external sector increase saving, thereby decreasing effective demand.

It should be obvious to anyone that if everything that can be produced at full employment is not sold in a period, then unemployment will increase as inventory builds up and firms cut back production back to only what's needed to meet effective lagging demand. This results in idle resources aka inefficiency that amounts to "wasted opportunity."

Then it is a simple step to how functional finance is used to offset saving desire while precluding inflation. Since it is clear that ad hoc fiscal adjustments are more difficult political than automatic stabilization, it's a no-brainer that a fiscal policy needs to be put in place that automatically adjusts taxes and spending to changes in saving v. consumption desire, as changes in employment level as an indicator of capacity usage.

A well-designed system would operate at full capacity as indicated by full employment (everyone able and willing to work as a job offer guaranteed), along with price stability.

Mario said...

I hear ya tom...preaching to the choir as they say. ;)

I'm just reporting what I've seen to be the consistent response time and again to the basic MMT tenets. It's just seems to be the way people are thinking these days that it really is almost "sacrilege" to state such things. As they say, it is almost impossible to change a person's beliefs...and well...this is something people seem to believe for whatever reason.

Personally, I think MMT marks a shift in the way humans think about resources and money and therefore survivability and self-preservation. When else on the planet (as far as we know) has such a monetary system existed like this one? Yes Rome had it with their coins...but they didn't have the electricity aspect. Things are so advanced in our monetary system (aka MMT) that it is almost asking humans to re-write their genetic coding of scarcity and "barter" consciousness.

Personally MMT appealed to me primarily b/c the old economic system didn't resonate with me...I knew instinctively somehow that our lives don't need to be the way they are. Things could be better. MMT has shown me how that can economically and mathematically and practically occur, and I love that. Many people are not like that though...they are scared of the unknown and latch onto their beliefs even stronger...regardless if they are false or not...they are KNOWN to them...and therein lies the rub as they say. ;)

Calgacus said...

Laura - hasn't been working for a while, doubtless due to their crash. I originally used the google cache link , which should still work, but eliminated it while trying to get the post through.

Anonymous said...

Thanks. I believe I have read this before and forgot about it. Getting full employment as a right will be a challenge, in Australia and elsewhere. But it must be done.

Mario said...

full employment in Australia is more likely than in the US from what I can tell of the AU. My wife is from Sydney and I have spent a decent amount of time there. In the past, they have been known for very high employment levels if I'm not mistaken, and their culture is more "balanced" in regards to regulations and policies to help the people rather than corporations...although since Rudd was booted out, it appears that trend may be shifting a dash...particularly with the nat resources industries and the huge surge in commodity prices (and profits). But my knowledge is more anecdotal based on my experience there and hanging with the people than anything else.

Anonymous said...

Australia has joined the austerity bandwagon, has an official unemployment rate of 4.9%, and a labour underutilisation rate of 12.2%
According to NAIRU definitions, Australia is at full employment, imagine that!

Mario said...

yup...it's was really a shame for me to see AU head in this direction, b/c to my eyes AU was like a real 1st world sanctuary. It's just such a beautiful country and the people are great. I am hoping things will turn around there...but even still 4.9% UE ain't too shabby!!! However some do say that they are in the midst of their housing bubble and the cracks are only beginning to show. Luckily my in-laws got out at the peak. Cheers!

Anonymous said...

I've long dreamed of living in Australia, they are a large, modern nation like Canada, without our winters!
Their official unemployment looks good by our standards, but Bill is exposing the truth that their economy is not doing as well as it might seem.

Calgacus said...

Getting full employment as a right will be a challenge, in Australia and elsewhere. But it must be done. Thing is, we have been here before already. Particularly in Australia, which used to be exemplary on preventing unemployment, as Mitchell & Quirk have explained. This isn't the tragedy, but the farce. After the Great Depression, people the world over understood this in their bones. They knew the government had a responsibility to create full employment, to prevent another Great Depression. Because it was the onlie begetter of unemployment in the first place. Money means debt means tax means the government wants its money back.

Unemployment is the government demanding you give back what it has in its hands already. You promise to perform whatever jester tricks your master the government wants. But the mad King government refuses to let you help him and cages and beats you if you dare steal a crust of bread to eat.

The challenge is to make people realize this again, at an even deeper, more logical, more visceral, irreversible level than during the oh-so-close full employment era. To make money and MMT as simple as it really is, so everybody understands it.

Anonymous said...

Break the link between solvency and inflation.
Define inflation and price adjustments.
Explain the conditions necessary for inflation.

Those might be pre-MMT requisites.

It's not clear to me what precipitated the end of full employment policies. Did the problems begin in the '60s or '70s?

Mario said...

It's not clear to me what precipitated the end of full employment policies. Did the problems begin in the '60s or '70s?

yes but only in the sense that the "conservatives" saw just how powerful, popular, profitable, and progressive "peace and love" could be whether it was through JFK, MLK, Jimi Hendrix, the Beatles, Woodstock, etc. When those guys saw that they freaked out and started to devise their plans on how to "rewrite" America. I suspect that they got their first leg up with Nixon and from there the rest is history as they say.

If I'm not mistaken many of the big conservative names (and ideologies) of today got their first job on the Hill and in DC during Nixon's time as interns and college grads, then they got bumped up during Reagan's time, and then they got to finally put all their "plans" into concerted action during the Bush/Cheney time. I think at this point, other than taking over all wealth through extreme economic rent and a type of modern feudal lordship through corporations and politics (tea party, etc.) that conservative wave is basically out of bullets at this point. They are at the point of either going insanely extreme and taking that risk of losing all face or actually letting go of their beliefs and starting to live together with people of a different mind. The pendulum is doomed to swing back again to the left sooner or later...probably after enough people go through some serious economic pain to remind them how important the social services really are (just as it did for the "greatest generation") but I doubt the new swing left will look like 1969 all over again...it will be new to the 21st century and probably involve yoga, organic foods, local and sustainable gardening, inclusive immigration policies, ecological technologies, viral lifestyles (maybe even viral sub-currencies), and possibly even outer space activity. Originally I started out as a classic, good ole' hippie; now I'm all into money and numbers and practical. Sooner than later I suspect I'm not going to care either way...it appears to me a balance of both is what is best and most harmonious for all. Cheers!

Craig Austin said...

Our current problems have nothing to do with ideology or politics (capitalism/socialism/communism) but rather poor management of monetary operations. Fiscal optimization at any level of public spending by a currency issuer requires balancing tax revenues with spending while running deficits at a rate corresponding to users saving rate.

as cullen said yesterday - the situation is laughable if it wasn't so painful

Mario said...

agreed craig on all fronts...yet for many that simple issue apparently is a direct and oppositional challenge to their politics and ideology and beliefs. Many are afraid and feel vulnerable and insecure in what to them feels like a world of unknowns...so they seem to be falling back on simple, stupid, illogical lines of "thinking" b/c they appear to be grounded, solid, stable, and trustworthy, and empowering to them. America seems to learn best through the school of hard knocks...or maybe that's just most of the world and likely every nation on the planet.

Craig Austin said...

your absolutely right. we Why can't we agree on anything? Economic speak. We have become victims of our own thinking. We have convoluted a difficult subject to the point nobody can agree on anything.

This is where MMT can shine because we can change the frame. change the game. my new favorite phrase. this is where we can shine. money, for all practical purposes, is digital. From an operational perspective, a dollar is nothing more than an on/off switch, it either exists or it doesn't. The whole enigma to money, and the economic system for that matter, is how money is created and destroyed by the issuer. The frame we build needs to be binary. User/ issuer, savings / debt, real/financial economy, and spending is consume/invest.

by the way ritholtz and i just had an exchange. i'm waiting for him to respond again. he has posted my responses. they were awaiting moderation for 10 min but now are posted.


Mario said...

good on you craig for speading the word. if you can get Barry that'd be huge...I get the email newsletter of his business partner Josh Brown and have worked on him for months now...he doesn't respond anymore to me...I think he's just decided to call it all crazy like Barry. :(

Mario said...

and note that otherwise those guys are really great industry professionals and cool guys it seems to me...again, like so many, they just miss the boat on the most fundamental area of our economy and it is "coloring" their ideas everywhere else.