Read it at New Economic Perspectives
This post is primarily addressed to the MMT community and whoever considers himself/herself a follower of Modern Monetary Theory. It deals with the question of what is in the purview of MMT.
What’s MMT About Anyway and is the Job Guarantee Crucial to the Project?
by Pavlina R. Tcherneva
Pavlina concludes, "And when we illuminate policy choices, we MMTers inevitably make a choice between one policy prescription over another."
I am not sure this is totally correct with the JG, which is part and parcel of MMT as a macro theory as I understand what the the developers (Moser, Wray, and Mitchell) have said. I would put it this way instead.
All policy options are optional politically, but economics may indicate the relative degree of optimality. It is always possible to choose a less optimal option for political reasons, but one should be clear that there is a tradeoff economically that bears an extra cost.
The JG is optional as a policy option, but then the one choosing it has departed from the MMT claim that full employment along with price stability is achievable through application of MMT. Without an alterative to the buffer stock of employed, one is choosing a buffer stock of unemployed and all the inefficiency, hence waste, that comes along. This should be clearly accepted unless the MMT claim that the JG along with the rest of MMT is capable of resulting in full employment with price stability can be disproved, or a substitute for the JG can be found.
Where MMT economists speak for themselves as citizens in policy choices is in how fiscal policy is to be applied. For example, some MMT economists, e.g, Warren Mosler, generally favor increasing the deficit by lowering taxes, whereas others, notably Bill Mitchell, favor increasing government expenditures. Those are policy choices generally independent of MMT as a macro theory specifying the size of the government balance needed relative to the non-government balance iaw the sectoral balance approach.
How functional finance is applied may be optional in many cases, since efficiency and effectives are not affected by the choice, so that no economic decision criteria are available. However, it an economic argument can be made the policy choice is not completely optional unless one is willing to settle for a less than optimal economic choice for political reasons.
I am not sure this is totally correct with the JG, which is part and parcel of MMT as a macro theory as I understand what the the developers (Moser, Wray, and Mitchell) have said. I would put it this way instead.
All policy options are optional politically, but economics may indicate the relative degree of optimality. It is always possible to choose a less optimal option for political reasons, but one should be clear that there is a tradeoff economically that bears an extra cost.
The JG is optional as a policy option, but then the one choosing it has departed from the MMT claim that full employment along with price stability is achievable through application of MMT. Without an alterative to the buffer stock of employed, one is choosing a buffer stock of unemployed and all the inefficiency, hence waste, that comes along. This should be clearly accepted unless the MMT claim that the JG along with the rest of MMT is capable of resulting in full employment with price stability can be disproved, or a substitute for the JG can be found.
Where MMT economists speak for themselves as citizens in policy choices is in how fiscal policy is to be applied. For example, some MMT economists, e.g, Warren Mosler, generally favor increasing the deficit by lowering taxes, whereas others, notably Bill Mitchell, favor increasing government expenditures. Those are policy choices generally independent of MMT as a macro theory specifying the size of the government balance needed relative to the non-government balance iaw the sectoral balance approach.
How functional finance is applied may be optional in many cases, since efficiency and effectives are not affected by the choice, so that no economic decision criteria are available. However, it an economic argument can be made the policy choice is not completely optional unless one is willing to settle for a less than optimal economic choice for political reasons.
11 comments:
Outstanding post.
Also,
Papadimitriou: To Solve Unemployment, Employ People
Quote:
In an op-ed in today’s LA Times Dimitri Papadimitriou makes the case for a direct job creation program:
It’s unreasonable to expect private enterprises to solve these problems. Full employment isn’t an objective of businesses. … There simply isn’t any known automatic mechanism, in the markets or elsewhere, that creates jobs in numbers that match the pool of people willing and able to work. …
At the theoretical heart of job-creation programs is this fact: Only government, because it is not seeking profitability when it is hiring, can create a demand for labor that is elastic enough to keep a nation near full employment.
Tom,
I believe that whether the policy path is tax cuts or higher govt expenditures both Warren and Bill advocate for an 8/hr guaranteed job with full healthcare as the price anchor here in US.
So based on a 2k hr work year and a med package of about $5k per year in my area, that puts the price anchor at about $21k per year as a flow. Or the govt establishment of a minimum value on a working human of $21k per year.
I think human beings may be worth more than that these days. Especially after the last 30 years of unjust distribution of wealth. If we could roll back the last 30 years then maybe.
Housing in my area is over $1k/mo and then the family has to eat, obtain transport, etc...
Seems like this would not be enough.
Resp,
The JG is optional as a policy option, but then the one choosing it has departed from the MMT claim that full employment along with price stability is achievable through application of MMT
The meaning and intent of this sentence is not clear to me.
ONe can employ pieces of MMT and not the whole program, which is the likely way things will proceed practically. But we have to remember that the MMT program is comprehensive, involving monetary ops, SFC modeling of sectoral balances, Minsky's economic and financial understanding, and functional finance, as well as the JG-ELR as a buffer stock of employed and price anchor.
Leaving out any of the pieces breaks the coherence of MMT as a macro policy instrument, and results don't reflect then on the theory. It all goes together.
AS Warren said recently, OK leave out the JG and apply the other stuff, but don't be surprised if you get inflation.
That's what I thought.
So "it" = not including the JG.
I was just tripping over the wording it seems, not the intent.
Pavlina Tcherneva - Bottom Up Fiscal Policy: Direct Employment of the Unemployed
video
Thanks, Clonal. Posted it.
Thanks Tom, another great clarification.
Mike, thanks. Great post. I agree wholeheartedly. In a democratic society we can choose to implement a suboptimal program. We are already doing that. We don't HAVE to do the JG. I am calling for a technocratic debate on the merits of the program, relative to what critics, who understand the operational realities of MMT, may consider a better alternative. Any theory has to be falsifiable and if someone can come up with a superior bufferstock to the JG, I'm all ears.
(Pavlina, it's difficult to see (just below the post), but it was posted by Tom Hickey -- all errors are his :-) )
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