Bill Mitchell — A response to Greg Mankiw – Part 3

On the MMT JG and the buffer stock approach to controlling inflation. Important. For some reason, most critics ignore this approach, which is central to the MMT approach to both macroeconomics and policy formulation and policy space.

Interestingly, both Paul Krugman and Greg Mankiw, who come from different ideological perspectives (left and right respectively), but share much of the conventional paradigm (New Keynesianism), have difficulty coming to grips with what MMT economists are saying, apparently because they are trying to view it in terms of their own approach and conceptual frame instead of the very different MMT approach and framing.

This demonstrates the value of a pluralist and historical approach to the study of economics in learning to appreciate different perspectives and approaches on their own terms before critiquing them on the basis of one's own position. To do otherwise is an elementary mistake.

Bill Mitchell – billy blog
A response to Greg Mankiw – Part 3
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Ambrose Evans-Pritchard — China steps up speed of oil stockpiling as tensions mount in Asia

On buffer stocks.

The Telegraph
China steps up speed of oil stockpiling as tensions mount in Asia
Ambrose Evans-Pritchard

Bill Mitchell – Buffer stocks and price stability – Part 5

I am now using Friday’s blog space to provide draft versions of the Modern Monetary Theory textbook that I am writing with my colleague and friend Randy Wray. We expect to complete the text during 2013 (to be ready in draft form for second semester teaching). Comments are always welcome. Remember this is a textbook aimed at undergraduate students and so the writing will be different from my usual blog free-for-all. Note also that the text I post is just the work I am doing by way of the first draft so the material posted will not represent the complete text. Further it will change once the two of us have edited it.

 

Previous parts to this Chapter:

▪ Buffer stocks and price stability – Part 1
▪ Buffer stocks and price stability – Part 2
▪ Buffer stocks and price stability – Part 3
▪ Buffer stocks and price stability – Part 4

Chapter 13 – Buffer Stocks and Price Stability

Would the NAIBER will be higher than the NAIRU?

Bill Mitchell – billy blog
Buffer stocks and price stability – Part 5
Bill Mitchell

Bill Mitchell – Buffer stocks and price stability – Part 4

I am now using Friday’s blog space to provide draft versions of the Modern Monetary Theory textbook that I am writing with my colleague and friend Randy Wray. We expect to complete the text during 2013 (to be ready in draft form for second semester teaching). Comments are always welcome. Remember this is a textbook aimed at undergraduate students and so the writing will be different from my usual blog free-for-all. Note also that the text I post is just the work I am doing by way of the first draft so the material posted will not represent the complete text. Further it will change once the two of us have edited it.



Progress Report

We are now in the process of final integration of all materials so far written. Not all of that material has appeared in these Friday pages. By the end of June we will have a first draft available and it will be trialled at two universities in second semester.
We will also be developing detailed databases and analytical exercises for the on-line support site from July to December 2013. The final publication is planned for later 2013. We hope to launch it at the – CofFEE Conference – in December 2013 in Newcastle, Australia.

Previous parts to this Chapter:
▪ Buffer stocks and price stability – Part 1
▪ Buffer stocks and price stability – Part 2
▪ Buffer stocks and price stability – Part 3

Chapter 13 – Buffer Stocks and Price Stability

[Continuing from Part 3]

Inflation control and the JG

Bill Mitchell – billy blog
Buffer stocks and price stability – Part 4

Bill Mitchell

Bill Mitchell – Buffer stocks and price stability – Part 3

I am now using Friday’s blog space to provide draft versions of the Modern Monetary Theory textbook that I am writing with my colleague and friend Randy Wray. We expect to complete the text during 2013 (to be ready in draft form for second semester teaching). Comments are always welcome. Remember this is a textbook aimed at undergraduate students and so the writing will be different from my usual blog free-for-all. Note also that the text I post is just the work I am doing by way of the first draft so the material posted will not represent the complete text. Further it will change once the two of us have edited it.

 ▪ Buffer stocks and price stability – Part 1

▪ Buffer stocks and price stability – Part 2

Chapter 13 – Buffer Stocks and Price Stability

Bill Mitchell – billy blog
Buffer stocks and price stability – Part 3
Bill Mitchell

Bill Mitchell — Buffer stocks and price stability – Part 2

I am now using Friday’s blog space to provide draft versions of the Modern Monetary Theory textbook that I am writing with my colleague and friend Randy Wray. We expect to complete the text during 2013 (to be ready in draft form for second semester teaching). Comments are always welcome. Remember this is a textbook aimed at undergraduate students and so the writing will be different from my usual blog free-for-all. Note also that the text I post is just the work I am doing by way of the first draft so the material posted will not represent the complete text. Further it will change once the two of us have edited it.

▪ Buffer stocks and price stability – Part 1 

Chapter 13 – Buffer Stocks and Price Stability

[Continuing from Part 1]

13.2 Measuring the costs of unemployment buffer stocks

Bill Mitchell – billy blog

Buffer stocks and price stability – Part 2

Bill Mitchell

Bill Mitchell — What is a Job Guarantee?

This is a background blog which will support the release of my Fantasy Budget 2013-14, which will be part of Crikey’s Budget coverage leading up to the delivery of the Federal Budget on May 14, 2013. The topic of this blog is the concept of employment guarantees as the base-level public policy supporting a return to full employment in Australia. We introduce the specific proposal – the Job Guarantee. In the next background blog we will see how much the Australian government needs to invest to make this policy improvement possible.

Bill Mitchell – billy blog
What is a Job Guarantee?
Bill Mitchell

MMT is "Keynesian," actually Post Keynesian. John Maynard Keynes: "Take care of unemployment, and the budget will take care of itself."

MMT puts economic priority on achieving and maintaining full employment as a goal, along with growth (production and productivity) and price stability, while the mainstream focuses on growth and price stability.The mainstream approach is to use unemployment as tool in targeting price stability in accordance with NAIRU (non-accelerating inflation rate of unemployment), that is, the lowest rate of unemployment that an economy can sustain without resulting in inflation. This is thought to be 4-6%, which involves a permanent stock of idle resources going to waste and degrading.

The MMT JG was conceived from the outset of MMT as combination of a buffer stock of employed and a price anchor.

The buffer stock of employed would result from an job offer by the government as the employer of last resort to anyone willing and able to work. This would replace the buffer stock of unemployed, which was and is still characteristic of policy. 

Marx and Engels called this "the reserve army of unemployed" facing destitution that serves to suppress worker bargaining power, ostensibly to control inflation, but with the result of increasing profit share over labor share as productivity gains are captured disproportionally by capital rather than shared with labor.

Taken together with suppression of labor unions and collective bargaining, along with the fungibility of global labor, profit share has been rising consistently relative to labor share. In the US, corporate profits are at an all-time high, while labor compensation has been stagnant for decades.

Moreover, in a monetary economy in which income is required for survival, lack of jobs results in social negative externalities that are unacceptable on humanitarian grounds — United Nations: The Universal Declaration of Human Rights, Article 23 (1): Everyone has the right to work, to free choice of employment, to just and favourable conditions of work and to protection against unemployment.

The MMT JG would be a step forward in addressing these issues that create tension between liberal democracy and modern capitalism, in which private employment that provides subsistence compensation is chronically scarce.

The JG wage would also serve as a price anchor by establishing the value of the currency in terms of the compensation for an hour of unskilled labor rather than using a commodity like gold or an arbitrary official price index like the US CPI compared to the so-called "natural rate of interest" of monetary policy based on NAIRU.

Bill Mitchell — Buffer stocks and price stability – Part 1

I am now using Friday’s blog space to provide draft versions of the Modern Monetary Theory textbook that I am writing with my colleague and friend Randy Wray. We expect to complete the text during 2013 (to be ready in draft form for second semester teaching). Comments are always welcome. Remember this is a textbook aimed at undergraduate students and so the writing will be different from my usual blog free-for-all. Note also that the text I post is just the work I am doing by way of the first draft so the material posted will not represent the complete text. Further it will change once the two of us have edited it.



This material was going to be in Chapter 12 on unemployment and inflation but I suspect we will put it into a separate Chapter given its centrality to understanding key aspects of the approach by Modern Monetary Theory (MMT) to price stability.

Chapter 13 – Buffer Stocks and Price Stability

13.1 Introduction

Bill Mitchell – billy blog
Buffer stocks and price stability – Part 1
Bill Mitchell

Tanweer Ali — Future Jobs Fund vindicated

Last week the government finally published its impact report on Labour’s Future Jobs Fund. According to the report, two years after starting their jobs with the scheme, participants were 16 per cent less likely to be on benefits than if they had not taken part and 27 per cent more likely to be in unsubsidised employment. The net benefit to society of the scheme was £7,750 per participant, after accounting for a net cost of £3,100 to the Treasury . Not bad for a scheme condemned as a failure by the current government, and certainly better than anything that replaced it.

The Future Jobs Fund was introduced in 2009 to address the problem of long-term youth unemployment. About 100,000 people in the 18-24 age group out of work for a year or more were guaranteed a job for six months. Later the threshold was reduced to six months. An additional 50,000 guaranteed jobs were available for people of all ages in selected unemployment hotspots.

The idea of addressing long-term unemployment through job guarantees is not new. A number of such schemes were created in Depression-era America, putting young people to work in the National Parks, among other places. An economic rationale was provided by the economist Hyman Minsky. Many schemes for the unemployed focus on skills, and making people more employable, but don’t address the lack of demand for labour. Especially in times of recession and economic stagnation, the big problem is that there simply aren’t enough private sector jobs to go around. Minsky’s solution was for the state to act, in his terminology as ‘employer of last resort’, and provide work at the minimum wage (though I’d prefer to see people paid a living wage). This way the state is not competing with the private sector, merely providing a buffer in hard times....

Progress Online
Future Jobs Fund vindicated
Tanweer Ali
(h/t Scott Fullwiler and Stephanie Kelton via Twitter)

What was that about a job guarantee by the employer of last resort as a buffer stock of employed being infeasible?

Neil Wilson — MMT and why implementation order matters

Scott [Fullwiler] mentioned on another thread: 

Actually, the NAIRU model is all about, explicitly, making sure there are enough people unemployed to ensure inflation doesn’t rise above the target.

The way they do this is to dehumanise the population affected. They start talking in optimal percentages (4%) rather than in real people.

Real people means (in the case of the US) six million real walking, talking human beings, all with hopes and dreams and aspirations, who cannot and will not be able to obtain sufficient to feed and house themselves and the people that depend upon them.

And their only hope of advancement is to replace themselves in that pool of hopelessness by swapping themselves with somebody currently outside it.

Dehumanization and individualization of a systemic problem are the tools by which this carnage is justified. It stinks and it must be stopped.

Which is why an income/something-to-do guarantee of some description has to be the first piece of an MMT style policy programme implemented.

Read the rest at 3spoken
MMT and why implementation order matters
by Neil Wilson

Bill Mitchell on the Buffer Stock Model

Read it a Epicoalition
The Buffer Stock Employment Model in a Small Open Economy
William F. Mitchell

Buffer Stock Money

Summary of workshop. Quickly get up to speed on the concept.

Read it at CEPR
Buffer Stock Money
: Shock absorber

FLASH — Warren Mosler calls JG optional for MMT!

Game-changer!

Hi,

You all are making way too much out of the jg.it comes down to this:

with ‘state currency’
there necessarily is,
always has been,
is,
always will be
a buffer stock policy.

Call that the mmt insight if you wish.so it comes down to ‘pick one’-

• gold

• fx

• unemployment

•  employed/jg/elr

• wheat

• whatever!

I pick ‘employed/jg/elr
 as it works best as a buffer stock based on any/all criteria for a buffer stock.

so yes, it’s an option.
you are free to pick one of the others.

Best!


Warren

by Warren Mosler
Read it at Pragmatic Capitalism here

Follow on:

SS: Now I’m really confused. Randy’s article said you sided with Bill. But now you’re saying that the buffer stock of unemployed is not necessarily a key piece of the MMT puzzle?01/02/2012 at 4:44 PM

warren mosler


I believe a careful read of Bill will show he entirely agrees with me.


mmt shows how there is necessarily some kind of buffer stock at work with state, tax driven, currency.


mmt shows how using one buffer stock or another alters outcomes:
http://www.moslereconomics.com/mandatory-readings/full-employment-and-price-stability/


http://moslereconomics.com/2010/10/04/exchange-rate-policy-and-full-employment/
MMT shows how the outcomes of an employed buffer stock/jg/elr serve public purpose as currently defined as full employment and price stability vs the other buffer stock choices.


And you can know all this and still select any buffer stock you want, each with its associated outcomes, which MMT also describes.


Does that help?


01/02/2012 at 4:55 PM



The macro choice — buffer of employed or buffer of unemployed

Bill Mitchell makes it clear that the choice in macro is between a buffer stock of employed or a buffer stock of unemployed in Whatever – its either employment or unemployment buffer stocks. This is the case since there are very few net export economies whose domestic private sectors save very little, therefore providing continuous full employment through the private sector alone. In all other cases the government has to step in and offset the demand leakage to savings, or there will be les than full employment (less frictional).

Why not just use the sectoral balance approach and functional finance to arrange the offset by government expenditure, e.g., through countercyclical infrastructure spending as many Post Keynesians propose? According to MMT economists, its a distributional problem as well as an issue of aggregates. Practically speaking, it is virtually impossible to eliminate unemployment at the bottom because government NFA injections do not make their way down there unless they start there.

So there is choice between an uncompensated buffer stock of employed (Dickensian times), a compensated buffer stock of unemployed (transfer payments like unemployment insurance and the dole), or a compensated buffer stock of employed (JG).

The MMT argument is that a compensated buffer stock of employed is a more efficient and effective way to deal with the unemployment arising from a lack of private sector hiring then either uncompensated unemployment or compensated unemployment. Bill Mitchell has given the accounting to show this in terms of waste that otherwise builds up as human resources degrade. See his posts, The daily losses from unemployment, Employment guarantees are better than income guarantees, and Income or employment guarantees?

Bill Mitchell answers John Carney

Read it at billy blog
Whatever – its either employment or unemployment buffer stocks

by Bill Mitchell

John said he wanted to spark a debate. Well, he's been quite successful. :)

Note to myself that others may be interested in: Let's do our best to keep this debate not only civil but cordial. We are attached to our own ideas, but human knowledge is tentative and advances through open debate of contending issues. No one has the ocean in their bucket. Heated debate is no more effective than cool-headed reasoning, and it may be less effective.

UPDATE: Scott Fulwiller comments at Bill's on the post link to above:

Very nice, Bill!

To re-emphasize . . .You are either in favor of an employed buffer stock or not. If the latter, you are in favor of an unemployed buffer stock–note that believing inflation doesn’t become an issue until productive capacity is reached (as MMT supporters of every stripe appear to believe) is inherently implicating a buffer stock of one or the other variety. There is no way around being in favor of one over the other.

And if you are in favor of an unemployed buffer stock, then you are also implicitly in favor of all the additional social and economic costs that come from involuntary unemployment relative to an employed buffer stock. As Bill has shown in earlier research, virtually every social problem has a a statistically significant relation to involuntary unemployment–crime, child/spouse abuse, divorce, poverty, poor physical and mental health, malnutrition, lower educational attainment, and so on. And because government’s invariably end up spending more in an attempt to alleviate these problems (via spending on welfare, unemployment benefits, the courts system, special education programs, healthcare for the poor, crime prevention, incarceration, and so forth), you are also in favor implicitly of such spending relative to what it would be under a job guarantee. And because such spending uses real resources, you are also in favor of whatever additional taxes are necessary to avoid inflationary impacts of such spending relative to what there would be with an employed buffer stock. And because any cost benefit analysis incorporating all of this in addition to whatever macro benefits there would be to an employed buffer stock, it’s conceivable that a well-conceived employed buffer stock can accompany a smaller govt and lower taxes than pursuing the same macro goals using an unemployed buffer stock. And so the argument that somehow the employed buffer stock necessarily requires “more govt” falls flat–it does not. And for the same goals and orientation of macro policy, it could very well require less.

It is certainly the case that a well-run employed buffer stock would be an enormous undertaking, and that is a valid cause for some to have their reservations. But it must also be recognized that the opportunity cost of the employed buffer stock is not private sector employment and productivity, but rather involuntary unemployment and all the social and economic costs that come with it. And if it is determined that an employed buffer stock is desirable, then it is possible to carefully study and prepare for such a program (however imperfect given political realities, etc.) as with Bill’s 300 page study and numerous others. There have been large and complex government programs before–military, infrastructure, etc.–given the political will. And regarding the latter, it is rather odd for an MMT supporter to suddenly worry about current political realities of MMT policy proposals. Certainly the employed buffer stock, at least in the US, has many more political obstacles in front of it than understanding how the monetary system works at the current time, but it’s generally been accepted by MMT supporters that the latter is a long way off, too.

In short, this is not to “ram” the JG down anyone’s throat. It is simply to encourage clearer thinking about what an employed buffer stock is, and what one who is against the buffer stock is inherently in favor of. The majority of arguments against the JG cropping up recently (Carney’s is a classic example) are simply ideological and don’t contribute anything to discussion (seriously–I haven’t heard even one argument against the JG on the blogs that I didn’t hear dozens of times the past 15 years from academics). I would be interested in seeing those against the JG address why they believe an unemployed buffer stock is superior–MMT economists in favor of the JG are not infallible and we don’t presume to have all the answers or to have thought of every possible continencies, but without such explication, those in favor of an unemployed buffer stock aren’t actually making a coherent argument to support their difficulties accepting an employed buffer stock.

Best wishes and happy new year to everyone (and happy birthday to my daughter, who turns 5 today–not that she’s reading this!),
Scott [emphasis added]