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.
If there weren't enough other signs that MMT has matured and is growing in acceptance then derivative works should be another huge milestone in the progress. Analogous situations in the open source world would indicate you have become a foundational development upon which a great deal will built.
Look there is a saying: "Dont let the perfect be the enemy of the good"
So if what they are doing is making an assessment that the JG is just too politically controversial/unobtainable to be taken seriously, and therefore its better to just attack the logical fallacies of "taxpayer on the hook" and "leaving our debt to our grandchildren" then perhaps ok... I see what they are doing and hope they succeed.
But Cullen I believe wrote several weeks ago that at least the equivalent of the premise that "unemployment is good for you".
Which is a patently political statement.
Also, to move towards the a-political their "love affair" with Krugman must absolutely stop. Krugman must be challenged, called out and confronted at every opportunity. He is a BIG problem just like Bernanke.
Matt: "to move towards the a-political their "love affair" with Krugman must absolutely stop. Krugman must be challenged, called out and confronted at every opportunity. He is a BIG problem just like Bernanke."
I think that rather than coming across as confrontational, it's probably a better strategy to play nice and couch criticism constructively, especially since if someone like PK notices you, it generates interest and drives people to your place.
I agree with Tom. And Beowolf always has uncanny ability to pull references out his hat. It can only be good. And from what I understand, Warren is fine with it. By the way, Cullen emphatically stated he is for full employment. Just not as a buffer stock.
Krugman "notices" them because they are not Randall Wray, Bill Mitchell, Warren Mosler, etc.... MMT thought leaders.
Krugman does not want to engage the MMT thought leaders. His previous academic challenges from these said MMT leaders is yet to be recognized.
Krugman is a political columnist. He writes a column called "the conscience of a Liberal" ie political.
When he addresses detailed economic issues he prefaces his column with "Wonkish" (I HATE that word!) which is a tip off to his readership to not read it (hey they may actually learn something if they did!). It will be in one of his "wonkish" columns where he would engage/refer to "MMX" anyway.
Cullen emphatically stated he is for full employment. Just not as a buffer stock.
The issue here as the MMT economists have stated it is that the choice is between a buffer stock of employed or a buffer stock of unemployed. If one is reaching FE without a buffer stock of employed, then one is defining FE in a way that is higher than it need be with a buffer stock of employed. Current thinking (NAIRU, Taylor rule) defines FE in terms of an unobservable "natural rate" of 4-6%, and there is talk of redefining it to between 6-8%.
According to MMT economists true FE is frictional only, that is, about 2%. In a labor force of 100 million, every percentage point is 1 million people. MMT economists would say that every percentage point above 2% in an economy of 100 million workers results in idle resources of 100 million people. That is a huge amount of waste, and the cost is compounded by the cost of the social problems resulting.
So saying one is for FE is rather vague without defining FE since the technical meaning is definitional and the ordinary meaning ambiguous.
It's pretty clear from the About Us page, which differentiates MMR from MMT, that MMR is pitched from the right (supply side) and MMT from left (demand side). The concern of MMR is producers and productivity, while the concern of MMT is full employment and price stability.
It seems to me that MMR is an easy sell to Republicans and a hard sell to Democrats, and MMT is a hard sell to Republicans and an easy sell to Democrats in the US. The two approaches have different policy objectives and would lead to different economic policies when applied as policy instruments.
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!
I pick ‘employed/jg/elr as it works best as a buffer stock based on any/all criteria for a buffer stock.
so yes, it’s an option. you are free to pick one of the others.
Best!
Warren
I think this indicates, Warren and MMT is agnostic or a-political about which buffer stock is preferable. Where as monetary realism is completely opposed to using anything besides unemployment. That is a pretty strong political statement in itself. But it is okay, MMT isn't in anyway diminished because MMR takes a one way approach to their buffer stock. Limits their options in dealing with the real world situations.
" there is talk of redefining it to between 6-8%."
Bernanke already did this last week in his press conference if you read the transcript... he thinks there is a lack of education skills to achieve FE at this moment. (this moron thinks 13M+ unemployed is a "skills mismatch": BS!)
So in his warped, demented mind, he thinks his lawful mandate of "MAXIMUM employment" is being met.
How our current outcomes could be viewed as "maximum" anything is beyond me...
Ideological opposition to a JG presents backs you into some awkward corners when combined with support of FE.
You end up forced to discard buffer stock in favor of FE-by-pump-priming then casting about for methods to control the resulting inflation, reaching for ideas like vickery warrants after having discarded the JG as too theoretical.
Between that and filling out the placeholder that is "full productivity" they've got quite a bit of heavy lifting to do to build back up to the level of coherent macro theory for FE&PS they walked away from.
Where I see the difficulty is mistaking the ELR as a policy prescription when it is an integral element in a coherent macro theory that purports to resolve the trifecta of production, FE & PS.
The MMR contention is twofold. First, it is posited that MMR is not a macro theory and those contributing to MMR are not interested in doing macro, just articulating operational reality largely along the lines of MMT without the macro built on it. No problem there. This is just giving wider exposure to the MTT foundation without getting into the macro.
Secondly, there is also an as yet unclear purport to be able to achieve "full productivity" and that this will resolve issues relative to FE & PS (at least as far as I can gather from what has been said.). This involves macro issues, at least implicitly, and since one's approach to macro determines policy approaches also, it is political, at least implicitly.
It is very difficult to isolate positive and from normative, descriptive from prescriptive, quantity from quality since how one does economics depends on one's worldview, which necessarily is built on norms, one's methodology, which is based on choice criteria, and one's assumptions, hidden and explicit. Most often it is the hidden assumptions that contain the normative, prescriptive and qualitative that one believes to be free from. This is the bane of doing science as an objective enterprise.
The chief instrument of science is scientist's minds, and cognitive science shows how and why the mind blends positive and normative, descriptive and prescriptive, and quantitative and qualitative. Cognitive science has discovered something of the brain functioning underlying this blending, which is largely subliminal. Philosophers have explained it in terms of the holistic nature of the human spirit.
And as it turns out, the first MMR post is a macro post about a fiscal rule.
Tom, I think ELR is a policy prescription. There is no other way to interpret it. In Wray's book Understanding Modern Money, ELR is introduced in a chapter on employment policy.
I think we really need to clarify the heart of the dispute here. Let's use "DES" to refer to the all of the non-normative descriptive and theoretical parts of MMT. Then what the MMT thinkers have clearly said is something like this:
1. DES entails that it is possible to have full employment and price stability by implementing an ELR policy - that is, a policy of maintaining a government-employed labor buffer stock.
Warren Mosler has also clearly said something like this:
2. In any economy in which DES is true, there will be a buffer stock of some kind.
Both of those are distinct from:
3. We should implement an ELR policy.
The economics is all in statements 1 and 2. The defense of statement 3 obviously relies on additional normative premises that are external to what most people would regard as the science of economics proper. Many of the MMTers clearly endorse statement 3. That's because they are particular human beings with particular values. Those values include being committed to full employment and price stability for various reasons, and those values are shared (in some form) by many - and perhaps most - in their profession. But even those commitments alone are not enough to defend 3, since 2 does not state that ELR is the only way to get full employment and price stability.
I think the attempt by MMR to describe their approach as "without politics" is quite off the mark. The very first post on the new blog is a governmental policy prescription. Governmental policies can only be implemented through a political process. To recommend a policy is to make a political recommendation.
What they really seems to mean is "without controversial lefty politics of the kind that turns off politically middle of the road people, but with plenty of middle of the road politics." And that's fine. It's good to have those alternatives out there. But if they are going to continue to make policy recommendations they should probably drop the conceit that they are somehow the "apolitical" alternative to MMT. It's more that they just have different politics than a lot of MMTers.
I so far find the MMR statements about the state theory vague and confusing. The state theory comes in different forms, but it is primarily an attempt to explain certain facts about the monetary system under which we actually live. Some of those facts include: (a) that governments frequently have various powers over the creation and destruction of money that other people and institutions in the society do not have, and this means that they do not have the operational budget constraints that other users of the same currency possess; (b) that the currency systems we use typically have the property of both official governmental endorsement and near-universal acceptance among the people living under a particular governmental jurisdiction; (c) that the emergence of alternative currency systems within a jurisdiction dominated by an officially endorsed currency is rather rare and localized, and such currencies tend to be short-lasting; that legally sanctioned debt obligations in a jurisdiction are always dischargeable by any individual who has access to sufficient quantities of the official currency, but not necessarily by other means, and (e) that currencies of the type described in a, b, c and d are generally administered by a central bank that is itself answerable to the government.
There are other related phenomena as well to be explained. These are remarkable social phenomena. They do not just come from nowhere through some process of haphazard evolution or spontaneous generation. The state theory is an approach to explaining the presence of these phenomena by appealing to the role of the power of governments to make and enforce laws of various kinds, and to the role of deliberate governmental policy to create currency systems with the properties described above.
Chartalism is a version of the state theory that claims the most important of these government policies is the power to create tax obligations.
There is nothing in the state theory broadly considered, or chartalism, that is specific to the form of government, or depends in any way on the source of the government's power. The theory applies equally well to democratic governments as to authoritarian ones.
One other thing. I think it is also untrue to say that MMT somehow slights or ignores production. MMT focuses on aggregate demand because MMTers - like many in the Keynesian and post-Keynesian tradition - believe that production is driven by the demand side of the economy. Producers or potential producers make decisions on the investment in expanded production (or contraction of existing production) based on their perceptions and assessments of changes in market demand for the products they might produce. Since broad money is created endogenously in the economy, with reserve positions and requirements, aggregate savings and loanable funds having little constraining effect, producers can generally finance their production so long as they can demonstrate demand for their products and competence to produce those products. So if you want to expand production through policy, the way to do it is by elevating demand.
And it's also very political. Just look at Mike's targets, and beowulf's (Carlos's) comments.
On the "without politics" stuff. That's more branding nonsense. Just as the split itself was about political judgments and marketing. This false claim of theirs is also about marketing.
This from chewitup:
"And from what I understand, Warren is fine with it. By the way, Cullen emphatically stated he is for full employment. Just not as a buffer stock" is belied by this:
So, I'm not sure about what "being all right with it" means. Warren certainly prefers a full employment buffer stock to an unemployed one. So, I'd say he's not alright with it, please note tomatobasil.
The second part of this statement is also belied by this:
http://www.correntewire.com/thats_not_all
Notice also the comments and the exchange with Cullen. It seems pretty clear that Cullen prioritizes FP over FE. This is not MMT.
I agree very most with most of Tom's comments below, ad his especially pointing to the waste involved in targeting more than 2% unemployment. Since TC specifies the target as $% in his post, it seems very clear to me that the 2% who would be left as part of an unemployed buffer stock compared to the MMT JG solution, would certainly view this target of TC's as very, very political when they can't find a job because some MMR economist thought that 4% unemployment and 4% inflation should be targeted.
Finally, I strongly agree with Tom, that MMR is a right-wing supply-side derivative of MMT, and in my view that is neither non-political nor particularly realistic, but rather is in line with the ideals that Cullen, Mike, and Carlos hold.
I pretty much agree with Dan's comments also. But would add that the very name MMR is a marketing contrast with MMT that doesn't connote an objective difference. The MMR want to claim they're about realism, which MMT folks are not. But I think that's just opinion and is highly arguable by anyone wanting to contest it.
If the point of blogging is to get your message out, I'd say that you are succeeding. People from various walks of life are stumbling onto MMT. Warren was just on WRKO in Boston. As educated people study what has gone on since 2007, they figure out that a lot of what they thought they knew just doesn't pass the smell test any more. As more and more folks begin to get enlightened on the reality of our monetary system, and dig a little deeper into the subject, differences of perspective are bound to manifest. From my perch, I see this as a good thing. ELR and JG are now out in the blogoshere where they belong. Now you have people like me reading all the various blogs and sorting through all the perspectives that you all bring to light. So from the outside looking in, I'd say that a little disagreement is a valuable learning tool. Just my two cents.
As I understand the MMT economists, macro does not exist in a vacuum. It's not merely a theory that has a descriptive foundation used to build a general explanation with predictive power, e.g., like hard sciences. Macro is fundamentally policy-oriented. Economics is a management aid meant to illumine some areas that managers have to deal with, whether they are government managers, which our elected representatives certainly are, as are those in the executive branch. These manager have certain concerns that become objectives for a variety of reasons, social, political and economic.
Macro is given goals to achieve by the objectives that managers seek to achieve. Effective managers are goal-oriented and manage by objectives. Major objectives in a national economy are economic growth commensurate with population growth, full employment, and price stability. These objectives don't fall from the sky. They are what political constituencies demand of representatives-managers and voters hold politicians accountable for meeting these objectives in a way that satisfies expectations, or the voters switch the management team.
There is no way to offer an economic solution that purports to be effective without showing how it meets these objectives. Critics will find opening for criticism to the degree that there are holes in the proposed solution.
These goals become policy norms that policy instruments have to deal with. They set the objectives and prioritize them. The objectives are generally agreed upon, however the priorities may differ among prospective management teams. Campaigns are about setting these priorities and ways of achieving them before the voters that select the management team.
Once the objectives are given, then the challenge of the management team that is selected is to meet the priorities it has set efficiently. This is where macroeconomics comes it. Solutions that meet an objective are evaluated based on efficiency.
The MMT economists claim that the MMT macro solution, including the MMT JG/ELR/price anchor, is the most efficient way to resolve the trifecta of production, employment and price stability. The macro is about showing that the solution will work, is feasible, and is the most efficient option.
Macro is bound up in politics. Useful theories are predictive, and predictions are used in policy making. Enterprising economists know this and compete with each other to get their solutions adopted as policy, rather than sitting around the ivory tower doing theory.
So I think that doing macro without politics is a chimera, and politics involves norms. It is interesting to note that most (virtually all) of the economists in the neoliberal camp are on the right politically, and those in the Keynesian camp are on the left politically. Is this just a coincidence, or is there some causal relationship here. Psychologists and sociologists can deal with that issue.
The fact is that the world operates on the basis of sovereign nation states and their respective currencies. Obviously, there are a lot of reasons that people use money. Why do they "choose" to use state money? Do they have a choice? I don't think that the state theory of money has to be justified, since it is the prevailing norm. Any other theory would have to justify itself and explain why there is only state money.
Yes, it comes down to the coercive power of the state.
Perhaps (at least as relates to USD balances) not for the external sector Tom?
ie External entities have no USD tax liabilities yet will provision the US govt in exchange for USD balances... evidence of irrational/corrupt/exploitive (take your pick) elites in control of these external entities?
Any other theory would have to justify itself and explain why there is only state money.
Precisely. I find it somewhat surprising that people who have spent a long time understanding and explaining the modern monetary system, in which the unique monetary powers of government, the unique role of the government-run central bank and unique status of the government's budget play a dominant role, have not thought more about the underlying factors explaining the existence of such monetary systems.
That said, I want to say that I also don't believe the narrow chartalist explanation - which put all the weight on the government's power to impose tax liabilities, fully explains the special role of the government currency. I think the role of courts and law enforcement systems to enforce and resolve debt obligations and disputes, and to mandate the discharge of debts via the government currency also plays a role, as does sheer social convention.
Sorry for the two deleted comments above. I misread Dan's comment.
Dan, what I intended to say is that tax enforceability is argued to be a sufficient but not necessary condition. Other factors can no doubt contribute to acceptance as well.
I like to distinguish between currency acceptance and currency need.
Courts, social conventions, legal tender and other non-tax drivers of currency demand all contribute to acceptance. I might accept the currency for any or all of those types of reasons but that leaves a lot of room for person to person exchanges that might involve other currencies. The need for exchange is my primary motivator, the medium is subject to a beauty contest.
In contrast, taxation is the only factor I've seen that directly drives need. A tax obligation changes the picture so that currency isn't just a medium of exchange but a specific thing I need for its own sake in order to preserve my connection to the thing taxed (land, my head, etc). Taxation gives the state majority control of the judges in the beauty contest.
CIU, I'm not objecting to disagreement. Just to the perspective of MMR, which I think is opposed to the "right to work," and also mistaken in the factual aspects of its objections to the JG as well.
Matt: Perhaps (at least as relates to USD balances) not for the external sector Tom? ie External entities have no USD tax liabilities yet will provision the US govt in exchange for USD balances... evidence of irrational/corrupt/exploitive (take your pick) elites in control of these external entities?
The state imparts value to its currency through its coercive power, i.e., creates an artificial need for citizens and residents of the country as well as foreign companies incurring a tax obligation in the currency. The state establishes the unit of account and also establishes the currency as a claim on resources denominated in the unit of account. The state also established the price base by its own bids and offers. This gives the currency specific purchasing power, with the state in charge as currency monopolist, hence, capable of setting and change parameters.
Once the currency has value and is in common use as a unit of account and medium of exchange, it serves as a claim on resources, financial and actual, that are offered for sale in the currency. It is this claim on resources that gives a currency its purchasing power, which fluctuates with the fx rate and inflation rate.
Anyone who wishes to hold a claim on resources denominated in the currency saves in that currency.
The USD is also the global reserve, i.e., the international currency for settlement of claims. There are secondary reserve currencies like the euro, too.Other countries save in reserve currencies for the purpose of international trade and fx, such as defending their own currency.
But the game with state money gets going with the coercive power of the state wrt liabilities due it in its currency, since it can impose penalties for failure to meet these obligations and enforce these penalties with the force of the state.
A lot of other things are possible once state money is established. including external trade, since claims on resources denominated in the currency are enforced by the sovereign through contract law.
Without the involvement of the state, the money thing would be a lot less workable. For example, states without good legal systems and enforcement find it very difficult to attract foreign investment no matter how attractive the prospects — unless a foreign state can enforce those contracts through projection of power.
Dan K: I think the role of courts and law enforcement systems to enforce and resolve debt obligations and disputes, and to mandate the discharge of debts via the government currency also plays a role
Yes, that is why I say "coercive power of the state." It extends beyond taxation ability to the ability to establish and enforce all laws of the state.
To add to my previous comment on disagreement. I have absolutely no problem with Peter Cooper's disagreements with the MMT JG recommendation, since I think they're pretty cogent objections calling for a good MMT answer, which I haven't seen yet.
So, my point is that critiques of criticisms of the MMR view that take off from the notion that we ought to moderate that criticism because we need to be tolerant or good-humored about honest disagreements are, in my view, off-base. Sure, open-mindedness, civility, and respect are virtues we need to cultivate in debate. But that doesn't mean we ought to moderate our criticism of ill-founded criticisms of MMT, or to view those push-backs as personal in nature. We owe critics of MMT the strongest replies we can muster as long as they don;t include ad hominems, personal insults, or labeling critical positions in pejorative or complimentary ways without explanation. That's real civility; not moderating one's criticism and evaluation.
Agree, Joe. Debate should be polite and also vigorous. Arguments should be cogent and assertions and claims need to be substantiated, either as part of the argument, or else references provided.
We also need to keep in mind that the line between positive-descriptive and normative-prescriptive can be blurry because the same assertion can be both simultaneously. Moreover, many normative statements are framed as descriptive. In addition, the social sciences, of which economics is one, included quality as well as quantity, in that they are included the human spirit in addition to being about behavior.
Human beings come with an inherent set of values, which is amplified by culture and institutions. Human beings are not value-free in their approach to life. Anyone believing themselves to be completely objective are under the spell of self-delusion. For example, everyone prefers and prioritizes. Preference involves values, and values are norms. Prioritizing requires criteria, and criteria function as norms.
The presumption of the dominant approach to economics is that human beings pursue maximum utility, where utility is measurable quantitatively in terms of material acquisition. This ignores the human spirit and skirts the qualitative aspect of human life.
Claiming that this is normative and prescriptive and should be excluded from a social science like economics is itself normative and prescriptive. While values may be subjective, they become objective when it can be shown that they influence behavior.
I would argue, for example, that if MMT economists have successfully shown that a buffer of employed-price anchor is more efficient than alternatives, efficiency being the agreed upon economic criterion, then rejecting this is normative and prescriptive.
I am reminded of a post I read here and it applies perfectly to this situation. Economists have the responsibility to advocate for what is best and not just what is politically feasable.
I am reminded of a post I read here and it applies perfectly to this situation. Economists have the responsibility to advocate for what is best and not just what is politically feasable.
"MMT will often justify the use of a government job program based on the idea that the government is the money monopolist and simply hasn’t issued enough money for all the people to be employed. They often use an example where there are 10 dogs looking for 10 bones in a yard and the owner has only hidden 9 bones in the yard. Inevitably, one dog will be left without a bone so it’s the responsibility of the government to provide the extra bone. This story misconstrues the reality of a capitalist system though. Involuntary unemployment does not exist because there aren’t enough bones for all the dogs. In an endogenous money system there are plenty of bones in existence. It’s just a simple reality of capitalism that some dogs will decide to hoard more bones than others. Capitalists retain profits and amass as many bones as they want. It’s not some sort of mathematical proof or inherent flaw in the money system. It’s an inherent component of any capitalist system."
~ Cullen Roche
Mix in the premise that people want to maximize free time and why worry? The unemployed have it made!
MMR isn't a school of economic thought. It's an Ayn Rand cartoon character that's stolen some of the MMT understanding of the monetary system.
37 comments:
Other than disputing the premise of "without politics" - an impossibility, I think it is a positive movement.
If there weren't enough other signs that MMT has matured and is growing in acceptance then derivative works should be another huge milestone in the progress. Analogous situations in the open source world would indicate you have become a foundational development upon which a great deal will built.
Beat me there Senexx,
"without politics" ?
I dont know if that is possible.
Look there is a saying: "Dont let the perfect be the enemy of the good"
So if what they are doing is making an assessment that the JG is just too politically controversial/unobtainable to be taken seriously, and therefore its better to just attack the logical fallacies of "taxpayer on the hook" and "leaving our debt to our grandchildren" then perhaps ok... I see what they are doing and hope they succeed.
But Cullen I believe wrote several weeks ago that at least the equivalent of the premise that "unemployment is good for you".
Which is a patently political statement.
Also, to move towards the a-political their "love affair" with Krugman must absolutely stop. Krugman must be challenged, called out and confronted at every opportunity. He is a BIG problem just like Bernanke.
resp,
Matt: "to move towards the a-political their "love affair" with Krugman must absolutely stop. Krugman must be challenged, called out and confronted at every opportunity. He is a BIG problem just like Bernanke."
I think that rather than coming across as confrontational, it's probably a better strategy to play nice and couch criticism constructively, especially since if someone like PK notices you, it generates interest and drives people to your place.
I agree with Tom. And Beowolf always has uncanny ability to pull references out his hat. It can only be good. And from what I understand, Warren is fine with it. By the way, Cullen emphatically stated he is for full employment. Just not as a buffer stock.
Tom,
Krugman "notices" them because they are not Randall Wray, Bill Mitchell, Warren Mosler, etc.... MMT thought leaders.
Krugman does not want to engage the MMT thought leaders. His previous academic challenges from these said MMT leaders is yet to be recognized.
Krugman is a political columnist. He writes a column called "the conscience of a Liberal" ie political.
When he addresses detailed economic issues he prefaces his column with "Wonkish" (I HATE that word!) which is a tip off to his readership to not read it (hey they may actually learn something if they did!). It will be in one of his "wonkish" columns where he would engage/refer to "MMX" anyway.
At least put a clock on it...
Resp,
Cullen emphatically stated he is for full employment. Just not as a buffer stock.
The issue here as the MMT economists have stated it is that the choice is between a buffer stock of employed or a buffer stock of unemployed. If one is reaching FE without a buffer stock of employed, then one is defining FE in a way that is higher than it need be with a buffer stock of employed. Current thinking (NAIRU, Taylor rule) defines FE in terms of an unobservable "natural rate" of 4-6%, and there is talk of redefining it to between 6-8%.
According to MMT economists true FE is frictional only, that is, about 2%. In a labor force of 100 million, every percentage point is 1 million people. MMT economists would say that every percentage point above 2% in an economy of 100 million workers results in idle resources of 100 million people. That is a huge amount of waste, and the cost is compounded by the cost of the social problems resulting.
So saying one is for FE is rather vague without defining FE since the technical meaning is definitional and the ordinary meaning ambiguous.
It's pretty clear from the About Us page, which differentiates MMR from MMT, that MMR is pitched from the right (supply side) and MMT from left (demand side). The concern of MMR is producers and productivity, while the concern of MMT is full employment and price stability.
It seems to me that MMR is an easy sell to Republicans and a hard sell to Democrats, and MMT is a hard sell to Republicans and an easy sell to Democrats in the US. The two approaches have different policy objectives and would lead to different economic policies when applied as policy instruments.
Remember this post from Warren:
Hi,
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!
I pick ‘employed/jg/elr as it works best as a buffer stock based on any/all criteria for a buffer stock.
so yes, it’s an option. you are free to pick one of the others.
Best!
Warren
I think this indicates, Warren and MMT is agnostic or a-political about which buffer stock is preferable. Where as monetary realism is completely opposed to using anything besides unemployment. That is a pretty strong political statement in itself. But it is okay, MMT isn't in anyway diminished because MMR takes a one way approach to their buffer stock. Limits their options in dealing with the real world situations.
Tom,
" there is talk of redefining it to between 6-8%."
Bernanke already did this last week in his press conference if you read the transcript... he thinks there is a lack of education skills to achieve FE at this moment. (this moron thinks 13M+ unemployed is a "skills mismatch": BS!)
So in his warped, demented mind, he thinks his lawful mandate of "MAXIMUM employment" is being met.
How our current outcomes could be viewed as "maximum" anything is beyond me...
@ TB
Yes, that is the logical conclusion, but there is resistance to admitting this. The contention seems to be that no buffer stock is needed.
Ideological opposition to a JG presents backs you into some awkward corners when combined with support of FE.
You end up forced to discard buffer stock in favor of FE-by-pump-priming then casting about for methods to control the resulting inflation, reaching for ideas like vickery warrants after having discarded the JG as too theoretical.
Between that and filling out the placeholder that is "full productivity" they've got quite a bit of heavy lifting to do to build back up to the level of coherent macro theory for FE&PS they walked away from.
I look forward to seeing what comes out of it.
Where I see the difficulty is mistaking the ELR as a policy prescription when it is an integral element in a coherent macro theory that purports to resolve the trifecta of production, FE & PS.
The MMR contention is twofold. First, it is posited that MMR is not a macro theory and those contributing to MMR are not interested in doing macro, just articulating operational reality largely along the lines of MMT without the macro built on it. No problem there. This is just giving wider exposure to the MTT foundation without getting into the macro.
Secondly, there is also an as yet unclear purport to be able to achieve "full productivity" and that this will resolve issues relative to FE & PS (at least as far as I can gather from what has been said.). This involves macro issues, at least implicitly, and since one's approach to macro determines policy approaches also, it is political, at least implicitly.
It is very difficult to isolate positive and from normative, descriptive from prescriptive, quantity from quality since how one does economics depends on one's worldview, which necessarily is built on norms, one's methodology, which is based on choice criteria, and one's assumptions, hidden and explicit. Most often it is the hidden assumptions that contain the normative, prescriptive and qualitative that one believes to be free from. This is the bane of doing science as an objective enterprise.
The chief instrument of science is scientist's minds, and cognitive science shows how and why the mind blends positive and normative, descriptive and prescriptive, and quantitative and qualitative. Cognitive science has discovered something of the brain functioning underlying this blending, which is largely subliminal. Philosophers have explained it in terms of the holistic nature of the human spirit.
And as it turns out, the first MMR post is a macro post about a fiscal rule.
Tom, I think ELR is a policy prescription. There is no other way to interpret it. In Wray's book Understanding Modern Money, ELR is introduced in a chapter on employment policy.
I think we really need to clarify the heart of the dispute here. Let's use "DES" to refer to the all of the non-normative descriptive and theoretical parts of MMT. Then what the MMT thinkers have clearly said is something like this:
1. DES entails that it is possible to have full employment and price stability by implementing an ELR policy - that is, a policy of maintaining a government-employed labor buffer stock.
Warren Mosler has also clearly said something like this:
2. In any economy in which DES is true, there will be a buffer stock of some kind.
Both of those are distinct from:
3. We should implement an ELR policy.
The economics is all in statements 1 and 2. The defense of statement 3 obviously relies on additional normative premises that are external to what most people would regard as the science of economics proper. Many of the MMTers clearly endorse statement 3. That's because they are particular human beings with particular values. Those values include being committed to full employment and price stability for various reasons, and those values are shared (in some form) by many - and perhaps most - in their profession. But even those commitments alone are not enough to defend 3, since 2 does not state that ELR is the only way to get full employment and price stability.
I think the attempt by MMR to describe their approach as "without politics" is quite off the mark. The very first post on the new blog is a governmental policy prescription. Governmental policies can only be implemented through a political process. To recommend a policy is to make a political recommendation.
What they really seems to mean is "without controversial lefty politics of the kind that turns off politically middle of the road people, but with plenty of middle of the road politics." And that's fine. It's good to have those alternatives out there. But if they are going to continue to make policy recommendations they should probably drop the conceit that they are somehow the "apolitical" alternative to MMT. It's more that they just have different politics than a lot of MMTers.
I so far find the MMR statements about the state theory vague and confusing. The state theory comes in different forms, but it is primarily an attempt to explain certain facts about the monetary system under which we actually live. Some of those facts include: (a) that governments frequently have various powers over the creation and destruction of money that other people and institutions in the society do not have, and this means that they do not have the operational budget constraints that other users of the same currency possess; (b) that the currency systems we use typically have the property of both official governmental endorsement and near-universal acceptance among the people living under a particular governmental jurisdiction; (c) that the emergence of alternative currency systems within a jurisdiction dominated by an officially endorsed currency is rather rare and localized, and such currencies tend to be short-lasting; that legally sanctioned debt obligations in a jurisdiction are always dischargeable by any individual who has access to sufficient quantities of the official currency, but not necessarily by other means, and (e) that currencies of the type described in a, b, c and d are generally administered by a central bank that is itself answerable to the government.
There are other related phenomena as well to be explained. These are remarkable social phenomena. They do not just come from nowhere through some process of haphazard evolution or spontaneous generation. The state theory is an approach to explaining the presence of these phenomena by appealing to the role of the power of governments to make and enforce laws of various kinds, and to the role of deliberate governmental policy to create currency systems with the properties described above.
Chartalism is a version of the state theory that claims the most important of these government policies is the power to create tax obligations.
There is nothing in the state theory broadly considered, or chartalism, that is specific to the form of government, or depends in any way on the source of the government's power. The theory applies equally well to democratic governments as to authoritarian ones.
One other thing. I think it is also untrue to say that MMT somehow slights or ignores production. MMT focuses on aggregate demand because MMTers - like many in the Keynesian and post-Keynesian tradition - believe that production is driven by the demand side of the economy. Producers or potential producers make decisions on the investment in expanded production (or contraction of existing production) based on their perceptions and assessments of changes in market demand for the products they might produce. Since broad money is created endogenously in the economy, with reserve positions and requirements, aggregate savings and loanable funds having little constraining effect, producers can generally finance their production so long as they can demonstrate demand for their products and competence to produce those products. So if you want to expand production through policy, the way to do it is by elevating demand.
And it's also very political. Just look at Mike's targets, and beowulf's (Carlos's) comments.
On the "without politics" stuff. That's more branding nonsense. Just as the split itself was about political judgments and marketing. This false claim of theirs is also about marketing.
This from chewitup:
"And from what I understand, Warren is fine with it. By the way, Cullen emphatically stated he is for full employment. Just not as a buffer stock" is belied by this:
http://www.correntewire.com/the_job_guarantee_and_the_mmt_core_part_seven_dialogue_with_warren_mosler
So, I'm not sure about what "being all right with it" means. Warren certainly prefers a full employment buffer stock to an unemployed one. So, I'd say he's not alright with it, please note tomatobasil.
The second part of this statement is also belied by this:
http://www.correntewire.com/thats_not_all
Notice also the comments and the exchange with Cullen. It seems pretty clear that Cullen prioritizes FP over FE. This is not MMT.
I agree very most with most of Tom's comments below, ad his especially pointing to the waste involved in targeting more than 2% unemployment. Since TC specifies the target as $% in his post, it seems very clear to me that the 2% who would be left as part of an unemployed buffer stock compared to the MMT JG solution, would certainly view this target of TC's as very, very political when they can't find a job because some MMR economist thought that 4% unemployment and 4% inflation should be targeted.
Finally, I strongly agree with Tom, that MMR is a right-wing supply-side derivative of MMT, and in my view that is neither non-political nor particularly realistic, but rather is in line with the ideals that Cullen, Mike, and Carlos hold.
I pretty much agree with Dan's comments also. But would add that the very name MMR is a marketing contrast with MMT that doesn't connote an objective difference. The MMR want to claim they're about realism, which MMT folks are not. But I think that's just opinion and is highly arguable by anyone wanting to contest it.
If the point of blogging is to get your message out, I'd say that you are succeeding. People from various walks of life are stumbling onto MMT. Warren was just on WRKO in Boston. As educated people study what has gone on since 2007, they figure out that a lot of what they thought they knew just doesn't pass the smell test any more.
As more and more folks begin to get enlightened on the reality of our monetary system, and dig a little deeper into the subject, differences of perspective are bound to manifest.
From my perch, I see this as a good thing. ELR and JG are now out in the blogoshere where they belong. Now you have people like me reading all the various blogs and sorting through all the perspectives that you all bring to light. So from the outside looking in, I'd say that a little disagreement is a valuable learning tool. Just my two cents.
@ Dan K.
As I understand the MMT economists, macro does not exist in a vacuum. It's not merely a theory that has a descriptive foundation used to build a general explanation with predictive power, e.g., like hard sciences. Macro is fundamentally policy-oriented. Economics is a management aid meant to illumine some areas that managers have to deal with, whether they are government managers, which our elected representatives certainly are, as are those in the executive branch. These manager have certain concerns that become objectives for a variety of reasons, social, political and economic.
Macro is given goals to achieve by the objectives that managers seek to achieve. Effective managers are goal-oriented and manage by objectives. Major objectives in a national economy are economic growth commensurate with population growth, full employment, and price stability. These objectives don't fall from the sky. They are what political constituencies demand of representatives-managers and voters hold politicians accountable for meeting these objectives in a way that satisfies expectations, or the voters switch the management team.
There is no way to offer an economic solution that purports to be effective without showing how it meets these objectives. Critics will find opening for criticism to the degree that there are holes in the proposed solution.
These goals become policy norms that policy instruments have to deal with. They set the objectives and prioritize them. The objectives are generally agreed upon, however the priorities may differ among prospective management teams. Campaigns are about setting these priorities and ways of achieving them before the voters that select the management team.
Once the objectives are given, then the challenge of the management team that is selected is to meet the priorities it has set efficiently. This is where macroeconomics comes it. Solutions that meet an objective are evaluated based on efficiency.
The MMT economists claim that the MMT macro solution, including the MMT JG/ELR/price anchor, is the most efficient way to resolve the trifecta of production, employment and price stability. The macro is about showing that the solution will work, is feasible, and is the most efficient option.
Macro is bound up in politics. Useful theories are predictive, and predictions are used in policy making. Enterprising economists know this and compete with each other to get their solutions adopted as policy, rather than sitting around the ivory tower doing theory.
So I think that doing macro without politics is a chimera, and politics involves norms. It is interesting to note that most (virtually all) of the economists in the neoliberal camp are on the right politically, and those in the Keynesian camp are on the left politically. Is this just a coincidence, or is there some causal relationship here. Psychologists and sociologists can deal with that issue.
The fact is that the world operates on the basis of sovereign nation states and their respective currencies. Obviously, there are a lot of reasons that people use money. Why do they "choose" to use state money? Do they have a choice? I don't think that the state theory of money has to be justified, since it is the prevailing norm. Any other theory would have to justify itself and explain why there is only state money.
Yes, it comes down to the coercive power of the state.
Perhaps (at least as relates to USD balances) not for the external sector Tom?
ie External entities have no USD tax liabilities yet will provision the US govt in exchange for USD balances... evidence of irrational/corrupt/exploitive (take your pick) elites in control of these external entities?
Resp,
Any other theory would have to justify itself and explain why there is only state money.
Precisely. I find it somewhat surprising that people who have spent a long time understanding and explaining the modern monetary system, in which the unique monetary powers of government, the unique role of the government-run central bank and unique status of the government's budget play a dominant role, have not thought more about the underlying factors explaining the existence of such monetary systems.
That said, I want to say that I also don't believe the narrow chartalist explanation - which put all the weight on the government's power to impose tax liabilities, fully explains the special role of the government currency. I think the role of courts and law enforcement systems to enforce and resolve debt obligations and disputes, and to mandate the discharge of debts via the government currency also plays a role, as does sheer social convention.
Sorry for the two deleted comments above. I misread Dan's comment.
Dan, what I intended to say is that tax enforceability is argued to be a sufficient but not necessary condition. Other factors can no doubt contribute to acceptance as well.
I like to distinguish between currency acceptance and currency need.
Courts, social conventions, legal tender and other non-tax drivers of currency demand all contribute to acceptance. I might accept the currency for any or all of those types of reasons but that leaves a lot of room for person to person exchanges that might involve other currencies. The need for exchange is my primary motivator, the medium is subject to a beauty contest.
In contrast, taxation is the only factor I've seen that directly drives need. A tax obligation changes the picture so that currency isn't just a medium of exchange but a specific thing I need for its own sake in order to preserve my connection to the thing taxed (land, my head, etc). Taxation gives the state majority control of the judges in the beauty contest.
CIU, I'm not objecting to disagreement. Just to the perspective of MMR, which I think is opposed to the "right to work," and also mistaken in the factual aspects of its objections to the JG as well.
Matt: Perhaps (at least as relates to USD balances) not for the external sector Tom? ie External entities have no USD tax liabilities yet will provision the US govt in exchange for USD balances... evidence of irrational/corrupt/exploitive (take your pick) elites in control of these external entities?
The state imparts value to its currency through its coercive power, i.e., creates an artificial need for citizens and residents of the country as well as foreign companies incurring a tax obligation in the currency. The state establishes the unit of account and also establishes the currency as a claim on resources denominated in the unit of account. The state also established the price base by its own bids and offers. This gives the currency specific purchasing power, with the state in charge as currency monopolist, hence, capable of setting and change parameters.
Once the currency has value and is in common use as a unit of account and medium of exchange, it serves as a claim on resources, financial and actual, that are offered for sale in the currency. It is this claim on resources that gives a currency its purchasing power, which fluctuates with the fx rate and inflation rate.
Anyone who wishes to hold a claim on resources denominated in the currency saves in that currency.
The USD is also the global reserve, i.e., the international currency for settlement of claims. There are secondary reserve currencies like the euro, too.Other countries save in reserve currencies for the purpose of international trade and fx, such as defending their own currency.
But the game with state money gets going with the coercive power of the state wrt liabilities due it in its currency, since it can impose penalties for failure to meet these obligations and enforce these penalties with the force of the state.
A lot of other things are possible once state money is established. including external trade, since claims on resources denominated in the currency are enforced by the sovereign through contract law.
Without the involvement of the state, the money thing would be a lot less workable. For example, states without good legal systems and enforcement find it very difficult to attract foreign investment no matter how attractive the prospects — unless a foreign state can enforce those contracts through projection of power.
Dan K: I think the role of courts and law enforcement systems to enforce and resolve debt obligations and disputes, and to mandate the discharge of debts via the government currency also plays a role
Yes, that is why I say "coercive power of the state." It extends beyond taxation ability to the ability to establish and enforce all laws of the state.
To add to my previous comment on disagreement. I have absolutely no problem with Peter Cooper's disagreements with the MMT JG recommendation, since I think they're pretty cogent objections calling for a good MMT answer, which I haven't seen yet.
So, my point is that critiques of criticisms of the MMR view that take off from the notion that we ought to moderate that criticism because we need to be tolerant or good-humored about honest disagreements are, in my view, off-base. Sure, open-mindedness, civility, and respect are virtues we need to cultivate in debate. But that doesn't mean we ought to moderate our criticism of ill-founded criticisms of MMT, or to view those push-backs as personal in nature. We owe critics of MMT the strongest replies we can muster as long as they don;t include ad hominems, personal insults, or labeling critical positions in pejorative or complimentary ways without explanation. That's real civility; not moderating one's criticism and evaluation.
Agree, Joe. Debate should be polite and also vigorous. Arguments should be cogent and assertions and claims need to be substantiated, either as part of the argument, or else references provided.
We also need to keep in mind that the line between positive-descriptive and normative-prescriptive can be blurry because the same assertion can be both simultaneously. Moreover, many normative statements are framed as descriptive. In addition, the social sciences, of which economics is one, included quality as well as quantity, in that they are included the human spirit in addition to being about behavior.
Human beings come with an inherent set of values, which is amplified by culture and institutions. Human beings are not value-free in their approach to life. Anyone believing themselves to be completely objective are under the spell of self-delusion. For example, everyone prefers and prioritizes. Preference involves values, and values are norms. Prioritizing requires criteria, and criteria function as norms.
The presumption of the dominant approach to economics is that human beings pursue maximum utility, where utility is measurable quantitatively in terms of material acquisition. This ignores the human spirit and skirts the qualitative aspect of human life.
Claiming that this is normative and prescriptive and should be excluded from a social science like economics is itself normative and prescriptive. While values may be subjective, they become objective when it can be shown that they influence behavior.
I would argue, for example, that if MMT economists have successfully shown that a buffer of employed-price anchor is more efficient than alternatives, efficiency being the agreed upon economic criterion, then rejecting this is normative and prescriptive.
I am reminded of a post I read here and it applies perfectly to this situation. Economists have the responsibility to advocate for what is best and not just what is politically feasable.
I am reminded of a post I read here and it applies perfectly to this situation. Economists have the responsibility to advocate for what is best and not just what is politically feasable.
Thanks, Tom.
"MMT will often justify the use of a government job program based on the idea that the government is the money monopolist and simply hasn’t issued enough money for all the people to be employed. They often use an example where there are 10 dogs looking for 10 bones in a yard and the owner has only hidden 9 bones in the yard. Inevitably, one dog will be left without a bone so it’s the responsibility of the government to provide the extra bone. This story misconstrues the reality of a capitalist system though. Involuntary unemployment does not exist because there aren’t enough bones for all the dogs. In an endogenous money system there are plenty of bones in existence. It’s just a simple reality of capitalism that some dogs will decide to hoard more bones than others. Capitalists retain profits and amass as many bones as they want. It’s not some sort of mathematical proof or inherent flaw in the money system. It’s an inherent component of any capitalist system."
~ Cullen Roche
Mix in the premise that people want to maximize free time and why worry? The unemployed have it made!
MMR isn't a school of economic thought. It's an Ayn Rand cartoon character that's stolen some of the MMT understanding of the monetary system.
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