The recent internet debates about Modern Monetary Theory (MMT) have been interesting, but the various critics of MMT have largely missed the elephant in the room: automatic fiscal stabilisers. In my view (which may not reflect the official "MMT Party Line"), one of the keys strengths of MMT is that it is largely built around the importance of automatic stabilisers, and institutional details. The conventional view is to acknowledge the existence of automatic stabilisers, but otherwise pretend that they have no effect on the economy….Bond Economics
MMT And Automatic Stabilizers
Brian Romanchuk
9 comments:
"The conventional view is to acknowledge the existence of automatic stabilisers, but otherwise pretend that they have no effect on the economy…."
I've noticed he word "pretend" often plays a key role in economic theories.
The automatic stabilizers are largely thru transfer payments which are not included in the System of National Accounts or National Income Accounting...
So it is not going to be present in the analysis... no transfer payments:
"It's possible to express the income approach formula to GDP as follows: Total National Income + Sales Taxes + Depreciation + Net Foreign Factor Income. Total national income is equal to the sum of all wages plus rents plus interest and profits."
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So when you have to work with the standard methodology for National Accounting, youre not going to be able to include the automatic stabilizers... or at least the transfer payment component which is substantial...
this is why the Saez-Picketty stuff has to leave out transfer payments and the "inequality!" looks worse to them.... transfer payments are not typically accounted for in the NIA approach...
Meanwhile McDonalds and WalMart are busy trying to get the SNAP ebt cards acceptable for use in purchase of certain of their prepared foods... theyre not stupid...
Romanchuk states -
"Let us assume that all workers are paid a uniform wage, whether they are working for the private sector, or enrolled in the Job Guarantee. (Employers would need to compete on the basis of the attractiveness of the work environment, or non-wage benefits.) In this situation, if a worker lost a private sector job, it would be replaced by a Job Guarantee job with equivalent pay. There would be no need to worry about the household's capacity to meet debt obligations, etc."
An overheated economy comes part-and-parcel with increasing debt obligations, and increasing wage demands to meet those growing debt obligations. A JG trying to stay in lock step with private sector wage increases would seem to put the inflationary spiral on steroids. How would the inflationary constraint be operationalized? Congressional critters are going to impose wage controls in the middle of high inflation? See Presidents Ford and Carter second terms.
MMT's JG as a cure-all only works if one ignores the political pain/unlikelihood of operationalizing the inflationary constraint.
Should point out that there are two aspect of automatic stabilization, transfers and taxes.
While Medicare and SS are the largest transfers and don't vary with the cycle, unemployment and Medicaid are also large and vary with the cycle.
Tax revenue increases in expansions and decreases in contractions. There could also be a variable tax rate that augments this effect to add to automatic stabilization.
MMT's JG as a cure-all only works if one ignores the political pain/unlikelihood of operationalizing the inflationary constraint.
This is a political issue rather than an economic one.
This basically comes down to a view that representative government really doesn't work very well.
Some advocate that representative government should therefore be replaced with a technocracy.
Others advocate that it be hobbled from doing anything much.
Yet others argue that government should be limited to being a night watchman.
The extreme positions are government be eliminated entirely, on on e hand, and some form of "rule of the best." on the other.
Others hold that democracy can be made to work if certain conditions are met. From the perspective dealing with the inflation constraint is not that big a deal, and if the real issues are dealt with successfully, there there would no little problem leading with the inflation constraint intelligently.
The fact is that representative government doesn't work now owing to legalized corruption, and the solution is not getting ride of government but rather getting rid of the corruption.
Tom it would only become a technocracy if the only people elected to Congress were technical people instead of the current lawyers...
it would only become a technocracy if the only people elected to Congress were technical people instead of the current lawyers...
Seems that virtually no tech people run for office in the US.
1 physicist, 1 microbiologist, and 1 chemist, all in the House, 8 engineers (7 in the House and 1 in the Senate), and 6 software company executives in the House and two in the Senate in the present Congress. That's it.
167 with law degrees.
http://www.dailynewsgems.com/2017/02/115th-congress-by-the-numbers.html
Tech people don't see interested in running for office. So there won't be an elected technocracy. The only viable way for technocrats have a strong hand in ruling the US, is for the president to appoint only tech people to key positions.
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