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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Monday, June 1, 2015
Geoff Coventry — You know you understand modern money when...
- the private economy is too productive to provide everybody with a job and an income on its own. - those people left behind by that are either an unemployed buffer, or an employed buffer depending upon policy. - those outside the buffer want to see those in the buffer doing something useful except where exempted by reason of age or infirmity. - the exact parameters of that particular Gordian knot are determined by a society's social norms, not economic factors and can change rapidly.
Only when you get what Full Employment really means do you get MMT.
When are Randy and the rest of the MMT crew going to do what the Austrians do in order to get the message out? Come on guys, record your full length MMT courses and put them on the internet!
You claim that “the private economy is too productive to provide everybody with a job and an income on its own.” We’ve experienced a HUGE RISE in the proportion of GDP allocated to the public sector over the last century. But unemployment hasn’t declined in proportion. Thus I suspect it’s not just the private sector which is doing something wrong: it’s the public sector as well.
I’m also puzzled as to why “productiveness” should hinder job creation. Of course there’s the old Luddite argument that machines destroy jobs, but a load of nonsense, I think.
Of course there’s the old Luddite argument that machines destroy jobs, but a load of nonsense, I think
Machines, technological progress and higher productivity destroy jobs. That's a fact.
The question is whether those jobs are replaced or not. The private sector is proving inadequate at providing new and better jobs according to those productivity gains and the new no-inflation normal.
Is also arguably that we could do perfectly fine without many of the jobs (aka 'bullshit jobs') created during the last decades and century. Many of them created by public AND private bureaucracy/politics to avoid fixing the problem of redistribution of income and wealth.
Unemployment hasn't declined sufficiently in numerical terms - except when councils were permitted to hire people who couldn't really get employment elsewhere, as was the case after the 2nd world war up to the 1970s.
The public sector will continue to expand as the private economy becomes more productive. And unless it does the private sector will come up with more and more 'non-jobs' that are a waste of human resources. Most of the finance industry for example. The smart brains coming up with new ways to move numbers around computers faster would be far more usefully employed in Universities finding new protein sequencing algorithms or better uses for Graphene, etc.
The problem with the standard public sector is that it has to come up with job roles (Nurse, Doctor, Fireman) and then fit people to those roles. That is the same hiring process as the private sector. What needs to happen is the opposite - take people as they are and create something for them to do to fit the particular individual (and society's expectations of what an individual has to do). Which of course is the Job Guarantee approach.
You only need a small dynamic section of the public sector to operate in that stop start, fit a job role around an individual manner to close the persistent job gap - what Warren calls a 'transition job'.
That turns the unemployed buffer into an employed buffer through which you can channel greater demand.
"I’m also puzzled as to why “productiveness” should hinder job creation."
Machines don't buy output. Only people buy output. But they can't buy output if they don't have a job and an income. At which point there is no point running the machines. It's the classic 'Paradox of Productivity' - which is essentially a signalling failure. Dynamically the system drops into a state where the machines are never run at full output and not everybody is fully engaged.
Economic growth and productivity improvement are two sides of the same coin. Chicken and egg argument over which comes first and examples of both can always be produced. Policy that rewards people for putting people and resources to work to produce goods is "good" policy that drives growth and productivity. Policy that rewards people for doing nothing, not using resources or worse hurting people, destroying production and natural resources is bad policy.
MMT is right on the money, because the entire purpose of the prescriptive portion of MMT is to demonstrate that it can balance the problem of employment, productivity/growth, and inflation within the current monetary, government and private framework as it exists today.
MMT is right on the money, because the entire purpose of the prescriptive portion of MMT is to demonstrate that it can balance the problem of employment, productivity/growth, and inflation within the current monetary, government and private framework as it exists today.
I would emphasize "as it exists today."
That an advantage, in that it is doable without doing too much more than tinkering. Most of what is added in knowledge of how the existing system actually works and taking advantage of it.
It's also a disadvantage in that the existing system is basically bonkers with respect to distribution. Utility and preference do not distinguish wants from needs, so efficient distribution based on "just deserts" under the assumptions of marginalism results in a society in which a very few (0.01%) are belt satisfy every whim, a few (1%) are able to satisfy all wants and needs but not every whim, some more are able to satisfy most wants and all needs (top 20%), some more are able to satisfy a few wants and all needs ("middle class"), and some that are only able to satisfy day to day needs but cannot save (poor) and some that cannot meet day to day needs (destitute).
That is a distributional system that is neither effective nor efficient in allocating scarce resources, in the sense that everyone can't have everything they might like so distraction of production for consumption and investment/saving is required. Moreover, it is based on false premises such a "just deserts" in an economy dominated by artificially imposed asymmetries, for example, of power and rents, that are built into the assumptions.
MMT as an operational description and macro theory doesn't challenge this existing system, although some proponents of MMT and allies do. Others think that MMT should be policy neutral and not take sides in economic arguments that are heavily social and political rather than simply operational. Some even want to drop the MMT JG although it is a feature of the macro theory that makes growth (production and productivity), actual full employment (less transitional) and stability of price level possible — and is the only such theory in the existing system.
Re your 3rd para, starting “The public sector….”, you claim that as the private sector becomes more productive, it will have to increase the number of “non-jobs”: jobs producing useless stuff. I don’t see why.
Economies produce “stuff”. If output per head rises 20%, and assuming to keep things simple that demand for different types of stuff all rise by 20% in real terms, that means that all those currently producing stuff stay in their jobs and everyone can afford 20% more stuff (whether that’s houses, cars, clothes or whatever).
Plus there were plenty of jobs that were arguably non-jobs two hundred years ago: fighting useless wars, producing stately homes and lavish clothes for the rich which they hardly ever used.
I see that the title is no longer available there. Here it is at google books.
Here is the description:
One of the most important philosophy titles published in the twentieth century, Josef Pieper's Leisure, the Basis of Culture is more significant, even more crucial, today than it was when it first appeared more than fifty years ago. This edition also includes his work The Philosophical Act. Leisure is an attitude of the mind and a condition of the soul that fosters a capacity to perceive the reality of the world. Pieper shows that the Greeks and medieval Europeans, understood the great value and importance of leisure. He also points out that religion can be born only in leisure -- a leisure that allows time for the contemplation of the nature of God. Leisure has been, and always will be, the first foundation of any culture. Pieper maintains that our bourgeois world of total labor has vanquished leisure, and issues a startling warning: Unless we regain the art of silence and insight, the ability for non-activity, unless we substitute true leisure for our hectic amusements, we will destroy our culture -- and ourselves.
I would substitute "spirituality" for "religion" since that is closer to what Pieper means. Culturing spirituality individually is the foundation for expanding the collective level of consciousness socially. The Eastern and Western traditions are largely in agreement on this.
The Luddites weren't opposed to machines and technology. They were very much for machines and technology. The issue was who controlled the machines and technology, the workers or the bosses? The results would be different if machines and technology were made to serve workers and by extension society, but very different if made to serve capitalists and profit.
You can argue how sound the argument is, but not by smearing the Luddites as the early nineteenth century economic equivalent of the Khmer Rouge.
This is a good point, John. In a world of worker coops, productivity gains that reduced the need for work would be shared through higher pay and greater leisure, which is the way it is supposed to work in a tribal framework. Ancient tribes also had chiefs and elders who provided direction and organization but they didn't collect rents for doing so. In fact, the heroes were not the great acquisitors but rather the great distributors at potluck gatherings.
Then perhaps time to open your eyes. The market forces are not creating a happier people because they are not that magic. They are just creating people that have travel miles to work double shifts doing things they hate doing whose outcomes are socially pointless.
GDP has become a treadmill on which lives are wasted doing boring stuff while the interesting stuff either doesn't get done or is unavailable for general use.
There is no more benefit to a finance sector that moves numbers around computers faster than there is to creating stuff by polluting rivers or sending children up chimneys. It is pointless activity that doesn't help anybody - particularly when there is a clear alternative.
But because the state will not intervene to change the output direction we need that pointless activity to create the necessary monetary velocity. Yet if we regulate that out of existence along with excessive lending by banks then you create huge space for discovery - simply by reorientating thing towards needs rather than wants.
Marginalism is false leading to concentrated private ownership and an elite class. It's becoming a society very similar to ancient Rome - a small number living in obscene wealth while the majority toil below with no hope of change.
Beautiful!
ReplyDelete- the private economy is too productive to provide everybody with a job and an income on its own.
ReplyDelete- those people left behind by that are either an unemployed buffer, or an employed buffer depending upon policy.
- those outside the buffer want to see those in the buffer doing something useful except where exempted by reason of age or infirmity.
- the exact parameters of that particular Gordian knot are determined by a society's social norms, not economic factors and can change rapidly.
Only when you get what Full Employment really means do you get MMT.
For more detail and background on modern money, Randall Wray has been presenting a course of lectures:
ReplyDeletehttps://www.youtube.com/watch?v=zdvp5aEW_Z0&list=TLfBFIs77dEoU
When are Randy and the rest of the MMT crew going to do what the Austrians do in order to get the message out? Come on guys, record your full length MMT courses and put them on the internet!
Neil,
ReplyDeleteYou claim that “the private economy is too productive to provide everybody with a job and an income on its own.” We’ve experienced a HUGE RISE in the proportion of GDP allocated to the public sector over the last century. But unemployment hasn’t declined in proportion. Thus I suspect it’s not just the private sector which is doing something wrong: it’s the public sector as well.
I’m also puzzled as to why “productiveness” should hinder job creation. Of course there’s the old Luddite argument that machines destroy jobs, but a load of nonsense, I think.
Of course there’s the old Luddite argument that machines destroy jobs, but a load of nonsense, I think
ReplyDeleteMachines, technological progress and higher productivity destroy jobs. That's a fact.
The question is whether those jobs are replaced or not. The private sector is proving inadequate at providing new and better jobs according to those productivity gains and the new no-inflation normal.
Is also arguably that we could do perfectly fine without many of the jobs (aka 'bullshit jobs') created during the last decades and century. Many of them created by public AND private bureaucracy/politics to avoid fixing the problem of redistribution of income and wealth.
"But unemployment hasn’t declined in proportion"
ReplyDeleteUnemployment hasn't declined sufficiently in numerical terms - except when councils were permitted to hire people who couldn't really get employment elsewhere, as was the case after the 2nd world war up to the 1970s.
The public sector will continue to expand as the private economy becomes more productive. And unless it does the private sector will come up with more and more 'non-jobs' that are a waste of human resources. Most of the finance industry for example. The smart brains coming up with new ways to move numbers around computers faster would be far more usefully employed in Universities finding new protein sequencing algorithms or better uses for Graphene, etc.
The problem with the standard public sector is that it has to come up with job roles (Nurse, Doctor, Fireman) and then fit people to those roles. That is the same hiring process as the private sector. What needs to happen is the opposite - take people as they are and create something for them to do to fit the particular individual (and society's expectations of what an individual has to do). Which of course is the Job Guarantee approach.
You only need a small dynamic section of the public sector to operate in that stop start, fit a job role around an individual manner to close the persistent job gap - what Warren calls a 'transition job'.
That turns the unemployed buffer into an employed buffer through which you can channel greater demand.
"I’m also puzzled as to why “productiveness” should hinder job creation."
Machines don't buy output. Only people buy output. But they can't buy output if they don't have a job and an income. At which point there is no point running the machines. It's the classic 'Paradox of Productivity' - which is essentially a signalling failure. Dynamically the system drops into a state where the machines are never run at full output and not everybody is fully engaged.
Economic growth and productivity improvement are two sides of the same coin. Chicken and egg argument over which comes first and examples of both can always be produced. Policy that rewards people for putting people and resources to work to produce goods is "good" policy that drives growth and productivity. Policy that rewards people for doing nothing, not using resources or worse hurting people, destroying production and natural resources is bad policy.
ReplyDeleteMMT is right on the money, because the entire purpose of the prescriptive portion of MMT is to demonstrate that it can balance the problem of employment, productivity/growth, and inflation within the current monetary, government and private framework as it exists today.
MMT is right on the money, because the entire purpose of the prescriptive portion of MMT is to demonstrate that it can balance the problem of employment, productivity/growth, and inflation within the current monetary, government and private framework as it exists today.
ReplyDeleteI would emphasize "as it exists today."
That an advantage, in that it is doable without doing too much more than tinkering. Most of what is added in knowledge of how the existing system actually works and taking advantage of it.
It's also a disadvantage in that the existing system is basically bonkers with respect to distribution. Utility and preference do not distinguish wants from needs, so efficient distribution based on "just deserts" under the assumptions of marginalism results in a society in which a very few (0.01%) are belt satisfy every whim, a few (1%) are able to satisfy all wants and needs but not every whim, some more are able to satisfy most wants and all needs (top 20%), some more are able to satisfy a few wants and all needs ("middle class"), and some that are only able to satisfy day to day needs but cannot save (poor) and some that cannot meet day to day needs (destitute).
That is a distributional system that is neither effective nor efficient in allocating scarce resources, in the sense that everyone can't have everything they might like so distraction of production for consumption and investment/saving is required. Moreover, it is based on false premises such a "just deserts" in an economy dominated by artificially imposed asymmetries, for example, of power and rents, that are built into the assumptions.
MMT as an operational description and macro theory doesn't challenge this existing system, although some proponents of MMT and allies do. Others think that MMT should be policy neutral and not take sides in economic arguments that are heavily social and political rather than simply operational. Some even want to drop the MMT JG although it is a feature of the macro theory that makes growth (production and productivity), actual full employment (less transitional) and stability of price level possible — and is the only such theory in the existing system.
Neil,
ReplyDeleteRe your 3rd para, starting “The public sector….”, you claim that as the private sector becomes more productive, it will have to increase the number of “non-jobs”: jobs producing useless stuff. I don’t see why.
Economies produce “stuff”. If output per head rises 20%, and assuming to keep things simple that demand for different types of stuff all rise by 20% in real terms, that means that all those currently producing stuff stay in their jobs and everyone can afford 20% more stuff (whether that’s houses, cars, clothes or whatever).
Plus there were plenty of jobs that were arguably non-jobs two hundred years ago: fighting useless wars, producing stately homes and lavish clothes for the rich which they hardly ever used.
I would argue that the primary purpose of innovation and productivity increase socially is the expansion of leisure as the basis of culture.
ReplyDeleteJosef Pieper, Leisure The Basis Of Culture at Internet Archive
I see that the title is no longer available there. Here it is at google books.
ReplyDeleteHere is the description:
One of the most important philosophy titles published in the twentieth century, Josef Pieper's Leisure, the Basis of Culture is more significant, even more crucial, today than it was when it first appeared more than fifty years ago. This edition also includes his work The Philosophical Act. Leisure is an attitude of the mind and a condition of the soul that fosters a capacity to perceive the reality of the world. Pieper shows that the Greeks and medieval Europeans, understood the great value and importance of leisure. He also points out that religion can be born only in leisure -- a leisure that allows time for the contemplation of the nature of God. Leisure has been, and always will be, the first foundation of any culture. Pieper maintains that our bourgeois world of total labor has vanquished leisure, and issues a startling warning: Unless we regain the art of silence and insight, the ability for non-activity, unless we substitute true leisure for our hectic amusements, we will destroy our culture -- and ourselves.
I would substitute "spirituality" for "religion" since that is closer to what Pieper means. Culturing spirituality individually is the foundation for expanding the collective level of consciousness socially. The Eastern and Western traditions are largely in agreement on this.
This comment has been removed by the author.
ReplyDeleteLuddism getting a bad rap again.
ReplyDeleteThe Luddites weren't opposed to machines and technology. They were very much for machines and technology. The issue was who controlled the machines and technology, the workers or the bosses? The results would be different if machines and technology were made to serve workers and by extension society, but very different if made to serve capitalists and profit.
You can argue how sound the argument is, but not by smearing the Luddites as the early nineteenth century economic equivalent of the Khmer Rouge.
This is a good point, John. In a world of worker coops, productivity gains that reduced the need for work would be shared through higher pay and greater leisure, which is the way it is supposed to work in a tribal framework. Ancient tribes also had chiefs and elders who provided direction and organization but they didn't collect rents for doing so. In fact, the heroes were not the great acquisitors but rather the great distributors at potluck gatherings.
ReplyDelete"I don’t see why."
ReplyDeleteThen perhaps time to open your eyes. The market forces are not creating a happier people because they are not that magic. They are just creating people that have travel miles to work double shifts doing things they hate doing whose outcomes are socially pointless.
GDP has become a treadmill on which lives are wasted doing boring stuff while the interesting stuff either doesn't get done or is unavailable for general use.
There is no more benefit to a finance sector that moves numbers around computers faster than there is to creating stuff by polluting rivers or sending children up chimneys. It is pointless activity that doesn't help anybody - particularly when there is a clear alternative.
But because the state will not intervene to change the output direction we need that pointless activity to create the necessary monetary velocity. Yet if we regulate that out of existence along with excessive lending by banks then you create huge space for discovery - simply by reorientating thing towards needs rather than wants.
Marginalism is false leading to concentrated private ownership and an elite class. It's becoming a society very similar to ancient Rome - a small number living in obscene wealth while the majority toil below with no hope of change.