See also
Yellen lists four areas for research, but let’s look more closely at the first two groups of questions that she elevates.
The first is the influence of aggregate demand on aggregate supply. As Yellen notes, the traditional way of thinking about this relationship would be that demand, a short-run phenomenon, has no significant effect of aggregate supply, which determines long-run economic growth.
Demand is based on spending, which depends on income. Supply is based on investment, which is based on profit. and profit is based on sales. Sales constitute demand. The spending to saving ratio is much higher down the income curve.
Less affluent people spend more and save less out of necessity, their necessary expenditure being much higher than discretionary, which little to nothing left for saving. I was just reading that 70% of Americans have less than a #1000 dollar cushion!
Now what was so hard about that? Economists are just figuring this out — after Keynes explained it decades ago and Post Keynesians have elaborated? We are deep doo-doo.
Yellen's second point:
Yellen points to research that increasingly finds so called hysteresis effects in the macroeconomy. Hysteresis, a term borrowed from physics, is the idea that short-run shocks to the economy can alter its long-term trend. One example of hysteresis is workers who lose jobs in recessions and then aren’t drawn back into the labor market bur rather are permanently locked out, therefore increasing the long-run unemployment rate. Interesting new research argues that hysteresis may affect not just the labor supply but also the rate of productivity growth.If that is not a case for a job guarantee, I don't know what is.
Doh.
Yellen poses important post-Great Recession macroeconomic questions
Nick Bunker
If that is not a case for a job guarantee, I don't know what is.
ReplyDeleteTom Hickey
Or a UBI. Or Steven Keen's "A Modern Debt Jubilee". Or equal "stimulus" checks to all citizens. Or ... Or ...
What's needed, Tom, is fiat to be given to the poor so why do you drag in wage slavery?
What's needed, Tom, is fiat to be given to the poor so why do you drag in wage slavery?
ReplyDeleteUntil AI and robotics obviate the need for work, jobs will be part of the economy. As long as jobs are part of the economy is it wasteful (stupid) to permit longterm unemployment when it degrades human resources. It's inefficient economically and cruel socially when people want to contribute based on the capability and expect to be compensated for it.
While I am for increasing the choice between work and leisure based on distributing productivity gains, the UN General Assembly's Universal Declaration of Human Rights (Art. 22-25) affirms the right to employment.
Don't yo support human rights?
As long as jobs are part of the economy is it wasteful (stupid) to permit longterm unemployment when it degrades human resources. Tom Hickey
ReplyDeleteYou mean the wage slaves might get lazy or undisciplined? Besides people can still work without a job and if they can't that's a result of injustice too, e.g. farmers having had their land stolen by the banks.
Moreover, the victims of theft should not have to work for restitution and our money system systematically loots workers and the poor for the benefit of the rich.
And you'll not impress Christians (and there's still quite a few) with make-work. Otoh, justice and restitution for theft are inescapable Biblical themes. As is periodic debt relief. As is periodic land reform.
ReplyDelete"Wage slaves" is an oxymoron ....
ReplyDeleteAndrew, look at Peter's proposals:
ReplyDeletehttp://heteconomist.com/job-or-income-guarantee-jig/
Random,
ReplyDeleteA JIG is an improvement but we also need land reform so the "idle" can have land to work and work on.
So it turns out that government subsides for usury and private debt creation were very ill-advised given the vast numbers of people they would dispossess. But how many MMT advocates are willing to eliminate those?
"Trust fund slave" is an oxymoron.
ReplyDeleteAnd why is it the JG crowd is never concerned about the idle rich? Shouldn't they be put to work too?
ReplyDeleteManaging a trust fund is hard work, Andrew ;)
ReplyDeleteKeynes — "Euthanize the rentiers."
ReplyDelete"Shouldn't they be put to work too?"
ReplyDeleteYou mean the unqualified?
No thanks let them just sluff off is ok by me....
We want qualified people working....
No thanks let them just sluff off is ok by me.... Franko
ReplyDeleteGiven your opposition to banking reform, because you hope to join them?
Here Bob multi-millionaire out there pounding it everyday:
ReplyDeletehttp://www.foxsports.com/tennis/story/caroline-wozniacki-forgot-to-collect-her-1-45-million-u-s-open-check-092314
Doesnt even care what she is making as long as she is doing what she wants to do and has her rations/provisions....
She's a slave... working for rations not working for wages...
One way to euthanize a lot of rentiers is land reform such that every citizen has a home they can't lose to a creditor.
ReplyDeletesimilar to the provisions in Leviticus 25
ReplyDelete"Shouldn't they be put to work too?"
ReplyDeleteYou mean the unqualified?
No thanks let them just sluff off is ok by me....
We want qualified people working....
This ignores a huge problem, people just entering the work force. If there too few jobs at the time, then some people go jobless and may never get hired. They have little recourse but to take up crime, which pays very well btw although the risks are somewhat higher than most entry-level jobs.
Youth unemployment is one of the most serious and festering problems at the bottom end of the social scale. This is where a JG is really needed.
She's a slave... working for rations not working for wages...
ReplyDeleteShe's an athlete. She's driven.
Land and tax free capital gains on it is the no 1 problem (not just banking, that is somewhat incidental.) I have mentioned why I think this many times at MNE.
ReplyDeleteKoukoulas’s article is BS. Basically he just trotts out the old myth that there is merit in high multiplier types of spending because that results in more growth per $ spent. The flaw in that argument is that stimulus dollars cost nothing in real terms.
ReplyDeleteAs Milton Friedman said, "It need cost society essentially nothing in real resources to provide the individual with the current services of an additional dollar in cash balances."
So to illustrate, if there are two ways of getting the economy up to capacity, A & B, and A results in a bigger ultimate GDP, but B involves fewer stimulus dollars, which do you go for? The answer is A, despite A having a relatively low multiplier: the relatively large number of stimulus dollars required to effect A are irrelevant because those dollars cost nothing in real terms.
However, that’s not to criticise lower taxes and/or extra benefits for the poor, which Koukoulas also advocates: but that strictly social point is quite separate from the above strictly economic multiplier point.
I’ve been taking the p*ss out of the multiplier on my blog for years (Google Ralphonomics and “multiplier”). But no one ever listens to me.
Boo hoo.
Ralph,
ReplyDeleteExcellent point about the multiplier.
The more that private spending dominates the economy, the more it becomes true that income equality is conducive to growth.
ReplyDeleteCurrency sovereignty means that, in principle, strong growth can be achieved even if, due to extreme income inequality, the multiplier is small, as Ralph notes above. It just takes a bigger role for government spending, including public investment expenditure.
Part of the opposition we MMTers face from both left and right may be motivated by this.
On the one hand, the left tends to value income equality. (I do.) Net government spending to fuel growth feeds into inequality to the extent that it is not saved by people at the lower end of the income distribution. This is an implication of Kalecki's profit equation. (That is, net government expenditure goes to profit income unless saved out of wages or spent on imports. But in an unequal society, most saving by workers will be at the high end of the pay scale.)
On the other hand, the right may be less concerned about inequality as such but tend to prefer an economy dominated by private spending. Growth and "small government" don't really go together unless there is a strong degree of income equality and hence strong multiplier effects. A bigger multiplier means the same demand gap can be closed with less govt spending ("smaller govt").
Perhaps it is a neoliberal trilemma. :-) We can have two of the following but not all three: extreme inequality, strong growth, small government.
On the other hand, the right may be less concerned about inequality as such but tend to prefer an economy dominated by private spending. peterc
ReplyDeletePrivate spending is a sick joke when we have government privileges for private credit creation - including fiat creation for the private sector by the central bank.
If velocity is high and spending clustered around the population mean, then there can be relative equality, growth, and good government. (What does "small government" mean anyway. For most of those for whom "small government" is an objective, any government other than a night watchmen is "big government.")
ReplyDeleteIn this case the spending-saving ratio strongly favors spending over saving and government doesn't need to contribute much by way of a deficit to make up the sectoral difference.
But government would not necessarily be "small," because this situation can only occur when liquidity preference is low, meaning that people don't need to save much for the future.
This means the money stock can be relatively low if the velocity is high. Then, "money" is just a recored of circular flow and corresponds to economic activity rather than being an economic end in itself as saving.
For this to occur, the world would have to be relatively peaceful, and government would fund R&D, infrastructure and social welfare for public purpose. Then liquidity preference would be low and economic activity at potential, with an impetus for growth with population growth and technological innovation ensuing from a strong human resource base.
(What does "small government" mean anyway. For most of those for whom "small government" is an objective, any government other than a night watchmen is "big government.") Tom Hickey
ReplyDeletePlease note the enormous, broadly-based popularity of Social Security. Does Social Security require big government? No, it doesn't. It requires a little bookkeeping and the authority to create and distribute fiat.
A UBI would likewise be very popular and require little in the way of government.
Jobs? Distribute enough fiat and they'll appear, automation or no, since people LOVE to deal with people. Hence the popularity of restaurants and shopping and even the dentist when we can afford it.
the authority to create and distribute fiat.
ReplyDeleteThat what the Right means by "big government." "Small government" means that all of the unit of account is created by bank lending. Many would even like to do away with the central bank altogether.
That what the Right means by "big government." Tom Hickey
ReplyDeleteMany on the Right are offended by government intrusiveness, not government cash, i.e. how many on the Right sent back their "stimulus checks"?
"Small government" means that all of the unit of account is created by bank lending. Tom Hickey
I doubt many on the Right, except bankers, have any great love for banks.
Many would even like to do away with the central bank altogether.
Certainly the central bank should not create fiat for the private sector but to even have 100% private banks with 100% voluntary depositors REQUIRES that all citizens be allowed accounts at the central bank or equivalent (e.g. A Postal Savings Bank that makes no loans) and that government provided deposit insurance be abolished.
Good points, Tom and Andrew.
ReplyDeleteBy "small govt" I just meant that govt spending would be a small proportion of GDP.
I am suggesting that strong growth is unlikely under small govt, but somewhat more likely under small govt if income inequality is kept in check, because then the propensity to spend will tend to be higher.
A strong public pension system or a UBI (Andrew's example) in themselves do not necessarily imply big or small govt. Nor do they necessarily imply extreme or mild income inequality. It would be technically possible for G to be tiny ("small govt"), but taxes and transfers to be large but mostly canceling each other out (transfers being treated as negative taxes in the national accounts).
I would guess that even with public pensions or UBI, if there is extreme inequality, there will likely be a lot of saving at the high end of the income scale and so strong growth will still require considerable govt spending.
I agree, though, that other factors being equal, a public pension system or UBI are likely to encourage a higher propensity to spend. The institutional framework can definitely be expected to have an impact in this respect (Japan is a case in point).
The problem lies with the institutional structure of capitalism and the incentives it is built around.
ReplyDeleteSee Karl Marx. Capital Volume One, Part II: The Transformation of Money into Capital, Chapter Four: The General Formula for CapitalCapital Volume One, Part II: The Transformation of Money into Capital, Chapter Four: The General Formula for Capital
Capitalism is not based on economic circular flow but rather on the desire to hoard financial assets, which is the basis of saving preference in excess of actual need to provide for planned expenditure and reasonable security.
See also Claudio Sardoni, Keynes and Marx
ReplyDeleteCapitalism is not based on economic circular flow but rather on the desire to hoard financial assets, Tom Hickey
ReplyDeleteThis is one reason to impose negative rates at the central bank on account balances beyond legitimate liquidity needs; to punish risk-free hoarding.
Another is to make negative to 0% yeilding sovereign debt attractive by comparison since sovereign debt should not yield more than 0% lest we have welfare proportional to wealth, not need.
"I doubt many on the Right, except bankers, have any great love for banks."
ReplyDeleteThey love to cash in via remortgages tax free capital gains based on private debt.
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ReplyDeleteAndrew, I just noticed a couple of your earlier comments, regarding land reform, private credit, JG advocates not demanding the idle rich to work.
ReplyDeleteFWIW, I am probably not the average MMTer, but personally I would be in favor of free housing (and a rural plot of land, if desired) for all, and an end to private credit.
I also think that either everybody or nobody (of working age) should be compelled to take a job. In other words, if a basic income of some form is off the table, then I think a minimum labor time requirement should be imposed on all members of the working-age population.
The following brief (and admittedly somewhat lighthearted) proposal doesn't meet all your demands, but it was suggested as a first "modest" step toward utopia ...
http://heteconomist.com/proposal-for-an-interim-society-prior-to-utopia/
and an end to private credit. peterc
ReplyDeleteI wouldn't go that far. Instead, let 100% private banks with 100% voluntary depositors create all the liabilities (deposits) they dare and be zealously foreclosed on when they fail to meet one - much as the banks have treated their own borrowers. Who can legitimately object to this?
Plus eliminating government-provided deposit insurance should require the distribution of huge amounts of new fiat equally to all citizens - to provide the new reserves needed for the transfer of at least some currently insured deposits to inherently risk-free accounts at the central bank itself or equivalent (e.g. a Postal Savings Service that was forbidden to lend lest it become part of the problem). So true bank reform would eliminate a lot of private debt in the process without disadvantaging non-debtors since they would receive equal amounts of the new fiat (similar to Steve Keen's "A Modern Jubilee").