Friday, April 16, 2021

Chapter Thirty-One — Peter Radford

Chapter 31 is a reference to David Ricardo. This post is about technological unemployment which is looked at generally as a bad thing. Peter Radford closes with the question, what to do?

In my view, technological unemployment is actually a very good thing if acted upon intelligently by acting on the increased potential for distributed leisure. It is both a challenge to the present and an opportunity for the future. We should welcome it as a blessing of increasing knowledge rather than being Luddite about it.

The problem is the assumptions of capital regarding return on investment going to investors as owners rather than the distribution including worker and the rest of the society that collectively made these advances possible in the first place. The problem is that this has been institutionalized and enculturated. So it will require a change in world view on the part of society in general.

The Radford Free Press
Chapter Thirty-One
Peter Radford


Andrew Anderson said...

The problem is that automation is and has been unethically financed and I see nothing in your beloved MMT that would fix that; indeed Warren Mosler's proposals wrt banking would make it worse.

Footsoldier said...


What do you think of this comment on Brian Romanchuk's blog ?

Goes like this...

" My favorite tool for discussing inflation, is talking about the "total valuation" of gov't currency assets: bonds held by public, reserve at the fed, and cash. Which mostly ends up being the national debt. So the real value of the national debt, is the most indicative number, and much easier to analyze.

Inflation, as a number, can go arbitrarily high. One quintillion. But really your currency is just rapidly approaching a zero value. Furthermore, inflation is a percentage change over some time period. All of these make for a very confusing way to present the numbers.

It is much easier to say "The value of circulating currency and bonds declined by half in one month", rather than say, we had an annual inflation rate of 4,096% last month. Furthermore, once you label it an "inflation rate", the expectation is that it will continue, as bill mitchell discusses when he defines inflation as a "continuous rise in the price level".

The failure to be able to translate between these to frames: the change of one unit over a period, to the aggregate real value, just leads to bad thinking.

Rather than referring to the QTM, MV = PY with Y and V constant, I prefer to refer to the aggregate value of outstanding government issued assets: Total Savings = Aggregate Valuation = Unit Value * Number of units. An austrian could never deny that the aggregate value is just the unit value times the number of units. It fits with their way of thinking, but breaks their analysis. Because then the valuation is meaningful, whereas austrians tend to think everything in the market should be priced the way they feel. No, your feelings don't really matter here. Unit value = Aggregate value/ Number of units. Ignoring the numerator, or arbitrarily sticking their own fantasy in for the numerator is the austrian's game.

You see, at the end of the day, someone must be willing to save that valuation-- doesn't matter if it's equity, debt or currency, issued by public or private parties. The amount of savings in an asset, is tautologically its valuation, which is tautologically its market value. If they aren't they will exchange it, and not so that it merely circulates, but be willing to mark down the price.

Mosler's theory of the price level is clear: the price of collateral and prices offered by government when it spends are what matters. Not even the deficit or the debt level really matters, in this formulation, if you have price discipline when spending and lending. I believe this is accurate long term, but sometimes you may need to provision yourself, and accept the market prices.

Footsoldier said...

Comment continued..

" Yes, you have a price index, but you use that to measure the aggregate value of government liabilities. So you track how much, of the basket of goods(price index), all the government liabilities could buy. The problem comes in only trying to track the unit value. If you don't look at the aggregate value of government liabilities.

The underlying point of course, is that monetary sovereignty allows your liabilities to function as equity, and go both up in value and down in value in a fluid manner, according to your total real valuation. No regime, which, in the face of inflation, targets their real valuation, is going to have a problem. The unit value of liabilities doesn't really matter, except that affects the behavior of savers, in a feedback cycle.

Part of the problem with contemporary interest rate policy, is that the bond rate is assumed to be above the rate of inflation. It is easy to stop all inflation, by changing any continuous change in the price level, into an instantaneous one time change in the price level. This would be ideal. So instead of having inflation over several months or years, you instantaneously shrink the real value of outstanding liabilities, by an instantaneous change in the price index/price level. So if you have $10 trillion in nominal and real liabilities(1 to 1) and then you are worried about inflation, you actually want to instantly experience that inflation. So now that $10 trillion, is only worth $5 trillion(even though nominally it is still $10 trillion). By making it instantaneous, you can carry on spending as normal, just whatever percentage of real GDP. But you don't pay interest.

Now that is ideal, if you want maximum fiscal control. But of course, it's not really realistic. So you just offer a bond rate below the inflation rate, and wait for markets to correct. Maybe not instantaneous, but still not drawn out forever. So the real value of your outstanding liabilities shrinks.

Obviously, there's an issue here, of not only monetary sovereignty, but also trade sovereignty. Ie if you are very dependent on imports, that ties your hands a lot. I mean monetary sovereignty lets you always manage domestic resources, but sometimes that's not the issue.

The most extreme example is to just cancel all the existing liabilities, and start over from scratch. But you can't really keep getting away with this. The private sector needs something. Sometimes a one time shock, is better than long drawn out uncertainty. So if you just let your price index change by a factor of 10 overnight, and then your outstanding liabilities are 1 tenth of their previous real amount.

I mean, these are all is just extreme examples of applying the two following statements.
1) Interest on bonds is a policy choice.
2) The price level is a function of prices paid by government when it spends.

The problem with mainstream narratives, is that they don't see how letting bond rates fall below inflation, allows currency and bonds, to function as a kind of pseudo-equity, so currency and bonds are dynamically valued by markets in real time. Sure issuing more shares can dilute valuation, but only depending on how that capital is spent. The same for monetary sovereignty, but it's a little different because the purpose of government is create positive externalities, and it doesn't have a profit motive. So really, the capacity to save is a function of the extra wealth the government helps to build for the private sector.

Unlike a private company, the value of a government is not what is on there own balance sheet, but rather the health of private balance sheets, which allows them to save money, and sell goods and services, for the purpose of seeking money. If productive capacity has slack, the desire to save is infinite. "

I thought it was an interesting way of looking at it.??

Footsoldier said...

Once you measure the aggregate value of government liabilities. You track how much, of the basket of goods(price index), all the government liabilities could buy.

That's probably a step forward in the right direction right. ?

Call it the spending power metric.

But does it really tell us that much about the supply side ?

Matt Franko said...

I go with this one (in Dialogic form): “All prices are a function of what govt pays for things and what they let their banks lend against things”

Just leave it at that...

Footsoldier said...

Short and sweet Matt.