An economics, investment, trading and policy blog with a focus on Modern Monetary Theory (MMT). We seek the truth, avoid the mainstream and are virulently anti-neoliberalism.
It seems the theory is that when you float the currency and then immediately there is a "buffer" filled with an economic "stock".
Perhaps the tie-in is that with a FFNC, the "value" is now imparted to the currency via coercive taxation which PEOPLE have to come up with via employment to pay to stay out of jail.
So government sets the price of the dollar against some economic stock in the economy and lets quantity of the stock float.
It looks like the current policy is the government is currently setting the price of an unemployed person at zero and letting the quantity of unemployed persons float... this is how we get to unemployed people being termed "buffer stock".
If so, the government seems like doesnt have to set the price of an unemployed person at zero, but rather they can increase this price they set via JIG.
Warren: "You all are making way too much out of the jg.it comes down to this: with ‘state currency’ there necessarily is, always has been, is, always will be a buffer stock policy. Call that the mmt insight if you wish.so it comes down to ‘pick one’- gold fx unemployment employed/jg/elr wheat whatever!
Well what if the moron govt DOESNT "pick one?
Does it "default" to employment and the price anchor is at zero USD? Due to individuals owing taxes only obtained thru employment..
A buffer is like an overflow tank. Excess overflows into the tank where it is contained.
The default buffer is idle resources sitting in the system and affecting the system, creating gluts counter-cyclically and shortages pro-cyclically.
The idea is to smooth this out to prevent turbulence and volatility.
The buffer that the govt provides siphons off the idle resources and sequesters them from the system so they don't affect the operation of the system.
It does this by accepting all quantity at the lowest offer counter-cyclically and provides the lowest offer pro-cyclically, thereby smoothing out resource idleness/use and reducing volatility.
The JG is a buffer unlike other buffers since it converts idle resources to useful resources, but it operates on essentially the same principle, except that instead of changing its bid with the market it sets a floor as a price anchor, so it does double duty.
I dont know if it is correct to think of this as "smoothing out", rather, the purpose of a buffer is typically to preserve the value of the "stock" that is put in it.
We do NOT have a buffer currently. I think the whole wording here is drifting into the factual/counterfactual thing again...
Warren says: "You have to pick one'... Well, they arent picking anything except perhaps their noses. They are corrupt morons.
If you asked Obama/Boehner: "Hey, what are we using as our "buffer stock for our FFNC?"
They would I dont know probably drool out of the sides of their mouths, mumble something and ask how long till lunch...
Ive read concerning this: "The JG would act as a buffer stock"
This is incorrect phraseology. The "buffer stock" would be the thing that is in the buffer, not the buffer itself.
Our system as currently designed HAS NO BUFFER.
We have to be operating within what logically is called a "default mode" of sorts.
Logically, a system with no buffer included in it's design, does not value all of the inputs/outputs... period.
In information system design, a system with no I/O buffer results in lost critical data or worse, the data being the "stock" of an information system.
Now lets assume that the economy is operating under normal conditions, rather than under a EM constraint. The infinite buffer-stock hypothesis makes the implicit assumption that an amount of buffer-stock can be traded for any other resource. This property can be used to stabilize prices throughout the economy. Increasing the supply of buffer-stock satisfies demand, thus having a deflationary effect upon prices.
Defn Two-Transformation
Consequently it is assumed that this buffer-stock can be traded for other resources which will transform increased demand for other resources into increased demand for the buffer-stock. Also this transformation is two-way, meaning an supply increase in the buffer-stock also transforms into a supply-increase of all other resources. This transformation must hold, otherwise the economy will enter into a EM-like state.
I think it’s obvious that there are two problematic assumptions: (1) The buffer-stock is infinite, (2) There exists a reliable two-way transformation between the buffer-stock and all other resources.
If you dont put an I/O buffer in the system, then there is no buffer logically. It means you dont care about the inputs/outputs under certain externally driven conditions.... in mission critical systems, a lack of an effective data buffer can result directly in death.... under other than "normal" external environments....
This makes me think that we dont currently have a buffer, if you dont put one in, you dont have one... they dont spontaneously generate themselves...
To MMT's credit, Warren Mosler OFTEN looks at what OPEC is doing.... current policy morons just blow it off... actually, in their deranged world they think it is a "free market"...
Buffer stock, also called buffer inventory, excess inventory or safety stock, is a cushion of supply in excess of forecast demand. Buffer stock may be found at all stages of the supply chain, and is intended to reduce the incidence or severity of stock-out situations and thus provide better customer service. Buffer stock is used in production or other inventory situations to ensure that exceptional or out of the ordinary events or demands can be met with some degree of certainty.source
In finance, savings are considered a buffer stock of funding to meet contingent liabilities for cash flow management.
This concept gets transferred to macroeconomics as price stabilization by governments, e.g., intervening in commodity markets to stabilize prices to protect producers, e.g, farm produce such as wheat and corn, or to provide supply in shortages (tapping the strategic oil reserve in an oil crisis), and in currency markets to stabilize currencies around a desired relative value.
Governments use buffer stock in holding gold reserves and fx reserves for stabilizing their currencies around the desired level, to protect export markets, for instance.
Monetarists also use a buffer stock of unemployment to moderate the demand for money when it becomes excessive due to credit growth that threatens inflation, since economic contraction is the result of raising interest rates, thereby restraining the credit demand. (They actually do think of it as buffer stock.)
Based on all this MMT economists propose a buffer stock of employed that stabilizes the wage of unwanted unskilled workers by taking all quantity at that wage and releasing it as private offers come in above that wage.
MMT uses taxation to siphon off non-government NFA when effective demand threatens to exceed the ability of the economy to expand to accomodate it, thereby controlling inflation without raising rates to contract the economy. Therefore, not relying on a buffer stock of unemployed the buffer stock of employed should be much less that under the monetarist policy.
I don't think of it really as a 'buffer'. And I think some MMTers need to clarify what they mean by 'anything' can be used as a buffer-stock. Of course they define 'anything' as the most liquid,.
I start with the premise that the buffer-stock must be made of an energy form. Since all output is a form of energy then the most convertible form of energy will be the best buffer stock for price control.
Human labor is a form of energy and is the starting point of all energy conversions within an economy. So if you want a really good lever for controlling prices, control the amount of human labor power.
Since it is convertible into other forms of output, then naturally as output demand increases, more human labor power will enter the private sector, and thus keep a lid on prices.
The amount of idle human labor power would be calculated as 'some value' above the JG wage.
Another question is that for this to remain effective, then JG pool needs to have certain characteristics. The size and composition are two that come to mind.
Also I'm not sure if this is discussed, but if the JG becomes the only net deficit source, then during collapses of Capitalism, then the nature of recoveries may be proportional to the wage structure and it's distance away from the JG wage. Thus I wonder how effective the JG is at price control as the wage structure changes.
Also I think that JG workers must be involved in activities that are significantly below their output potential, e.g walking on treadmills. Or their output must stay in storage.
The objective of the JG pool is to develop a energy reserve, which would mean doing things that develop a gap between worker capacity and worker output, if possible engaged workers in activities that are likely to increase output demand.
Since I have redefined the role of the JG pool, to developing worker under-utilization, then it would be favorable to educate workers, as this will increase worker capacity. Thus this will increase the amount of 'energy' stored in the workers, which increases the buffer-stock, which increases the ability of the buffer-stock to keep a lid on prices.
I think that there are separate issues here that need to be taken into consideration. First, there is always residual of unemployed, which is pretty much unskilled labor. Secondly, there is rising unemployment counter-cyclically in the business cycle. There is also underemployment counter-cyclically. Finally, there are those unable to work due to illness, injury, handicap, or age.
The JG as an answer to unemployment doesn't address this range adequately. It still leaves a lot of waste in the system, which is hugely inefficient, hence, costly. Addressing this would be a means to greater efficiency and cost saving, as well as more effective in meeting the Preamble goal of promoting the general welfare, as well as the terms of the UN Universal Declaration of Human Rights.
Since MMT shows that affordability is not an issue, the question then becomes one of optimizing resources use, including, or especially, human resources.
This is a no-brainer. I don't know what the kerfuffle is about other than ideological bias.
Also I don't see the economic positives coming from the 'reduced social cost'. Rather the positives come from taking poor quality labor power from the unemployed sector and converting it into 'better' quality labor power. Every worker has some 'basic' level of capacity, but there is also a probability associated with getting this 'idle' capacity to 'fast' capacity. This is a probability of the private sector and the 'idle' capacity forming a connection.
So I don't just see the JG as a way of preventing people from suffering the effects of long-term unemployment, but as a better way of storing labor power that will respond more dynamically to demand changes.
It's actually quite beautiful. Parts of the economy would fail, which would top up the buffer stock, which is a storage of energy forms, structural deficit increases, thus providing demand, and then workers would be quickly pulled back out into the private sector. Beautiful I say.
Although I do wonder about the relationship between the wage structure and JG effectiveness.....
13 comments:
Tom,
I'm having trouble with this "buffer" thing...
It seems the theory is that when you float the currency and then immediately there is a "buffer" filled with an economic "stock".
Perhaps the tie-in is that with a FFNC, the "value" is now imparted to the currency via coercive taxation which PEOPLE have to come up with via employment to pay to stay out of jail.
So government sets the price of the dollar against some economic stock in the economy and lets quantity of the stock float.
It looks like the current policy is the government is currently setting the price of an unemployed person at zero and letting the quantity of unemployed persons float... this is how we get to unemployed people being termed "buffer stock".
If so, the government seems like doesnt have to set the price of an unemployed person at zero, but rather they can increase this price they set via JIG.
Does this make sense (my interpretation)?
Resp,
Warren: "You all are making way too much out of the jg.it comes down to this:
with ‘state currency’ there necessarily is, always has been, is, always will be a buffer stock policy.
Call that the mmt insight if you wish.so it comes down to ‘pick one’-
gold
fx
unemployment
employed/jg/elr
wheat
whatever!
Well what if the moron govt DOESNT "pick one?
Does it "default" to employment and the price anchor is at zero USD? Due to individuals owing taxes only obtained thru employment..
A buffer is like an overflow tank. Excess overflows into the tank where it is contained.
The default buffer is idle resources sitting in the system and affecting the system, creating gluts counter-cyclically and shortages pro-cyclically.
The idea is to smooth this out to prevent turbulence and volatility.
The buffer that the govt provides siphons off the idle resources and sequesters them from the system so they don't affect the operation of the system.
It does this by accepting all quantity at the lowest offer counter-cyclically and provides the lowest offer pro-cyclically, thereby smoothing out resource idleness/use and reducing volatility.
The JG is a buffer unlike other buffers since it converts idle resources to useful resources, but it operates on essentially the same principle, except that instead of changing its bid with the market it sets a floor as a price anchor, so it does double duty.
Tom,
I dont know if it is correct to think of this as "smoothing out", rather, the purpose of a buffer is typically to preserve the value of the "stock" that is put in it.
We do NOT have a buffer currently. I think the whole wording here is drifting into the factual/counterfactual thing again...
Warren says: "You have to pick one'... Well, they arent picking anything except perhaps their noses. They are corrupt morons.
If you asked Obama/Boehner: "Hey, what are we using as our "buffer stock for our FFNC?"
They would I dont know probably drool out of the sides of their mouths, mumble something and ask how long till lunch...
Ive read concerning this: "The JG would act as a buffer stock"
This is incorrect phraseology. The "buffer stock" would be the thing that is in the buffer, not the buffer itself.
Our system as currently designed HAS NO BUFFER.
We have to be operating within what logically is called a "default mode" of sorts.
Logically, a system with no buffer included in it's design, does not value all of the inputs/outputs... period.
In information system design, a system with no I/O buffer results in lost critical data or worse, the data being the "stock" of an information system.
I'll try to write something up...
Resp,
Now lets assume that the economy is operating under normal conditions, rather than under a EM constraint. The infinite buffer-stock hypothesis makes the implicit assumption that an amount of buffer-stock can be traded for any other resource. This property can be used to stabilize prices throughout the economy. Increasing the supply of buffer-stock satisfies demand, thus having a deflationary effect upon prices.
Defn Two-Transformation
Consequently it is assumed that this buffer-stock can be traded for other resources which will transform increased demand for other resources into increased demand for the buffer-stock. Also this transformation is two-way, meaning an supply increase in the buffer-stock also transforms into a supply-increase of all other resources. This transformation must hold, otherwise the economy will enter into a EM-like state.
I think it’s obvious that there are two problematic assumptions: (1) The buffer-stock is infinite, (2) There exists a reliable two-way transformation between the buffer-stock and all other resources.
https://lowerleftlimit.wordpress.com/
Shaun,
I think we should explore this path....
Here is a Wiki on Data Buffers:
http://en.wikipedia.org/wiki/Data_buffer
If you dont put an I/O buffer in the system, then there is no buffer logically. It means you dont care about the inputs/outputs under certain externally driven conditions.... in mission critical systems, a lack of an effective data buffer can result directly in death.... under other than "normal" external environments....
This makes me think that we dont currently have a buffer, if you dont put one in, you dont have one... they dont spontaneously generate themselves...
Resp,
Shaun,
To MMT's credit, Warren Mosler OFTEN looks at what OPEC is doing.... current policy morons just blow it off... actually, in their deranged world they think it is a "free market"...
Resp
Buffer stock is used in inventory control:
Buffer stock, also called buffer inventory, excess inventory or safety stock, is a cushion of supply in excess of forecast demand. Buffer stock may be found at all stages of the supply chain, and is intended to reduce the incidence or severity of stock-out situations and thus provide better customer service. Buffer stock is used in production or other inventory situations to ensure that exceptional or out of the ordinary events or demands can be met with some degree of certainty. source
Wikipedia -Buffer stock scheme
See also safety stock
These are the microeconomic definitions.
In finance, savings are considered a buffer stock of funding to meet contingent liabilities for cash flow management.
This concept gets transferred to macroeconomics as price stabilization by governments, e.g., intervening in commodity markets to stabilize prices to protect producers, e.g, farm produce such as wheat and corn, or to provide supply in shortages (tapping the strategic oil reserve in an oil crisis), and in currency markets to stabilize currencies around a desired relative value.
Governments use buffer stock in holding gold reserves and fx reserves for stabilizing their currencies around the desired level, to protect export markets, for instance.
Monetarists also use a buffer stock of unemployment to moderate the demand for money when it becomes excessive due to credit growth that threatens inflation, since economic contraction is the result of raising interest rates, thereby restraining the credit demand. (They actually do think of it as buffer stock.)
Based on all this MMT economists propose a buffer stock of employed that stabilizes the wage of unwanted unskilled workers by taking all quantity at that wage and releasing it as private offers come in above that wage.
MMT uses taxation to siphon off non-government NFA when effective demand threatens to exceed the ability of the economy to expand to accomodate it, thereby controlling inflation without raising rates to contract the economy. Therefore, not relying on a buffer stock of unemployed the buffer stock of employed should be much less that under the monetarist policy.
I don't think of it really as a 'buffer'. And I think some MMTers need to clarify what they mean by 'anything' can be used as a buffer-stock. Of course they define 'anything' as the most liquid,.
I start with the premise that the buffer-stock must be made of an energy form. Since all output is a form of energy then the most convertible form of energy will be the best buffer stock for price control.
Human labor is a form of energy and is the starting point of all energy conversions within an economy. So if you want a really good lever for controlling prices, control the amount of human labor power.
Since it is convertible into other forms of output, then naturally as output demand increases, more human labor power will enter the private sector, and thus keep a lid on prices.
The amount of idle human labor power would be calculated as 'some value' above the JG wage.
Another question is that for this to remain effective, then JG pool needs to have certain characteristics. The size and composition are two that come to mind.
Also I'm not sure if this is discussed, but if the JG becomes the only net deficit source, then during collapses of Capitalism, then the nature of recoveries may be proportional to the wage structure and it's distance away from the JG wage. Thus I wonder how effective the JG is at price control as the wage structure changes.
Also I think that JG workers must be involved in activities that are significantly below their output potential, e.g walking on treadmills. Or their output must stay in storage.
The objective of the JG pool is to develop a energy reserve, which would mean doing things that develop a gap between worker capacity and worker output, if possible engaged workers in activities that are likely to increase output demand.
Since I have redefined the role of the JG pool, to developing worker under-utilization, then it would be favorable to educate workers, as this will increase worker capacity. Thus this will increase the amount of 'energy' stored in the workers, which increases the buffer-stock, which increases the ability of the buffer-stock to keep a lid on prices.
I think that there are separate issues here that need to be taken into consideration. First, there is always residual of unemployed, which is pretty much unskilled labor. Secondly, there is rising unemployment counter-cyclically in the business cycle. There is also underemployment counter-cyclically. Finally, there are those unable to work due to illness, injury, handicap, or age.
The JG as an answer to unemployment doesn't address this range adequately. It still leaves a lot of waste in the system, which is hugely inefficient, hence, costly. Addressing this would be a means to greater efficiency and cost saving, as well as more effective in meeting the Preamble goal of promoting the general welfare, as well as the terms of the UN Universal Declaration of Human Rights.
Since MMT shows that affordability is not an issue, the question then becomes one of optimizing resources use, including, or especially, human resources.
This is a no-brainer. I don't know what the kerfuffle is about other than ideological bias.
Also I don't see the economic positives coming from the 'reduced social cost'. Rather the positives come from taking poor quality labor power from the unemployed sector and converting it into 'better' quality labor power. Every worker has some 'basic' level of capacity, but there is also a probability associated with getting this 'idle' capacity to 'fast' capacity. This is a probability of the private sector and the 'idle' capacity forming a connection.
So I don't just see the JG as a way of preventing people from suffering the effects of long-term unemployment, but as a better way of storing labor power that will respond more dynamically to demand changes.
It's actually quite beautiful. Parts of the economy would fail, which would top up the buffer stock, which is a storage of energy forms, structural deficit increases, thus providing demand, and then workers would be quickly pulled back out into the private sector. Beautiful I say.
Although I do wonder about the relationship between the wage structure and JG effectiveness.....
Shaun careful here: "It's actually quite beautiful. Parts of the economy would fail,"
This is getting close to the false "creative destruction" dogma....
When you design systems, ideally you never want failure...
Resp,
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