The debate over the MMT JG is joined.
Thomas Palley — Economics for Democratic and Open Societies
Job Guarantee Programs: Careful What You Wish For
Thomas Palley | Schwartz Economic Growth Fellow at the New America Foundation
Also
FMM Working Paper
Government Spending and the Income-Expenditure Model: The Multiplier, Spending Composition, and Job Guarantee Programs
Thomas Palley
July 2018
7 comments:
To the extent that things truly are data-based, they are just repeating and verifying an old theory, not coming up with a "new" one.
Not exactly as I understand it.
Theorizing (speculation) begins with a "problem" or "puzzle" (Greek aporia ) according to Aristotle. In natural science (Gk physis , also transliterated phusis, meaning nature) the puzzle arises from data (observations) that call for explanation. According to Aristotle, explanation that yields knowledge (episteme) is causal (Gk. aitia ). Metaphysic (meta ta phusika) deals not with observations but with what comes before explaining natural phenomena rigorously, that is, the nature of causal methodology. Clearly, the first item of attention is investigating the the nature of causality.
So there are three steps logically.
The first is data-driven. Observation suggests matters that stand in need of explanation. The basic issue here is why is there apparent order in the observation rather than randomness. Nature is characterized by phenomena that exhibit regular patters. Why is the this (call for reasons) and how does it work (call for causes). This drives speculation and successful speculation result in knowledge rather than mere opinion or storytelling.
Even in the natural sciences, advances comes from noticing that the data suggest issues that stand in need of further explaining. It was these anomalies that led to the discovery of QM and relativity. Classical physics work fine at with the scope delimited by the scale of ordinary observation. But observation suggested that there were anomalies at the upper and lower bounds of the classical scale. This suggested that the scope of classical physics was limited and new approaches were needed to approach the emergent puzzles at the quantum and cosmological scales.
There is as yet no unified explanation that brings all three within the scope of a single "unified field theory" that is so compelling as to compel agreement.
Similarly, there is no unified theory that brings physical science, biological science, psychological science, and social science under one overarching framework in which competing theories can be contested.
One could compare the issues between the natural science and human sciences in terms of the three body problem aka the problem of two fixed centers in physics. While a solution has been found in physics, it has not in human sciences, where the two fixed centers in physics may be likened to the physical aspects of the data and the human factors involved in acting in relation to the physical. The result is a level of non-ergodicity, complexity, and uncertainty not encountered in physical science. This greatly complicates causal explanation in economics, for example, which is a reason that stochastic method predominates over deterministic.
This is Palley's first macroeconomic "concern":
An economy with a deteriorated AD generation process, marked by a reduced wage share and increased inequality, will be prone to higher unemployment that raises the program’s cost.
Yes, it would increase the "cost" of the JPG. That's a good thing. What would Palley have instead? Unemployment and inequality and falling wage share?
Let me repeat it: that was Palley's first "concern", for Christ's sake.
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Frankly, I'm no economist --much less a Keynesian one-- but I really don't understand Keynesian economists.
"An economy with deteriorated AD generation process" is a convoluted way of saying the economy is either in recession or very near it. Palley understands that. The evidence is that he adds: it "will be prone to higher unemployment".
In those circumstances Keynesian economists --like Palley, btw-- often recommend --surprise, surprise!-- fiscal deficit spending!
Why on earth an automatic increase in fiscal spending would be a "concern" is beyond me.
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Maybe I'm being unfair, but I get the distinct feeling that people want to have their cake and eat it too. At any event, after learning about Palley's first "concern" I lost interest in the remaining "concerns". tl;dr
He writes "but subsequent market reactions to budget excess will impose costs and may make the policies unsustainable". No further discussion. I suppose he means bond markets? I thought he was at least PK. Crazy if he believes "bonds" matter
Humans play games.
Nature doesn't change fundamental behaviour in response to what other humans do.
Say we have a competitive market and I manufacture coffee mugs. You, my competitor have better machinery and more talented artists designing coffee mugs. You sell more mugs than me at a lower price because you are more productive.
I however live in a city known for "disruption" and I have lots of capital backing me. Without a JG, I might try and steal your employees and buy better machinery to get ahead. With a JG, I'd lower my price to lose money, put you out of business, demoralize your employees get them on a JG where they have a predictable, reliable, stable income so they won't compete, then raise my prices. I'd support candidates that promote strengthening JG benefits and salaries to help ensure my competitors stay put. It's a better strategy than the rat race of trying to outperform you which is impossible in the long run.
Ryan Harris said...
Humans play games.
And generally leave the workers to rot. In your last sentence, the workers are better able to provision themselves while the greed driven game playing capitalists play their games. I can support that. Not over euthanization, but I can compromise.
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