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.
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Wednesday, July 17, 2013
Warren Mosler — Soft Currency Economics 20th Anniversary Presentation – The Final Analysis
I agree with Tyler. One guy with $10 billion dollars will save more and spend less than 100,000 people $100,000 each. If wealth is too unevenly distributed, there can be massive unemployment, even if the tax bill is entirely paid, and if there is zero desire to add to existing savings.
If at full capacity/full employment economy the tax bill is entirely paid and saving desire of nongovernment sector materialized, then economy will continue at full employment.
James Galbraith: "[I]nequality produces unemployment, and unemployment produces waste: people who are not working do not contribute to the production from which ultimately everyone consumes.”
Warren writes, "Unemployment is the evidence that govt. hasn't spent enough to cover the tax bill and residual desires to net save financial assets."
I think there are times when unemployment is evidence that wealth inequality has become excessive.
Austerity is a neoliberal policy aimed at reducing wages which are otherwise "downwardly rigid due to government intrusion in the labor market." It is a deliberate policy to remove government support so wages will fall, in the mistaken idea that lower costs will spur greater investment and return the economy to equilibrium with increased capital formation at a lower wage level, making it more "competitive."
This is a bogus argument and needs to be shown as such. Otherwise, government injections to offset savings will just go to capital and the problems will continue owing to continued downward wage pressure.
Unemployment is the symptom. Neoliberalism is the cause, with power being the tool.
Suppose that wealth shifts toward the capital-owning class (which is the sole decision-making class in a private economy) over time in such a way that that class is able to fully satisfy their own personal desires for consumption and financial savings. Then at that point further employment of capital and expansion of the economy will stop. I see no reason to think that there is any natural connection between that full satisfaction point for the capital class and the full employment of the population.
Matt, you are assuming that the rate at which capital employs and compensates available labor is independent of the way in which capital is distributed in the society. But I have no reason to see why that would be true.
I think everything is keying off of the govt spending right now.... ie "capitalism" may be dead if it ever existed... it may have existed when Marx wrote about it I suppose...
Warren is looking for the credit channel to kick in, it seems this is not forthcoming, yet we see decent increases in earnings, stock market making new highs, some job creation (not enough yes!), etc...
So some other paradigm is operative right now... what is it? imo it is not "capitalism"...
It looks a bit like your "public enterprise" actually in ways to me, but of course not enough right now... but the system is there and operating at some level...
If I break down the SP500 right now:
They are earning about 1T/yr which about maybe 100B is from FIRE so they are not the major players (they really did themselves in via the GFC)...
about half of this is paid out in dividends to the public shareholders, 350B is spent on CAPEX and they "save" about 150B right now.... (rough numbers) and some of this is from foreign operations so it is USD equivalent...
They make these earnings (in US) from the leading Fed govt spending flows about 4.2T/year in US this year (cash basis) which is comprised of about 1.2T of "G" (purchases of final goods and services) and the other 3T is i guess technically xfer payments...
Looks like GDP (16T) is running at about 4x govt spending of about 4T.... the banks are not contributing because you can see bank credit is not really increasing in this environment (maybe 200B YoY on a 20B increase in YoY govt spending so 10x)...
So we are running solely on govt spending right now and have been for a few years looks like...
If the banks start to get involved that may cause an uptick in activity short term, but then they will ultimately crash and burn as they usually get carried away and system liabilities outstrip the increase in govt spending required to service the new liabilities... they have to get a handle on this if they ever want to be successful again as an industry...
no more "dancing while the music is playing" they need better people in their industry who can figure this dynamic out and perhaps self-regulate, but I dont give this much chance... they are too greedy, corrupt, etc...
Warren was saying "buy SPs and go play golf for 3 years" but that was assuming the banks would get credit going... this is not happening.
Its not happening because the govt is not increasing total spending YoY as Mike showed in a graph here a week ago...
Bank lending cannot lead govt spending increases, imo its the other way around.
"govt spends first and then...." so until they get past the sequester and we start to see some substantial YoY increases in total govt spending of 100B to 200B per year as depicted in the President's budget here (page 189):
Its not happening because the govt is not increasing total spending YoY
No need to increase G.
A deep cut in T will do the trick just the same - with the advantage that right-wing crazies will not be able to cry that the government is getting bigger.
It isn't - yet spending power will be boosted and the jobs will therefore be created.
That might depend on the situation. In some cases an increase in spending might have a larger effect than a cut in taxes. In other cases its possible that it might not..
Is there a video?
ReplyDeleteNot yet. Event is July 18th.
ReplyDeleteWarren writes, "Unemployment is the evidence that govt. hasn't spent enough to cover the tax bill and residual desires to net save financial assets."
ReplyDeleteI think there are times when unemployment is evidence that wealth inequality has become excessive.
I agree with Tyler. One guy with $10 billion dollars will save more and spend less than 100,000 people $100,000 each. If wealth is too unevenly distributed, there can be massive unemployment, even if the tax bill is entirely paid, and if there is zero desire to add to existing savings.
ReplyDelete@ Dan Kervick
ReplyDeleteIf at full capacity/full employment economy the tax bill is entirely paid and saving desire of nongovernment sector materialized, then economy will continue at full employment.
James Galbraith: "[I]nequality produces unemployment, and unemployment produces waste: people who are not working do not contribute to the production from which ultimately everyone consumes.”
ReplyDeleteWarren writes, "Unemployment is the evidence that govt. hasn't spent enough to cover the tax bill and residual desires to net save financial assets."
ReplyDeleteI think there are times when unemployment is evidence that wealth inequality has become excessive.
Austerity is a neoliberal policy aimed at reducing wages which are otherwise "downwardly rigid due to government intrusion in the labor market." It is a deliberate policy to remove government support so wages will fall, in the mistaken idea that lower costs will spur greater investment and return the economy to equilibrium with increased capital formation at a lower wage level, making it more "competitive."
This is a bogus argument and needs to be shown as such. Otherwise, government injections to offset savings will just go to capital and the problems will continue owing to continued downward wage pressure.
Unemployment is the symptom. Neoliberalism is the cause, with power being the tool.
Tyler,
ReplyDelete"James Galbraith: "[I]nequality produces unemployment,"
This is absurd.
Inequality is the product of unemployment... unemployment is caused by people not being employed by employers (including the public sector)...
You cut certain people off from their means of subsistence and youre going to see a lot of "inequality" in that cohort...
rsp,
This comment has been removed by the author.
ReplyDeleteRyan,
ReplyDeleteI'm not sure why I should think that is true.
Suppose that wealth shifts toward the capital-owning class (which is the sole decision-making class in a private economy) over time in such a way that that class is able to fully satisfy their own personal desires for consumption and financial savings. Then at that point further employment of capital and expansion of the economy will stop. I see no reason to think that there is any natural connection between that full satisfaction point for the capital class and the full employment of the population.
Matt, you are assuming that the rate at which capital employs and compensates available labor is independent of the way in which capital is distributed in the society. But I have no reason to see why that would be true.
ReplyDeleteDan,
ReplyDeleteI think everything is keying off of the govt spending right now.... ie "capitalism" may be dead if it ever existed... it may have existed when Marx wrote about it I suppose...
Warren is looking for the credit channel to kick in, it seems this is not forthcoming, yet we see decent increases in earnings, stock market making new highs, some job creation (not enough yes!), etc...
So some other paradigm is operative right now... what is it? imo it is not "capitalism"...
It looks a bit like your "public enterprise" actually in ways to me, but of course not enough right now... but the system is there and operating at some level...
If I break down the SP500 right now:
They are earning about 1T/yr which about maybe 100B is from FIRE so they are not the major players (they really did themselves in via the GFC)...
about half of this is paid out in dividends to the public shareholders, 350B is spent on CAPEX and they "save" about 150B right now.... (rough numbers) and some of this is from foreign operations so it is USD equivalent...
They make these earnings (in US) from the leading Fed govt spending flows about 4.2T/year in US this year (cash basis) which is comprised of about 1.2T of "G" (purchases of final goods and services) and the other 3T is i guess technically xfer payments...
Looks like GDP (16T) is running at about 4x govt spending of about 4T.... the banks are not contributing because you can see bank credit is not really increasing in this environment (maybe 200B YoY on a 20B increase in YoY govt spending so 10x)...
So we are running solely on govt spending right now and have been for a few years looks like...
If the banks start to get involved that may cause an uptick in activity short term, but then they will ultimately crash and burn as they usually get carried away and system liabilities outstrip the increase in govt spending required to service the new liabilities... they have to get a handle on this if they ever want to be successful again as an industry...
no more "dancing while the music is playing" they need better people in their industry who can figure this dynamic out and perhaps self-regulate, but I dont give this much chance... they are too greedy, corrupt, etc...
Warren was saying "buy SPs and go play golf for 3 years" but that was assuming the banks would get credit going... this is not happening.
Its not happening because the govt is not increasing total spending YoY as Mike showed in a graph here a week ago...
Bank lending cannot lead govt spending increases, imo its the other way around.
"govt spends first and then...." so until they get past the sequester and we start to see some substantial YoY increases in total govt spending of 100B to 200B per year as depicted in the President's budget here (page 189):
http://www.whitehouse.gov/sites/default/files/omb/budget/fy2014/assets/tables.pdf
we're in this "muddle thru" situation and it sucks...
rsp,
Matt, looks like material for a post to me.
ReplyDeleteIts not happening because the govt is not increasing total spending YoY
ReplyDeleteNo need to increase G.
A deep cut in T will do the trick just the same - with the advantage that right-wing crazies will not be able to cry that the government is getting bigger.
It isn't - yet spending power will be boosted and the jobs will therefore be created.
"A deep cut in T will do the trick just the same"
ReplyDeleteThat might depend on the situation. In some cases an increase in spending might have a larger effect than a cut in taxes. In other cases its possible that it might not..