MMP Blog #51: The Efficiency Fairy and Inflation Goblins

By L. Randall Wray

The main objection to MMT is the belief that adoption of a fiat money necessarily leads to high inflation if not to hyperinflation. Those who adopt this critique usually see MMT as a proposal, although some (like Paul Samuelson) recognize that MMT actually describes the system we already have. The latter group fears that if we tell the truth about the existing monetary system, then elected officials will “run the printing presses” to create high inflation. Hence, best to adopt what Samuelson described as the “old time religion” of lies about the fiscal options open to sovereign government to keep the inflation goblins at bay.

Aside from the fear of inflation, the second biggest bogeyman is efficiency—that is to say, lack thereof. This is mostly applied to MMT’s promotion of the job guarantee, but it also applies more generally to the MMT belief that government has a positive role to play in the economy. Government is said to be inherently inefficient, and particularly so when it comes to employing labor. Only the “free” market is capable of using “scarce” resources in the most efficient manner. Anything government does is bound to be less efficient, so the first preference is always to rely on the efficiency fairies of free enterprise. Adopting the JG gives us the worst of both worlds: higher inflation plus lower efficiency. It is better to leave people unemployed where they can help to fight inflation and inefficiency in a reserve army of the unemployed. The best use of the unemployed is to keep them unemployed.

For the few bleeding heart liberals in this camp, the suffering of the unemployed can be relieved in the most efficient manner by simply providing welfare (perhaps in the form of a BIG—basic income guarantee). Their higher income is then spent in the “free” market which more efficiently uses labor to efficiently produce the consumption goods our unemployed want. Besides, it is claimed, many (most?) people really don’t want to work, so the BIG incomes allow people to choose to do what they prefer, while the efficiency fairies ensure we’ve got all the goodies people want to consume. Through BIG, we get to keep low inflation plus high efficiency with the added benefit of a life of leisure for anyone who wants it.

Now, of course, the MMT+JG response to this has been that unemployment, itself, is a massive waste of our most valuable resource, labor. Unemployment destroys lives, families, and communities. It is bad for physical and mental health. It promotes crime, ethnic division, and even terrorism. It is hard to conceive of a JG program so badly designed that it does not reduce waste. Further, the JG by design helps to stabilize prices, by providing a wage anchor. The employed bufferstock is much better than the reserve army of the unemployed. And our view is that most people want to be productive members of society—and like it or not, ours is a capitalist society in which there is a strong ethical imperative to “earn” one’s keep. But our critics are not swayed.

Before digging deeply into the topic of efficiency, let’s look at a couple of examples.

First, a purely hypothetical one. Let us say we’ve got a society of 150 people, of whom 100 work and 50 are dependent aged and young who do not work. The total output produced by the 100 workers is allocated through some mechanism (perhaps a market, perhaps through equal shares) to the entire population of 150. For simplicity, assume only one product is produced and consumed; call it corn. A study is undertaken to determine the productivity of workers, which finds (horror of horrors!) some workers are less productive than others—measured by quantity of corn produced per hour of work. It is decided to lay-off the 20 least productive workers in the interest of increasing efficiency. We now have 80 workers to produce corn for the population of 150. Since these 80 were more productive than the now unemployed workers, total output did not fall by a full 20%, but clearly there is less output to share. Only if we get the 80 “efficient” workers to work longer or harder will this society be able to consume as much as before. The 20 “inefficient” workers are now producing nothing.

In what meaningful sense have we increased this society’s “efficiency”?

Second, a trip to the doctor. I heard on NPR a couple of weeks ago about a study of the typical office visit (which matched quite well my own experience); unfortunately I do not recall the exact statistic but what follows is close. The doctor asks the patient some form of the following: “So, what is wrong?” (or, in my case, my doc always asks “So, what are your concerns?”). The doctor listens for an average of 9 seconds, then intervenes with a prognosis. The amount of time the doctor is willing to listen before intervening has gone down over time, presumably as health insurers have pressured doctors to increase throughput and as they have greatly increased the amount of paperwork required of doctors. In other words, it is in the name of efficiency. The efficiency fairies are at work in the doctor’s office to eliminate all that wasteful time spent in creating a doctor-patient relationship.

This is also happening on university campuses, of course. Professors reduce their office hours—or skip them entirely—and send students to the much cheaper teaching assistants as the efficiency fairies work to preserve more time for faculty to spend doing all the paperwork required by a burgeoning administrator staff that has nothing better to do than to create new paperwork requirements.

If you think about it, an ever growing proportion of our labor force is engaged in the “care” services, and the efficiency fairies are trying to reduce the amount of care provided in the name of increasing productivity. Measured as what?

Whenever I hear an economist use the word “efficiency” (or “productivity”), I can guess with near 100% accuracy that he (it usually is a he, as I’ll explain below) hasn’t the slightest idea what he’s talking about. With rare exceptions, he is inappropriately applying an engineering term to an economic process he does not understand.

Return to our little corn model above. If the average worker produces 10 bushels of corn in a 10 hour day, we can measure productivity as a bushel per hour of labor input. It’s pretty simple, and it is a meaningful measure. It makes sense to try to increase average productivity—to increase the efficiency of the use of labor—to get to, say, two bushels per hour of labor input. All things equal, that’s desirable.

But if the only way to get the increased labor efficiency is to chop down all the trees, pollute the water, and destroy the view, then we might pause before concluding that this is really increased productivity. Sure, each labor input to the production process produces more corn, but that is a mismeasure of productivity if it also takes trees and water; further if the view matters to us then we have also mismeasured consumption.

(There is, of course, a whole field of economics that looks at “external” costs and benefits, and that argues that we need to help out our efficiency fairies by “pricing” goods and bads. While this is better than conventional economics that ignores the environment, I think it is still largely misguided—but that is not a topic for today.)

So even in our little corn model we encounter problems in using the engineering concepts of productivity and efficiency. But the real world is infinitely more complex, and the corn model is entirely misleading as a description of capitalist production even aside from the greater complexity. First, production is typically highly social, the result of integrated processes involving dozens or hundreds of workers producing multiple products using the output of other dozens or hundreds of workers. As Sraffa put it, we’ve got a system of production of commodities by means of commodities, each of which was produced by social labor. And of course it is even more complex than that because labor (or, more technically, labor power) is itself a commodity produced by means of commodities.

Think of a blue collar factory worker at her machine producing widgets. Put her at the top of a pyramid of humans who serve as a support staff. She’s got a doctor and a hospital infrastructure and staff that keep her healthy enough to stay on the job. Accountants with a team of assistants manage her finances and compute her tax bill for April 15. She’s got a pre-school to keep her youngest children off the streets so she can work; and an entire public school system to prepare her oldest kids from age 6 through to 22 or 28 years old so that they, can enter the workforce of the future. And there are construction companies building shopping malls for her, and the roads that will take her from home to work and to shopping. A fleet of jetliners stands ready to fly her to a sunny clime, where pool boys and cocktail waitresses ready things for her vacation. It takes thousands of pink and white collar service workers as well as blue collar workers to keep that worker at her job. And of course, she will use the inputs of agricultural and manufacturing workers to make the widgets at her machine.

What sense does it make to measure her productivity while ignoring all of these inputs? How can we say in any meaningful sense that she “produced” some specific number of widgets per hour of her labor?

Further, and here is the more important point, the widgets that flow out of her machine are not yet commodities. They become commodities only when they exchange for money-denominated IOUs. That will be the topic of the final blog, #52, so I won’t go into it in great detail here. But not only does she have a huge staff responsible for getting those widgets sold, but it makes no sense to measure her productivity in terms of widgets for the purposes of economic analysis. In other words, not only do the economists misunderstand the engineering concept of efficiency, they also misapply it. In our “monetary production economy” (A.K.A. “capitalism”) what matters are the monetary inputs and monetary outputs: how much money did the capitalist start with, and how much did she/he end up with?

Those market efficiency fairies could care less about widgets—what they want is money.

The capitalist uses the widget factory not to make widgets but to make monetary profits. He can increase profits through a variety of means: pay his workers less; pay his suppliers less; charge his consumers more; work his workers harder; replace the “less efficient” workers with “more productive” ones. In real world production processes—as discussed above—it is difficult if not impossible to assign productivity measures to individual workers. Further, workers are social beings with a great deal of discretion over how they approach the work process. Even mainstream economists have finally recognized this as they introduced concepts such as “efficiency wages” (surprise, surprise, if you pay workers more, they work harder and smarter!), “shirking” (work below capacity in low paid or otherwise undesirable jobs), and “insider/outsider” cooperation (union workers won’t cooperate with scab labor).

Happy workers make better team members, who lower production costs even if they are higher paid. The work environment matters.

Return again to our corn model, and presume distribution is based on a market with a monetary system and 20 unemployed workers. Our BIG proponents propose to provide monetary welfare to solve the problem. With their welfare, the unemployed workers can compete with the employed for a share of output; the extra aggregate demand and bidding up of prices might induce the 80 employed workers to work harder and longer to produce more bushels of corn to divide among the 150. Perhaps some jobs might be added for some of the less efficient workers.

So far as I can understand it, the BIG claim is that the market efficiency fairies will ensure enough new output is created by some combination of harder work by the 80 efficient workers plus some new jobs for some of the 20 less efficient workers so that welfare is not inflationary. However, in truth, the BIG proponents want to provide the welfare to all 150 members of the society so that no one is forced to work. But the efficiency fairies will ensure that sufficient corn is produced by the few who decide to continue to work so that the multitude who decide not to work can continue to consume at noninflationary prices.

Exactly how that works has not, to my knowledge, been explained.

But in any case, I cannot see why that would be less inflationary or more efficient than simply rehiring the 20 back into their old jobs, even if they are less efficient than the other 80 workers. Or if that is impossible (let us say corn production is undertaken by a capitalist who is concerned only with monetary outgo and income, thus, who refuses to hire the inefficient workers), then let us employ the 20 to plant trees, clean the water, and improve the view. In the worst case, we’ve got a bit less corn to be divided among the 150 (so there will be a higher price due to the decision to cut the labor force and output of the corn factory) but we’ve got more total consumption in the form of trees, clean water, and views than we would have if we left the 20 unemployed. At least we’ve got them producing something.

Let me finish up with a general observation on the obsession with efficiency fairies and inflation goblins.

It’s a male thing (mostly).

This became clear to me after a comment to the response to Blog 50 and as well a couple of columns by George Lakoff. The comment was by a ticked-off “aging, retired”, former entrepreneur who disparagingly remarked on Minsky’s career that he’d never had  a “real” job and certainly could not understand much about unemployment because he’d never been a “job creator” like—let us say—Mit Romney. I’ve long admired the work of Lakoff on “framing”, and I think he’s really hit the nail on the head in his recent columns where he links conservative framing, worship of the market, and deference to the strict father figure.

The businessman plays a special role in our society. Virtually all public policy is formulated with a view to the reaction of our businessmen (I use the gender identification purposively).

Personally, I like the original term for capitalist, applied by the “father” of economics, Adam Smith, to the businessman: the “undertaker”. Today, we mostly limit the term to the capitalist engaged in the business of death, but I think it is appropriate to reclaim the term for all our capitalists. It is the undertaker who does most of the bidding of the efficiency fairies—continually striving to weed out the inefficient, the unproductive, the unfit.

He proclaims himself to be the “job creator”, but as we know, a good undertaker—like Mit–is a job destroyer. That is what the Darwinian process is supposed to do: increase efficiency by destroying jobs. It has long been understood—since the days of David Ricardo—that the “machine process” is a net job destroyer as we replace human labor with machines. It is true that new lines of business plus new markets open up job opportunities, but our undertakers will immediately begin to destroy as many jobs as they can in the quest to increase productivity. There is no market force to ensure that on balance new jobs are created more quickly than the undertakers can destroy them.  And destroying jobs also destroys markets for the output of the remaining workers—so the natural market force is always destructive (Schumpeter called it “creative destruction”).

All of our undertakers really are in the business of death.

We like to view our undertaker as The Decider, the strict Father who efficiently manages our economic affairs. Because he has to “meet the payroll” he understands the nation’s business. The undertaker is always the better candidate for elected office, since the nation’s primary business is business. His pronouncements on economic policy are always superior because the undertaker runs closer to the efficiency fairies than the rest of us. Like a good father, he rewards hard work and punishes the lazy.

He can slay the inflation goblins and banish the inefficiencies.

By contrast, the university professor—say, Hyman Minsky—has never met a payroll. Indeed, by nature, the professor’s job is feminine—nurturing, caring. The professor has no real understanding of the market, indeed, is as naïve and shielded from the competitive struggle as is the housewife or child.

All must be subjugated to the Great Decider, the Great Father Undertaker.

The Undertaker can always win every argument by reference to the payrolls he’s met, and also to his own outsized salary. The efficiency fairies know how to pick the winners. The “free” market is always best. Its rewards always trump all others.

But our Father Undertaker is not without some compassion. He will throw out some scraps to the unfit. Give them some welfare that they might take to the market. But do not give them jobs. The Undertaker does not want to hire the unfit. And anything the Public might do is necessarily inefficient. So better to just give the Unfit some cash to spend in the market so that the efficiency fairies can do their magic.

It is more efficient to keep the Unfit idle than to employ them inefficiently. That would piss off the efficiency fairies and let the inflation goblins run wild.

Ultimately, it is all about morality, not economics. The objection to MMT and to the JG is that it offends the conservative’s morality. Let me close with an extended quote from Lakoff as he can explain this more clearly than I can.

“In contemporary America, it is conservative versus progressive morality that governs forms of economic policy…. Most Democrats, consciously or mostly unconsciously, use a moral view deriving from an idealized notion of nurturant parenting, a morality based on caring about their fellow citizens and acting responsibly both for themselves and others with what President Obama has called “an ethic of excellence” – doing one’s best not just for oneself, but for one’s family, community, country and for the world. Government on this view has two moral missions: to protect and empower everyone equally.

The means is The Public, which provides infrastructure, public education and regulations to maximize health, protection and justice, a sustainable environment, systems for information and transportation and so forth. The Public is necessary for The Private, especially private enterprise, which relies on all of the above. The liberal market economy maximizes overall freedom by serving public needs: providing needed products at reasonable prices for reasonable profits, paying workers fairly and treating them well and serving the communities to which they belong. In short, “the people the economy is supposed to serve” are ordinary citizens. This has been the basis of American democracy from the beginning.

Conservatives hold a different moral perspective, based on an idealized notion of a strict father family. In this model, the father is The Decider, who is in charge, knows right from wrong and teaches children morality by punishing them painfully when they do wrong, so that they can become disciplined enough to do right and thrive in the market. If they are not well-off, they are not sufficiently disciplined and so cannot be moral: they deserve their poverty. Applied to conservative politics, this yields a moral hierarchy with the wealthy, morally disciplined citizens deservedly on the top.

Democracy is seen as providing liberty, the freedom to seek one’s self-interest with minimal responsibility for the interests or well-being of others. It is laissez-faire liberty. Responsibility is personal, not social. People should be able to be their own strict fathers, Deciders on their own – the ideal of conservative populists, who are voting their morality not their economic interests. Those who are needy are assumed to be weak and undisciplined and, therefore, morally lacking. The most moral people are the rich. The slogan, “Let the market decide,” sees the market itself as The Decider, the ultimate authority, where there should be no government power over it to regulate, tax, protect workers and to impose fines in tort cases. Those with no money are undisciplined, not moral and so should be punished. The poor can earn redemption only by suffering and, thus, supposedly, getting an incentive to do better.….

Just as the authority of a strict father must always be maintained, so the highest value in this conservative moral system is the preservation, extension and ultimate victory of the conservative moral system itself. Preaching about the deficit is only a means to an end – eliminating funding for The Public and bringing us closer to permanent conservative domination. From this perspective, the Paul Ryan budget makes sense – cut funding for The Public (the antithesis of conservative morality) and reward the rich (who are the best people from a conservative moral perspective). Economic truth is irrelevant here….” (see here)

The opposition to the JG (and the support of welfare like BIG instead of jobs) fits with this conservative morality. The critics do not want a “big, inefficient, public bureaucracy” to create jobs. They want the market test. They do not want a caring, nurturing social system. They want the efficiency fairies and the strict undertakers. Even though some of the critics do understand elements of MMT, they still want the fairytales about the superiority of the Private over the Public. About the benefits of “pulling oneself up by one’s own bootstraps”, about the “self-made macho man” who meets the payroll, about the necessity of punishing the “unfit” to serve as an example to the rest— “There, but for the grace of God, goes John Bradford”.

Lakoff teaches that economic theory cannot trump morality. The arguments against the JG are not economic arguments. They are moral arguments. Pay attention to the framing. The opponents will use words like “efficient”, “productive”, “bureaucracy”, “individual choice”, “freedom”. These are all moral terms reflecting the conservative’s world view. Proponents must change the terms of the debate—“inclusive”, “nurturing”, “caring”, “public”, “community”, “citizens”. Understanding MMT allows us to use the economic system to pursue the many public purposes. There is no private without the public. A well-functioning public is a pre-requisite to a well-functioning private. Let me close with one of my favorite quotes from Keynes (apologies as I’ve probably already used it somewhere in the MMP, but it bears repeating):

“The Conservative belief that there is some law of nature which prevents men from being employed, that it is ‘rash’ to employ men, and that it is financially ‘sound’ to maintain a tenth of the population in idleness is crazily improbable–the sort of thing which no man could believe who had not had his head fuddled with nonsense for years and years….” (J. M. Keynes)

Next time: the final installment of the MMP, on the nature of money.

94 Responses to MMP Blog #51: The Efficiency Fairy and Inflation Goblins

  1. That’s the moral argument but once a JG is established and inflation hits for reasons other than a JG, the JG will be conveniently blamed – what is the political answer to that?

    Only one I can see is to be vigilant on the actual cause and hope to be able to “frame” it to fend of attacks on the JG.

    • The government takes the necessary “bad” inflationary money out of the economy through taxes and destroys it. This is money 101. In a non-right agenda “rigged” system in which money is created out of thin air by the national bank ( Now we have fallen to allowing private bankers to create money at any time out of thin air based solely on debt which has created at least three massive asset inflationary bubbles since the alzheimers enhanced RR first put the screws to financial corporation regulation which allowed the private sector bankers go wild and pump all the money that would benefit them and their clients into our economy – even though it did horrendous damage to the western economies.) JG “DOES NOT AND NEVER WILL CREATE INFLATION”. Whoever gave you that idea or whoever attempts to use this false argument is/was wrong and is/was trying to manipulate you against your own self interest and reality. When money is created by a government central bank – not private banks based on debt which is horrendously inflationary – and spent into the economy to create public assets and needed services “inflation” cannot get a foothold and even if it does the government can just tax back the inflationary excessive money and destroy it. If money creation is controlled democratically by national governments and taxes are used when necessary to control inflation, there is never an inflationary “bubble”.
      Cheers
      MW

  2. It would not be much fun for me, and surely not productive, to rip apart this description of “conservative morality”, except to point out the falsity of the basic underlying premise, upon which the entire thesis rests: nobody believes that wealth is a measure of morality. Everyone agrees that the source of one’s success matters. Bernie Madoff was very rich, but also very immoral, by anyone’s judgment, most especially by Conservative Morality.

    The Liberal-Conservative divide is about the role of government. Judging by this blog entry, Progressives (Liberals) want government to assume a parenting-type role: “nurturing, caring”. (Denigrators refer to it as the “nanny state”.) Conservatives favor the famous Jefferson quote, “That government governs best that governs least”. Except even that can be misleading, taken to the extreme. Conservatives are not Anarchists. They believe in a role for government, and it includes prosecuting the likes of Bernie Madoff, and regulating all manner of human activity so as to prevent us from doing damage to one another.

    Based on other views expressed here, Progressives seem to value equality of (financial) outcomes, regardless of one’s abilities or efforts, while Conservatives value equality of opportunity, regardless of outcome.

    Laying across the Left-Right line of Liberalism and Conservatism is another line that ranges from Libertarianism to Totalitarianism. In modern US politics, the “left” is in the liberal-totalitarian quadrant, and the right generally in the conservative-libertarian quadrant, although some splinter groups act like conservative-totalitarians some of the time. Viewing the entire world on the left-right scale misses the point in the most important cases. Hitler and Stalin were not conservative and liberal, they were both pure totalitarians.

    As a sympathizer of the libertarian point of view, I think the government mostly ought to stay out of the way, and allow personal freedom to be optimized, including the right of people to succeed more so than their neighbors, as long as they do so without infringing their neighbors’ rights. However, there is one role that government plays, which is agreed by everyone, and that is the management of the currency and, by its budget, the economy. How best to do that is really what MMT is all about, and why I’ve become interested in it.

    I was hoping this blog would stick to the economics, and not descend into demonizing of those who hold different political views. There are plenty of blogs doing that already. I’m somewhat disappointed that way, but there is value here nonetheless, if one can ignore the mudslinging, name-calling, and the frequent misrepresentation of the “other side’s” views.

    I believe JG is a good policy, based purely on the economics of it. No moral or political arguments are necessary, and making them tends to offend a lot of people who might otherwise be more open-minded about both JG and MMT.

    • Hey Golfer

      While I’m sure no one would agree with an equation stated as wealth= morality, you cant deny that those of high financial achievement, even those who gamble in financial markets and are simply overwhelmingly lucky (vs brilliant), are held out as someone whos opinions matter more in pretty much everything. You get listened to when you have money……. for THAT reason alone. Conservatives note this when it comes to Hollywood celebs they disagree with.

      “The Liberal-Conservative divide is about the role of government. Judging by this blog entry, Progressives (Liberals) want government to assume a parenting-type role: “nurturing, caring”. (Denigrators refer to it as the “nanny state”.) Conservatives favor the famous Jefferson quote, “That government governs best that governs least””

      This is a pretty good description I think except todays political conservative in America has taken to the extreme position on govt

      “Based on other views expressed here, Progressives seem to value equality of (financial) outcomes, regardless of one’s abilities or efforts, while Conservatives value equality of opportunity, regardless of outcome.”

      I disagree. NO ONE thinks everyone should “make the same” or have “equal” financial outcomes. This is a canard that is frequently used as a discussion stopper. Its all about setting a floor. Can we create a place where no one goes hungry (involuntarily), no one lacks decent shelter, no one is denied basic health care and no one misses out on educational opportunities. Yes we can. Conservatives dont see THAT as a goal in and of itself. To them those goals might get in the way of someone pursuing their freedom, they dont see that not setting those goals denies many people a lot of freedom.

      “Laying across the Left-Right line of Liberalism and Conservatism is another line that ranges from Libertarianism to Totalitarianism. In modern US politics, the “left” is in the liberal-totalitarian quadrant, and the right generally in the conservative-libertarian quadrant, although some splinter groups act like conservative-totalitarians some of the time. Viewing the entire world on the left-right scale misses the point in the most important cases. Hitler and Stalin were not conservative and liberal, they were both pure totalitarians.”

      I agree that left right is a woefully incomplete spectrum and should be mostly abolished.

      “As a sympathizer of the libertarian point of view, I think the government mostly ought to stay out of the way, and allow personal freedom to be optimized, including the right of people to succeed more so than their neighbors, as long as they do so without infringing their neighbors’ rights.”

      An odd way of describing rights I think. A right to succeed more than our neighbor? What does that mean? Make more money? There will always be stratifications in any group and they will stratify differently on different metrics usually. I might be a better carpenter than my neighbor and he a better gardener. The question is have we organized our society in a way that has rewarded (financially) some things at the expense of others? I think we have and its simply because we have focused on money and not real things in my view. Why have we become so focused on money? Because those with the money wish for us to…….in my view. It does not help the vast majority of us to play this financial game.

      “I believe JG is a good policy, based purely on the economics of it. No moral or political arguments are necessary, and making them tends to offend a lot of people who might otherwise be more open-minded about both JG and MMT.”

      I agree except one CANNOT separate politics and economics. They are intertwined and we must deal with that and frame our arguments accordingly.

      • Golfer1john

        Greg,

        You say:

        “I’m sure no one would agree with an equation stated as wealth= morality”

        But that is not what Prof Wray and Lakoff say. They say that conservatives believe:

        “Those who are needy are assumed to be weak and undisciplined and, therefore, morally lacking. The most moral people are the rich.”

        Whether you believe it or not is not the issue. Progressives like Wray and Lakoff say it, whether they believe it or not, and, as you and I realize, it’s just not true. The rest of their argument flows from this false premise.

        Even if they do believe it, it is not helpful to their cause to say so. It can only antagonize the people they need to persuade. It is the language of divisive partisanship, not the language of education, or of seeking consensus and solutions.

        It is not economics, it is politics.

      • Golfer1john

        Greg,

        “Its all about setting a floor. Can we create a place where no one goes hungry (involuntarily), no one lacks decent shelter, no one is denied basic health care and no one misses out on educational opportunities. Yes we can. Conservatives dont see THAT as a goal in and of itself.”

        I think most conservatives believe we’ve already achieved those things, with the possible exception of small numbers of mentally ill homeless people. It was the liberals, not the conservatives, who fought for and won the “right” of these people not to be hospitalized without their consent.

        But other than those relative few, we have government programs or laws to provide all the things you list. We spend enough on “anti-poverty” programs to give all the poor an income three times the government-defined “poverty level”, if we just gave them the cash. People who are not MMT economists believe (wrongly, of course) that these funds come out of the taxpayers’ pockets. They need economics education, not political persuasion. But they can calculate by simple math that we’re doing plenty to support the poor, and they object not to the goal, but to the fact that these programs have not succeeded. Every Republican budget proposal increases funding for them, but less than Democrats would like, and they characterize the Republican increases as “draconian cuts”. It’s partisan political rhetoric, not economics.

        If it were about setting a floor (which we already have set, so you must mean raising the floor), then why not say so directly? Progressives do not. They talk about “inequality”, not about the income levels of the poor. They propose to reduce the incomes of the 1% (for example, enacting laws to cap CEO salaries), which will do nothing to help the poor. It’s the rhetoric of partisan politics, class warfare, and envy, not of economics or of seeking consensus and solutions. Inequality was lower 50 years ago, when the poor had far lower incomes than today. Is that the goal, to go back to a more equal distribution where everyone is worse off? Why not continue to a future where everyone is better off, and stop worrying so much about how much better off some are? (CEO salaries are out of hand, in many cases, but that is a shareholder concern, not one of public policy. And, of course, those CEOs who got their enormous bonuses through accounting fraud need to be prosecuted, not taxed. Bill Mitchell for Attorney General.)

      • Golfer1john

        “I might be a better carpenter than my neighbor and he a better gardener. The question is have we organized our society in a way that has rewarded (financially) some things at the expense of others?”

        I think we’ve organized our society (in the US) so that the market will determine the financial rewards for various activities. If the neighborhood is crawling with good gardeners, but good carpenters are scarce, then the price of carpenters will be bid up by the people desiring their services, and the people who desire the services the most will be willing to pay the most, and will get the services. Others who want something else more than they want carpenters will get what they are willing to pay for. Mediocre quarterbacks are paid more than Pro-Bowl linemen, because adequate linemen are more plentiful than adequate quarterbacks. I don’t see how it can be said that paying one person more is “at the expense of” some other person of equal, but different abilities. It depends on the supply and demand of their respective skills, and the bidding up of the price of certain skills is what attracts new entrants into the highly-paid field.

        One thing emphasized here, and maybe it’s MMT and maybe it’s progressivism, I don’t know, is that the financial rewards in the financial industry have risen rapidly in the recent past (30 years or so), enabled by exploitation of computers in trading, and based on the profit performance of the traders. The financial industry is viewed as adding nothing to production, and thus “undeserving” of such exceptional rewards. The big numbers attract not only big talent, but con artists in search of a fast buck, and corruption is alleged to be rampant. I’m not sure what the solution is, other than prosecution of the corrupt, and protection of the public from the high-risk activities of the TBTF banks. Repealing Glass-Steagall was a big mistake. There is no justification for FDIC insurance or any other public support for those activities. I would let Investment Banks continue whatever shenanigans they wish, using their own or their customers’ money, at their own risk with no bailouts, but disallow any participation by commercial banks. No being their subsidiary, no lending to them, no owning their stock. I expect the States would enact similar rules for state-regulated insurance companies.

        • Thanks for the response Golfer

          My point using that equation was that most people would see an equation as expressed that way as absurd but that doesnt make the following statement …..“Those who are needy are assumed to be weak and undisciplined and, therefore, morally lacking. The most moral people are the rich.”….. false. I do think a lot of conservatives believe the previous statement, they just dont express it in terms like the forementioned equation. Ive HEARD many of my conservative colleagues express the exact sentiments of the above quote. If they dont attribute the poors failings their own personal failures, what do they attribute it to? You admit that most conservatives see us as already achieving the floor conditions I laid out, so any dissatisfaction with your station in life must be YOUR OWN FAULT and not systemic in nature. I dont see the statement as a false premise, it simply does not apply to you maybe but it is indicative of the feelings of many conservatives, especially the economists

          “But other than those relative few, we have government programs or laws to provide all the things you list. ”

          The health care access situation is abysmal. You mistake access to ERs when deathly ill with access to health care. In addition states are given control over many of those “floor” services and are cutting them left and right the past 20 years because of “budget” problems. Yes I do think we have a floor it just needs to be raised, not lowered.

          ” Every Republican budget proposal increases funding for them, but less than Democrats would like, and they characterize the Republican increases as “draconian cuts”. It’s partisan political rhetoric, not economics.”

          You really believe this? Every Republican proposal has increased the funding for these services? Got any evidence of this claim?

          “If it were about setting a floor (which we already have set, so you must mean raising the floor), then why not say so directly? Progressives do not. They talk about “inequality”, not about the income levels of the poor. They propose to reduce the incomes of the 1% (for example, enacting laws to cap CEO salaries), which will do nothing to help the poor. It’s the rhetoric of partisan politics, class warfare, and envy, not of economics or of seeking consensus and solutions.”

          These proposals come out of the false paradigm weve been operating under that any spending we do in an area must be “paid for” by cuts to another area. I agree with above proposals as long as we are operating in that paradigm. I prefer the MMT paradigm as you probably know but we arent there. Not close really and its our conservative friends in the house that get great satisfaction out of saying that our payroll tax relief must be paid for by cuts in govt spending on many of the basic “floor” services I previously listed, which include SS and medicaire/caid. The entire body politic is full of false notions of affordability and such but until we get that changed……. yes the rich will need to be taxed to pay for shit since they are the only ones with money.

          “Inequality was lower 50 years ago, when the poor had far lower incomes than today. Is that the goal, to go back to a more equal distribution where everyone is worse off?”

          Everyone was worse off 50 years ago? How so?

          “I think we’ve organized our society (in the US) so that the market will determine the financial rewards for various activities. If the neighborhood is crawling with good gardeners, but good carpenters are scarce, then the price of carpenters will be bid up by the people desiring their services, and the people who desire the services the most will be willing to pay the most, and will get the services. Others who want something else more than they want carpenters will get what they are willing to pay for”

          You missed the point of my comment here. I thought your use of right to succeed was …. odd. How could anyone stop you from succeeding? No one is proposing , nor has EVER proposed, total equality of income for everyone regardless of what they do. Everyone appreciates that some jobs/services will have more value than others…. thats not even debatable and when conservatives throw out that line its disingenuous because it is a straw man. But your above story still does not describe the reality of how job markets function unfortunately. Its not simply the skill of the worker and necessity of the job that determines compensation, thats a mythical world imagined only in text books and Paul Ryans and Rand Pauls minds.

          I agree with your comments on the banking industry and would like to see Bill Mitchell OR Bill Black oversee an inquiry into our financial shenanigans

          • I’ve never heard a conservative say that being poor is an indication of immorality, or vice verse. Most of the poor I have known have been more moral than some of the rich. Having money seems to enable more sins than lacking it. Doing anything well enough to become rich requires a large degree of focus on the objective, and that focus sometimes results in a neglect of other goals, such as being honest, and living a life that your kids would be proud of.

            As for dissatisfaction with one’s station in life, that is often the driving force for getting rich, and working ever harder to get even richer. Why isn’t Donald Trump happy with the money he has, satisfied with his “station in life”? At the other extreme, why would someone stay in a low-paying job, or no job, and not strive for promotions or additional skills? Not because they are dissatisfied, but more likely because they are satisfied with what they have, and don’t consider money to be an important thing in their life. Maybe other things are what makes them happy, not money. I have former colleagues who changed jobs, voluntarily taking a substantial pay cut in order to fulfill other non-monetary goals, like living in a particular place or having more time to work on a hobby or be with family. I’ve done it myself.

            The key to getting a high-paying job right off the bat is education. Children in poor families mostly attend failing schools, and only conservatives are trying to give them the opportunity to attend better schools. Why is that? Because they believe the poor to be immoral?

            I just don’t see any real evidence that conservatives believe that the poor are poor due to their moral failings. Not in their statements, and not in their actions or their policy proposals.

            50 years ago, did poor people have cell phones and cable TV? They have them today. Did they have air conditioning in their homes and apartments? Many have it today. The list of things that were luxury items, or even non-existent 50 years ago, but are now available to even the poorest in America (not so the rest of the world) is longer than I can name.

            Re medical care, Medicaid provides much more than access to an emergency room when deathly ill.

            You can look up the budgets. The Democrat plan typically calls for their favorite programs to increase faster than the Republicans, but the Republican proposals are always for increases, not for cuts. Only in Washington is a smaller increase called a “cut”. But it’s not because they think the poor are immoral, it’s because they do really and truly believe that the US can run out of money.

            A long time ago someone said conservatives think liberals have bad ideas, and liberals think conservatives are bad people. Only a couple of months ago a Democrat Congresswoman called the leaders of the House of Representatives “demons”. She thinks she is in a war against the devil himself. That is not economics.

            Yeah, I meant Bill Black, I think. The S&L regulator. Sorry, Bills.

            I said “the right of people to succeed more so than their neighbors” You ask how anyone could stop that? I was stopped by my union steward, in my first job. I had negotiated a raise and a change of work hours with management, and the union boss stopped it. It wasn’t allowed, he said, for me to make more money than my co-workers with equal seniority, no matter what extra work I did or what management was willing to pay for that extra work. That’s what equality looks like, and we have it still today.

            I know other people who love their unions. I would not take away their right to join a union, if true equality is what they want. But I don’t think anyone should be forced to be compensated as if they were average when they are capable and willing to do more.

  3. I was tempted to respond to the comment you referenced, but am glad I declined. Delighted that my hopes you would address (in some way) were realized, and this post pretty much nails it. I expect similar “father knows best” responses to follow here as well, but they will ring ever more hollow now. MMT’s uphill battle is nothing less a complete rewrite of decades of bulls*** beliefs outside the realm of just economics. It’s why I compare it to the Galilean proposition of heliocentricity in the 17th century. Then too, the incorrectly held views were “faith based”; there too, men (and I use the gender identification purposely) who fancied themselves better, or more worthy attempted to enforce their patriarchal view of the world despite the truth that reality (as examined by science) revealed. Thank you.

  4. “surprise, surprise, if you pay workers more, they work harder and smarter!”

    Not quite. If that was the case then ‘Taylorism’ would have been a resounding success, and it wasn’t.

    If you pay workers *who don’t have to think to do their work* more (ie largely unskilled workers), then they work harder. Once you get into the level of work where decisions and judgements have to be made then that process breaks down.

    Watch the wonderful RSA Animate video that explains the difference.

  5. “Conservatives favor the famous Jefferson quote,”

    Both Liberals and Conservatives use parental roles. Liberals prefer the nuturing maternal view, whereas conservatives prefer the patriarchal view of punishment, individualism and ‘pull yourself together’, whipping people if they do wrong and blaming societies ill on the individual. If you’re poor then it is due to some individual failing.

    There is no personal freedom *for all* unless systemic issues that the individual can do nothing about are countered.

    The standard conservative line is to promote personal freedom for those in the club and to hell with everybody else.

  6. It’s disappointing to see this ongoing misrepresentation and disingenuous attacks on those who should be your ideological allies.

    First of all, a Basic Income Guarantee is exactly the same as a Job Guarantee from a monetary perspective. A Basic Income Guarantee does not give everyone a check whether they need one or not. It gives a basic income to those who don’t have one and need one. Exactly the same way that Job Guarantee gives a job (and thus an income) to those who don’t have one and need one. If you’ve got a job producing corn, you don’t get a BIG check. Obviously, the check you’d get for producing corn is gonna be bigger than the check you’d get for your BIG, so there’s your incentive to get a job producing corn instead of collecting a BIG check, but notice that’s the exact same incentive a JG employee has to try to get hired producing corn instead of private corn producers dropping out of their jobs to enroll in JG jobs.

    Second of all, the very fact of mis-measurement and confusion you outline surrounding concepts of consumption, production and efficiency means that whatever Job Guarantee workers produce, it won’t be captured in the usual economic metrics because that product is not sold. Job Guarantee workers aren’t bidding on jobs that the government wants done. They’re being paid a set wage and then being set to work on it. That’s a great way to overprice or underprice the goods they produce, but a damn poor way to transmit information about the costs and value of those things to people so they can make a reasonable decision about whether they want a prettier view or more corn, or just more time off.

    Finally, it’s worth pointing out that die-hard MMT JG supporters/BIG detractors never go into any great detail about the actual work and production JG workers will be doing. This is the most important feature of a JG because the production and work they’re doing is how that buffer-stock is maintained, and if the quality and value of that buffer stock cannot be well-maintained, it’s a poor choice to use as a price anchor. But it’s always hand-waved by advocates because what is produced by JG employees has never been an important part of the equation for them. It’s their demand that supports prices, stimulates private sector production, increases private sector jobs and grows private sector wages. It’s the set and stable nature of their income that anchors prices. What they produce, indeed, that they produce anything at all, is irrelevant to the project of price control, because nothing they produce is ever priced or sold. But they are absolutely adamant that a JG is not only the only way to maintain the quality of the buffer stock of JG labor, despite evidence and argument that a BIG is at least as effective, but also somehow fundamental to the project of controlling prices, when all that really matters for that is that their incomes don’t go up when other prices do.

    BIG supporters are not the enemies of MMT, nor are they some dupes of a fallacious conservative ideology who like to think of themselves as liberals, and it’s insulting to paint them like that. They are people who disagree about details of how a sovereign government should run deficits in its own currency to support aggregate demand and overall productivity. We share a common political enemy in those who advocate for balanced federal budgets and austerity to promote growth. It doesn’t do anybody any good to throw around these sorts of divisive and ultimately premature attacks against those who are fundamentally one’s allies. If you wish, consider it akin to the US and the Soviet Union in 1940. We need to beat Hitler before we start our own Cold War.

  7. “then let us employ the 20 to plant trees, clean the water, and improve the view.”

    Although I agree with the general sentiment that it is better to get people to produce something, you haven’t here produced anything that people want to buy in the model (ie corn).

    So there can’t be that different an inflation output from the BIG than from the JG in that case.

    People working on a JG *may* produce valuable output (but they may not because they are very inefficient – the level above those that would do nothing on a BIG), and people on a BIG *may* produce valuable output (because they want to get on in life and prove their worth via voluntary work – and would be those with good output under a JG).

    So it strikes me that BIG and JG are all part of the same continuum of interventions, with all the existing proponents defending their positions to the death because they don’t want their previous work to be seen as ‘wrong’.

    Workfare, JG, BIG and the dole are all variations on a theme, where the only difference is the level of paternal enforcement of the requirement to produce output , and the level of maternal encouragement to produce output.

    Imagine these two levels as a couple of sliders (marked ‘PATERNAL’, and ‘MATERNAL’). ISTM that each of those terms then just refers to a setting position of those two sliders.

    We’re just not going to know where to set the sliders until we run the system and measure the output. Then you tweak the ‘paternal’ and ‘maternal’ sliders and measure again. Eventually the correct level of encouragement and enforcement will show itself.

  8. “But they are absolutely adamant that a JG is not only the only way to maintain the quality of the buffer stock of JG labor, despite evidence and argument that a BIG is at least as effective,”

    How can BIG be as effective as JG when you’re not asking anybody to do any work?

    JG is BIG with slightly more enforcement on the ‘requirement to work’, which may mean that more individuals remain ‘job ready’ (ie they can be seen to be doing something).

    The actual output doesn’t matter so much because the output you are ‘paying for’ is a bunch of people that the private sector can see are working for a living. And that reduces the risk and therefore the cost of hiring.

    So both BIG and JG ensure that the paradox of productivity is overcome – the private sector will hire as many workers as it can because it know there is demand there to fulfil.

    The question then is what do you do with those that are left. Is there labour the property of the state to deploy as it sees fit (including just throwing it away) in return for the payment (the JG approach), or does it remain with the individual to deploy as they see fit.

    JG says deploy those individuals doing something so that they appear ‘work ready’ to the private sector (ie they can turn up on time, etc, as well as read and write). That ‘work ready’ pool is the anchor.

    BIG would need to show an equivalent take up of voluntary work under BIG for there to be the same ‘work ready’ buffer available for the private sector to hire from – and therefore the same anchor.

    • Because people with the opportunity to do so naturally tend to keep themselves “ready to work.” They take job-training courses so that they become qualified to be hired in the jobs the private sector is offering. They want a private sector job for the same reason JG workers want a private sector job: because it pays better than the meager income they get from a BIG or the JG wages. The difference is that the unemployed supported by a BIG have the freedom to seek out the training, skills and contacts they believe are in demand by the private sector, and they will be encouraged or discouraged in those choices by the real demand of private employers. The unemployed supported by a JG don’t have that freedom. The training, skills and contacts they gain through participating in the JG are dictated by the kinds of work the JG will have them doing, and since, by definition, the work JG workers will be doing is work the private sector is not doing and does not find valuable or profitable, the training, skills and contacts JG employees will gain through that employment will not be of the kinds the private sector particularly demands. Basic worker skills like showing up on time, being able to read and do basic math, and so forth, are already present and show no real signs of being diminished through prolonged unemployment, and their improvement is achieved through offering “efficiency wages,” as Wray notes above, not by paying them a meager wage and giving them no other choice. The JG will not be able to offer such efficiency wages while maintaining its role as price anchor, and as such, JG employees will not tend to be encouraged to show up on time or not slack off because they won’t see their labor as particularly valued due to the low wages they will earn, and the lack of available advancement within that job they will face.

      Wray is right that there is a moral issue at stake here. The moral issue is whether one should be forced to contribute to production in order to be entitled to a portion of what is produced. The JG, together with conservative ideology, answers that question with an unmitigated “yes,” though JG supporters apparently fail to realize that the “production” they are forcing the unemployed to participate in is only “pseudo-production.” Because their product is not priced, there’s no way to tell if or how much their “production” contributes to overall output or diminishes it. It is, in essence, an adherence to Keynes’ famous remark that it’s sometimes better to pay a bunch of guys to dig holes and fill ‘em back in. But when that’s the case, it’s better to just pay the guys, and not bother with the hole-digging, because digging holes and filling them back in diminishes the capacity for real production as shovels get broken and have to be replaced and workers get injured digging the holes and have to be treated. BIG supporters realize that in an era where real output so far outstrips the basic needs for human life, there is no need for strict adherence to the moral principle above.

      • “The difference is that the unemployed supported by a BIG have the freedom to seek out the training, skills and contacts they believe are in demand by the private sector, and they will be encouraged or discouraged in those choices by the real demand of private employers. ”

        And that’s the problem. That is the system in place at the moment, and I can absolutely guarantee you that an employer would much rather hire somebody coming from a public sector job, than somebody who is unengaged and has been on a sequence of training schemes.

        The whole training scheme, ‘work-ready’ industry is full of so many scams it is laughable. ‘Been on a training course about it’ is the most amusing line in any job application.

        ” Basic worker skills like showing up on time, being able to read and do basic math, and so forth, are already present and show no real signs of being diminished through prolonged unemployment, ”

        I would suggest that is incorrect. If you’ve ever done any private sector hiring, you will always pick somebody who is engaged in a position rather than ‘risking it’ on somebody who is unemployed. Particularly at the low end where you have plenty of choice.

        It’s not a question of whether the skill has declined in reality. It is whether it is perceived to have declined by the hirer.

        So the arguments you put forward are simply not correlated with real-world experience. They are based on a belief.

        “The JG will not be able to offer such efficiency wages while maintaining its role as price anchor,”.

        That again is a belief. It can offer the minimum livable wage, and will maintain its price anchor as the private sector will converge to that value. The private sector has the advantage of being able to promise better things in the future, and the existence of interns shows that is a powerful non-monetary incentive.

        So again it is just not a credible argument.

        “The JG will not be able to offer such efficiency wages while maintaining its role as price anchor, and as such, JG employees will not tend to be encouraged to show up on time or not slack off because they won’t see their labor as particularly valued due to the low wages they will earn, and the lack of available advancement within that job they will face”

        Again the existence of interns working for nothing shows that argument to lack credibility in the real world.

        ” though JG supporters apparently fail to realize that the “production” they are forcing the unemployed to participate in is only “pseudo-production.””

        Again a belief and mischaracterisation. The ‘production’ is turning up for work and being seen to do so – thus making you a better hire for the private sector. Based on real-world evidence that private sector employers would rather hire somebody ‘at work’ than not.

        Anything else the JG work produces should be seen as a bonus.

        “BIG supporters realize that in an era where real output so far outstrips the basic needs for human life, there is no need for strict adherence to the moral principle above.”

        Not realise. Believe – based upon arguments that are difficult to correlate with real world experience.

      • ‘The JG, together with conservative ideology, answers that question with an unmitigated “yes,”’

        There is no compulsion to take a position in the JG. Again it is a mischaracterisation to suggest that – as is the attempt to conflate it with conservative ideology.

        The positions are there to allow individuals to demonstrate their work readiness – and contribute something to society.

  9. How long will it take before Europe proves how well the “free market” decides? Are the father figures paying attention?

  10. You really seem to dislike capitalism, Dr. Wray. Why not just go the whole hog and do away with it altogether? Oh yes, that’s right, because a well-functioning Public can’t exist without a well-functioning Private.

    Yes, you need consumer demand to create jobs. But you also need people (entrepreneurs, inventors, investors) with ideas, skills, talents, resources and a willingness to take on responsibility and risk.

  11. “Lakoff teaches that economic theory cannot trump morality.”

    I like Lakoff but reject his use of the term “morality.” There is nothing “moral” about the actions of conservatives today. If we define “morality” as including starving children, the term has no meaning. Modern conservatives are driven by the seven deadly sins, in particular, pride, greed, and wrath. Suggesting that there is a conservative “morality” that will trump the JG is ludicrous. It’s just greed masquerading a “political position.”

    But YMMV.

  12. The fundamental assumption of JG is that people want jobs. But, labor is not the human goal, nor ever has been. Rather, the “fruits of labor” is the goal.

    JG really is BIG in disguise. Both offer the same meager dollars, but the former requires that you also spend your hours at some menial labor — (Yes, “menial,” because it’s a temp job at minimum wage.) — one step above slavery.

    JG, by providing the illusion of a solution, takes the focus from economic improvement. (No need to fix what’s wrong with the economy, if you simply can give everyone minimum wage, menial jobs.) Instead, we should focus on fixing the economy:

    1. Eliminate FICA
    2. Medicare — parts A, B & D — for everyone
    3. Send every American citizen an annual check for $5,000 or give every state $5,000 per capita
    4. Long-term nursing care for everyone
    5. Free education (including post-grad) for everyone
    6. Salary for attending school
    7. Eliminate corporate taxes
    8. Increase the standard income tax deduction annually
    9. Increase federal spending on the myriad initiatives that benefit America

    JG is a diversion from the real goal of improving our economy.

    Rodger Malcolm Mitchell

    • Obviously, I do not agree that the BIG and JG are the same thing or that the JG is a mere illusion or menial or a diversion. That said, surprisingly, I agree with the direction of much of your other comments. On corporate taxes, I think that needs to be matched with reform of the tax code – – considerable reform. BIG for attending school? Maybe. But I don’t want to give everyone a check. We have the earned income credit. I suppose we could expand it. Health care and long term care for all is very long past due. So let’s make a deal.

    • “The fundamental assumption of JG is that people want jobs. But, labor is not the human goal, nor ever has been. Rather, the ‘fruits of labor’ is the goal.”

      With all due respect, I think if you try to define “fruits of labor,” you will see how silly and circular this argument is.

      • Fruits of labor = goods and services, along with health, happiness and all the other reasons people try to obtain money, with which to buy the “fruits of labor.” In short, people want the fruits far more than the labor.

    • This must be one of the most fundamental assumptions and fallacies of classical economics – that people don’t want to work, and that they only want the fruits of labor.

      This is the opposite of the truth.

      Having more junk doesn’t make people happier. What makes humans happy (as Aristotle and others have pointed out) is doing meaningful work over which they have control. That’s why rich people – people who don’t have to work for a living – still do work. Sitting around on a yacht gets old and boring real fast.

      That said, it is true that people don’t like to do meaningless work over which they have no control. No one likes to do work that can be done by a machine, and no one likes to be forced to do what others tell them to do (wage slavery).

      So the point would be to try to set up a society which maximizes opportunities for meaningful work over which workers have maximal control and input. To say that this cannot be done just reveals intellectual laziness and lack of imagination.

      • golfer1john

        For 21 years, I worked in a job that I described this way: If they didn’t pay me, I’d do it anyway, just for fun.

        What I tell young people is that the key to happiness in your job is to find out what you really like to do, and then find someone who will pay you to do it.

        Of course, there are more things in life than just your job, and now as a retired person I appreciate that more than ever. My “yacht” is an RV, in which I live and travel full time with my best friend and lover, and it hasn’t gotten old, and I don’t miss work one single bit.

  13. Rodger

    I would have thought that trying to control inflation with interest rates whilst permanently abolishing most taxes would be massively inflationary (over time).

    • Y, In the past 40 years (since we became Monetarily Sovereign), there has been no relationship between federal deficits and inflation:See: http://research.stlouisfed.org/fredgraph.png?g=85I

      During that time, the Fed successfully has been using interest rate control to control inflation.

      Yes, although it hasn’t happened yet, it is possible sufficiently large deficits could cause an inflation that could not be controlled by interest rates. In that unlikely event, we always could reduce spending, as a last resort.

      Meanwhile, we will have experienced years of economic benefits from increased deficit spending.

      Rodger Malcolm Mitchell

      • The period covered in that graph is characterised by quite high levels of unemployment on average and an expanding current account deficit – i.e. a too-small govt budget deficit to maintain full employment.

        If, as you suggest, the govt budget deficit was made large enough to achieve near-full employment on a near- permanent basis, then it would probably have a direct effect on inflation at some point.

        Higher interest rates *increase* the govt budget deficit, so if the deficit is large enough to create inflationary pressures, a higher interest rate will add to those pressures (though not necessarily immediately, more likely over time), by increasing the deficit further.

        • Inflation is the reduction in the value of money, relative to the values of goods and services. Raising interest rates increases the reward for owning money, which based on Value = Reward/Risk, increases the value of a dollar, thereby reducing inflation.

          • You’re probably right that in the short term higher interest rates will lead to increased savings desires, offsetting any potential inflationary impacts of govt deficits. However there is a limit on how high interest rates can go, for any given size of govt deficit, before the compounding interest payments on either government bonds (if the government issues them) or interest on reserves (if it doesn’t) becomes an inflationary force in itself. Your solution would then be to raise interest rates further. But this cycle can’t go on indefinitely. At some point in this scenario deficit growth becomes exponential.

  14. Even more so if you’re just going to pay people for doing nothing.

  15. It does appear that Dr Wray is more “liberal” than some would like. But then what would you expect from one who has observed the world of unemployment lingering on for years at a time, while a nation that issues its own currency sits on its hands. If economic policy has anything to say it must deal with that reality as well as inflation.
    You would also expect that such an observer would understand the destruction these twin evils can visit upon us all.

    But it is wrong to say that liberals are also totalitarians. Maybe Stalin falls in that category. There are in fact four quadrants in that model and some of the left are indeed liberal –libertarians. No reason one cannot have capitalism and “efficiency” while at the same time attending to the public sphere.

    So we cannot measure what the JG does? Of course we can: they spend money and consume things. And they may make our world a better place to live. I live in a city where we have thousands of dead ash trees and no money to take them all down. It might be nice to take them out and plant new ones. And how about all the thousands of unfilled jobs in community efforts like clinics, missions and the like? Better someone should be doing that than sitting on their asses collecting the BIG. But I guess I am preaching from the public now. In fact these things contribute to our communities. And it might do away with the crushing levels of poverty we see.

    So let the risk takers make money. That is more power and wealth to them. But do not on that account take away from others.

    I would ordinarily agree with Neil here but I don’t see the BIG and JG on a continuum. One is work that offers hope for improvement of the public and the private sphere. And guess what? We found out the JG works during the Great Depression. And we got something for it. The BIG strikes me as welfare. But I won’t quarrel much with that frame. I think the JG is far better than anything else I have heard about.

    Finally, I think the JG can eliminate much of what we call crony capitalism.

  16. I agree with MMT and the JG. I believe that the economy and government should serve the public purpose, that free market enterprise must generate financial profit within those boundaries.
    But I do believe that the critics of MMT do have one valued point… If the people and politician finally understood that Money is itself an unlimited quantity, how would we constrain the public sector and private sector unions from demanding greater renumeration for itself. Although Hyperinflation might not occur, (especially if credit is rationed / controlled in the fianacial sector) but either inflationary pressures would nonetheless ensue Or potential greater resource depletion would ensue.

    I believe MMT must elucidate and operationalize it’s limits into a understandable an coherent policy framework, , which are the real productivity of the nation and the real resource and environmental limits.

    • MMT and MS (Monetary Sovereignty) always have stated that there is one constraint on federal deficit spending: Uncontrolled inflation. It just happens to be a constraint that is much further away than recession, unemployment and depression.

      Rodger Malcolm Mitchell

    • Beware the evil unions?!!! What claptrap.

      How about the fucking banksters who foist massive bubbles on us and wreck world economies in the process. I would be more afraid of the crony capitalists inflicting hyperinflation on us as they pushed for more and more unlimited spending on useless weapons systems etc.

      Oh forget that…I’m sure the problem will be those damn unions.

  17. Pingback: Dans l'analyse des processus économiques réels de nos économies capitalistes…

  18. I could similarly postulate niceness fairies and market goblins on the progressive side. Assuming that any system is better than the people that make it up is a folly – left assume the public/government system is, the right assume that the market is. Both systems are flawed, in exactly the same way (with the cardinal flaw being both systems are made of humans). Both systems, taken to extreme will exhibit the same behaviour (while at the same time encourage the proponents of the other direction to believe their system is different and thus is the solution).
    Indeed, both systems share a lot in common – for example, both work on small scales, or when the participants are one-of-many (of the same size), both making effective external checks possible.

  19. Is there anyone apart from hardcore MMTers who has not been mocked or insulted at least once in this series? Fortunately there is still one more installment to make them justice.

  20. As a member of the Pirate Party which the only political US political party to have BIG and free universal education as part of the only pro-technology, anti-austerity, anti-police state platform The classed based hypocrisy in so-called conservative morality need to exposed with less charity. Conservatives most certainly don’t believe “contribute to production in order to be entitled to a portion of what is produced” as the ownership class receives income from mere asset ownership and they are not involved with production in any real sense. Indeed they are fiercest defenders of the lifestyles of the class of asset owners and their managers who produce nothing. The belief in the divine right of absolute property is just as royalist as any monarch’s claim.

    The JG or BIG reason for is result of the nature of capitalism competition to concentrate or “undertake” titles of ownership to a smaller and smaller group because of the gaming of the market. Anyone who knows anything about games know that small cliques form and develop tactics which dominate the scene regardless of how balanced the initial conditions.

    JG and BIG is a government’s i.e. game master’s intervention to rebalance the system. However, what we need to question this rat race itself by remembering the future that is necessary. So by starting in a future position we can construct the best policy needed for it to come about and it becomes as if we are simply remembering what was always already there and the proper course of action is made perfectly clear.

    The nature of the necessary future depends on one’s view of man identity. If the we hold to idea that human the liberty in the pursuit happiness is the route the good life and wish to cultivate such good lives as classically understood then what kind of tasks are considered most humanizing?

    Menial Labor certainly isn’t the most humanizing but neither is pure consumerism. So in the future there must be the automation of all menial labor and indeed we are increasing seeing such… http://econfuture.wordpress.com/ and http://www.asymptosis.com/are-machines-replacing-humans-or-am-i-a-luddite.html.

    The problem is the classic form the luddite fallacy argument is it assumes a strict distinction between labor and capital but the future doesn’t seem to want this to be the case. So menial and repetitive task no matter how complex will be automated and the minimalist JG fails for the same reason that a merely consumerist BIG would also fail.

    So a JG program must look to improve the quality of the labor toward the direction of creativity which machines inherently lack. Roger’s idea of paying people to go to university is brilliant along side a BIG. University student certainly to work and society certain benefits from their work even if it simple to culture and improve themselves as the cost of ignorance is paid for in later on in society. So why shouldn’t people be paid for work that saves society from the cost of ignorance?

    Therefore the end product of either JG or BIG should be the same and any program shouldn’t be about the so-called economic reason of a buffer stock or full employment or create sufficient demand to to keep full capacity.

    The only true moral goal of monetary sovereignty should be about the work of produce a superior citizen of the republic and only then can we truly achieve the pursuit of happiness in the constant perfecting of a government of philosopher sovereigns. .. i.e. a true republic. The drive toward a republican tradition of cultivating culture and civilizing civilization is the the only truly conservative and progressive politic.

    -Septeus7 ( Stop the TPP and see http://www.calpirateparty.org/platform.html for the future politics in the present)

  21. If we got the national unemployment rate down to two percent (which I would love to see happen), is that essentially a job guarantee to anyone who has at least a high school-equivalency credential? If so, in that scenario there would be value in a youngster knowing that you’re not guaranteed a job in America unless you get your high school diploma or pass the GED test.
    I do think there is value in a little tough love, especially if it will keep kids in school.

    • “is that essentially a job guarantee to anyone who has at least a high school-equivalency credential?”

      Not necessarily. There may be demand only for labor with lower education than that, for jobs that High School graduates would not want to stay in, once they got a better offer. Employers are reluctant to hire the overqualified.

      This is why paying everyone to get a graduate degree won’t work, either. If everyone has a Masters, who will dig the ditches. and drive the garbage trucks, and be Wal-Mart greeters?

      There will always be a demand for a variety of skill levels and pay grades, no matter how automated we may become. Think of an Army composed of only Generals.

      • If everyone has a Masters, who will dig the ditches?”

        False assumption. “Everyone” will not get a masters degree, as a result of paying for college. Instead, more people will be better educated, leading to more economic and technical progress. Digging ditches will be done by computerized machines invented by these people.

        The myth that sweat labor always will be necessary, so don’t educate the masses, is one of the most pernicious ideas of the 1%.

        • Golfer1john

          Somebody has to operate and monitor the computerized machines. Maybe he’s in an air-conditioned office using a joystick, but he still doesn’t need an advanced degree, or even need to be a high school graduate. Maybe we won’t have to sweat so much in the Jetson’s age, but there will still be different jobs requiring different skills.

          The masses are still being educated, to the extent that public education can do it these days (which is far less than it used to be). In Arizona, it even includes free college, for any resident who can pass the high school AIMS test and can’t afford the ridiculously low in-state tuition.

  22. While I do agree that the framing problem is drawn along political and ideological lines, I think there is a larger overarching problem. Bill Mitchell had a good post the other day about thinking in a macro-economic mindset which I think addresses another fundamental issue. The simple fact is that most people, regardless of ideology or political bent, suffer from the fallacy of composition when thinking about macro (Keynes’ paradox of thrift). Most people take what they know–their household or company– and try to apply it to the whole economy. It just doesn’t work. This problem gets compounded when you have businessmen running the economy. To be fair, most of them truly know how to run a business well. It’s just that running a whole economy is fundamentally different than running a business. Solvency rules no longer apply and running a deficit is actually good for the economy. It’s easy to see why so many people fall into this trap and the real work will be getting them to understand the real way an economy works.

    Given that most people (conservatives included) actually want to do what they think is best for the economy, the uphill battle we face in the MMT crowd is to get people to understand that they are wrong and giving them better alternatives. Of course some (mostly on the conservative side) will deny reality, but all we can do is keep shoving it in their faces. 45% of people in the US think the earth is only 6,000 years old, and the age of the earth is a lot easier to prove than theoretical impacts on inflation. We have a long painful road ahead of us.

    • “Given that most people (conservatives included) actually want to do what they think is best for the economy”

      Yes, if you make that assumption you write very different types of blog entries.

      • Actually you don’t.
        Many people have thought the mechanics of many issues through and come out left, right or extreme left, extreme right on the political scale and they don’t understand why other people can’t see what is so obvious when you examine it.

        It is because people don’t have the time or inclination to do so as they are too busy trying to make ends meet or protecting what they have got so life can go smoothly. People don’t normally examine things.

        Take your pro-libertarian stance, logically it leads to anarcho-capitalism which can be sustained for a while but eventually it leads to feudalism (warring libertarians where they disagree on certain principles) and that eventually leads to a nation-state – a backstop to cut all the crap which has been relatively successful for quite a while now.

        I like a lot of libertarian principles and they should be followed but as a wholesale philosophy it’s bunkum (especially if you think in aggregate aka a macroeconomic way)

  23. “JG really is BIG in disguise. Both offer the same meager dollars, but the former requires that you also spend your hours at some menial labor — (Yes, “menial,” because it’s a temp job at minimum wage.) — one step above slavery.”

    This is ridiculous. The JG doesn’t have to involve “menial labor.” There are all kinds of important non-menial tasks that are required for an economy to prosper and grow that the private sector will not provide for — EVER. The fact that some may be temporary for some folks does not mean they are in any way make work or “menial.”

    • Econobuzz, think of it from the standpoint of an employer: You are about to get a free employee, who may or may not stay with you a day, a week or a month. Unlike the case with a typical hire, you already know your JG employee is actively searching for a better job.

      How likely are you to spend time training this employee and/or giving him a responsible job?

      I’m sure you can think of some exceptions to this, but be realistic. The vast majority of jobs being offered will be menial.

      Rodger Malcolm Mitchell

      • Roger, if this is a JG job the person is only being paid around minimum wage and hence likely not in need of any training, or at least not much. I suppose the definition of menial fits that sort of job. There are literally millions, maybe tens of millions of these sorts of jobs around with people being paid min wages. I would suppose we can also hook up the JG with a training program as well. I won’t bore you but in my youth I did most everything from truck driver to harvesting grain. I had zero training in any of it, other than a fella showing me where the gears were and me watching him an hour or so. But I enjoyed many of those jobs (not that I made a career of them.)

      • That’s a poor excuse and the one in use every day today by business people – then they complain about skill shortages because they’re too lazy to be willing to train someone up. Yes they could train a competitor but once again that falls for a fallacy of composition as if everyone tries to do it, every time you have a ready-made replacement and nor does it consider the possible loyalty of showing the faith in some one. Something that cannot be economically measured but its social outcome sure can.

        It is about the feeling of achievement in a job and many people get that in a menial job. I’ve read all your work and it has “political clout” but on examination it has no merit.

      • And I would add for someone that I’m fairly sure has read most of the JG literature is that it states if you’re unsatisfied with one JG job, you can try another type of JG job. Again – a merit-less complaint.

      • JG jobs are those that, by definition, don’t exist in the private sector. If there were enough jobs available in the private sector for everyone willing to work, JG would not be necessary. JG is not designed to get IBM to hire more salesmen. If that is what is needed, then stimulate the economy so more businesses start up and need to buy computers, then IBM will hire more salesmen.

        JG jobs need not be menial, they are just jobs that the private sector cannot provide, because there is no profit involved. Businesses do not exist to lose money. You don’t have to worry about what a for-profit business thinks about hiring a JG worker who is looking to leave as soon as he gets a better offer. JG won’t work that way. It would fail if it tried, and not only for that reason.

        Rehabilitating a home for a poor family is not menial work. It’s interesting and challenging, so much so that PBS makes some very successful TV series showing people rehabilitating houses. But there’s no profit in rehabilitating a home for someone who cannot pay what it costs to do it. JG doesn’t need to make a profit, so it can provide workers to Habitat for Humanity to do it. Habitat doesn’t care that they will have a whole different crop of workers next month. That’s how they operate already. It’s their business model. It’s a business model shared by many non-profit, volunteer-staffed organizations.

        • Exactly!! Who says the JG has to be menial jobs for low wages.

          Last time I looked there were plenty of well paid fulfilling jobs in the public sector. In fact a lot of people want to do those jobs because they are in fact more fulfilling than the emptiness of selling sugar water or some other crap in the private sector.

          • jonhoops asks, “Who says the JG has to be menial jobs for low wages.?”

            Well, if you read the JG proposals, you find that the proponents of JG say the jobs have to be at minimum wage, or they would replace existing jobs and cause inflation.

            jonhoops also said, “Last time I looked there were plenty of well paid fulfilling jobs in the public sector.

            So are you suggesting that people occupying those public sector jobs be fired and replaced with JG jobs?

  24. The JG will help this woman, especially since a lack of a job makes her signing up for Social Security early a disaster.
    https://www.nytimes.com/2012/06/10/business/forced-to-retire-early-jobless-pay-a-steep-price.html?scp=6&sq=unemployed&st=Search
    I personally think full Soc. Sec. benefits should be lowered to 55 since the upcoming years will see much greater efficiencies through technology.
    https://www.youtube.com/watch?v=rB8kc7bab58&feature=youtu.be
    and
    http://nextbigfuture.com/2012/06/mass-produced-skyscraper-builder-china.html

    There are jobs that Gov’t can create that are useful, but no private company will due like digitizing all local, state and federal documents etc. I don’t disagree with RM points, but the current political realities are different.

  25. Other than philosophical moral qualms, I do not see any debate of substance in these comments.

    I have worked in community services and I assure you moving people away from social isolation is an extremely positive step and it is not something that occurs under a BIG but it does occur under a JG.
    I recently referred someone to the way the Australian Welfare Benefits (UI) system worked as really the only constraint is an ongoing activity system and someone replied that it sounds like a BIG. I assure you all it is not, once you go through the cost of living on this benefit there is not enough to pay all your potential bills or able to buy the means to look for work no matter where you live. And that is not to mention even if you manage to save $x amount they’ll reduce the benefits so you still cannot get ahead. You get punished for trying to achieve.
    In less than two weeks they are going to bring in more punitive measures and ultimately push people back into social isolation as people will give up as they are stigmatised even further in this global austerity push.

    • “Other than philosophical moral qualms, I do not see any debate of substance in these comments.”

      I have no philosophical moral qualms. I just don’t think JG will work, from a practical sense. Offering what amounts to day labor jobs adds nothing to the economy, and actually could be a negative. Day labor jobs exist, and they are a waste of time for most unemployed — and unattractive, too.

      They do not provide the comfort of socialization (“real” employees will not befriend him), nor the sense of accomplishment (sorry, but serving soup won’t do it) for those people who are unintentionally unemployed.

      What employer will give a meaningful job to someone he knows:
      1. Is actively looking for another job?
      2. I hoping to leave as soon as possible?
      3. Doesn’t really want the job?

      Will that employer waste time and money on training? Will he give the employee anything but the lowest of the low job? And will those people who already have minimum wage jobs, be replaced by the “free” JG jobs, so be forced to request JG jobs for themselves, thereby multiplying the number of JG jobs?

      As for giving them charity jobs (what charity jobs?), as has been suggested, this simply is a backdoor way for government to support charities (many of which are religiously affiliated, so cannot accept government help).

      As a former business owner, who has employed thousands of people, I can tell you that JG is something only an ivory tower academic could love.

      Far better for the government to spend the same time, money, effort and thought on this:

      1. Eliminate FICA
      2. Medicare — parts A, B & D — for everyone
      3. Send every American citizen an annual check for $5,000 or give every state $5,000 per capita
      4. Long-term nursing care for everyone
      5. Free education (including post-grad) for everyone
      6. Salary for attending school
      7. Eliminate corporate taxes
      8. Increase the standard income tax deduction annually
      9. Increase federal spending on the myriad initiatives that benefit America

      That will do more to cut unemployment than JG

      Rodger Malcolm Mitchell

  26. Alex Seferian

    I was hoping someone could help me with a question I’ve had for a few days, and that only marginally relates to the above post. MMT incorporates into its analytical framework the sectorial balances approach of the late Wynne Godley; (S – I) = (G – T) + (X – M). This formula is derived, in part, by the standard income approach GDP formula where GDP = Income (Y) = C+S+T.

    Now Schumpeter (who is mentioned above) is someone who I understand provided key insights into the role of debt in a capitalist society. Among other things, he argued that aggregate demand in a credit-driven economy is equal to income (Y) plus the change in debt. This notion makes aggregate demand more volatile that it would be if income alone were its source, because while GDP (and the level of accumulated debt) changes very slowly, the change in debt can be sudden and extreme.

    My questions relate to the opinions MMTers may have on Schumpeter’s work? Specifically, do MMTers agree with Schumpeter’s assertion that demand is the sum of Y and the change in debt? Does this not interfere with the sectorial balances approach of Wynne Godley? Up to what extent do MMTers not agree with Schumpeter? What I’ve read about Schumpeter (which is not much) seems to make sense to me, and I was intrigued by the fact that he is mentioned in the above post.

    • Very good question. I have not seen MMT address this point in particular. Steve Keen does.

      • MMT and Wynne Godley are actually very clear on this. If a country has a current account deficit, either the government or the domestic private sector has to go into deficit for the economy to grow. An increased domestic private sector deficit means more private debt, more leverage etc. There is a limit on how far and how fast this can grow before it becomes unsustainable and we end up with a crash.

    • Not that I represent MMT addressing the question, but it seems Schumpeter’s equation is the sectoral balance equation without a foreign sector. I don’t see anything in MMT that would cause a disagreement with it.

      What I haven’t seen from MMT is what the government’s response should be when credit expands rapidly, as it did in 2002-2006. In fact, deficits decreased, and that decrease (according to Monetary Sovereignty, I don’t know of a similar explicit statement from MMT) caused a recession. Should government have maintained its deficits in the face of rapidly expanding GDP, led by expansion of private credit? Or would that have just inflated the bubble even more, and led to an even greater catastrophe later? Should government have decreased the deficit earlier and faster, so as to rein in the bubble, possibly preventing its catastrophic bursting? Or would that have been futile, and led only to an earlier recession? Maybe the only way we will find the answers is by experience in future credit expansions.

      • Alex Seferian

        Thank you Golfer1john and y. I am just getting to grips with MMT but from what I have read, perhaps the response as to whether a government deficit decrease from 2002-2006 was the cause of a recession, the answer would be no. That decrease was just a natural reaction to what was happening in the two other sectors. What led to the recession was excessive private sector debt and the emergence of Ponzi-style lending practices (a la Minsky). If asked what the Government should have done, I gather the response would be to attack the problem at source, i.e. attack the excessive private sector credit-induced demand. That could be done I guess by means of a combination of various things including : fraud control and higher interest rates. By the way, Steve Keen is mentioned above. Can anyone point me in the direction of the disagreements between that Australian economist and MMT?

        • The following is my (simplified) understanding:

          MMTers advocate reforming the banking sector to make it less prone to ponzi-type finance, fraud and collapse, and more in line with ‘public purpose’. See Warren Mosler’s banking reform proposals at moslereconomics.

          For a country with a current account deficit, MMT recommends a government budget deficit large enough to offset private savings desires and maintain full employment (with a JG program in place and appropriate fiscal policy modifications over time for inflation control). Budget deficit increases can be achieved through either tax cuts or increased government spending, or a combination of the two. Some forms of government spending may potentially be more inflationary than others (i.e. more wasteful).
          Government spending financed by new money creation is logically not (necessarily) more inflationary than government “borrowing”.

          “if the budget deficit is calibrated correctly – which means that it matches the saving intentions of the foreign and private domestic sectors taken together – then it can be 10 per cent of GDP or 1 per cent of GDP forever without adding inflationary pressure. It is only when the budget deficit accelerates and pushes total spending in the economy beyond the real capacity limits that they become problematic. So continuous budget deficits forever are fine if that is what is needed to offset non-government savings intentions.” (MMT wiki)

          Wynne Godley disagreed with MMT on this, as he thought that large persistent government budget deficits (to offset a current account deficit) would be unsustainable in the long term, as they would eventually lead to a balance of payments crisis (or currency crisis) – in which the exchange rate value of the currency suddenly plummets, leading to high inflation and other serious economic problems. MMTers think that these problems can be avoided with a floating exchange rate and appropriate government policy.

          MMTers tend to advocate a zero interest rate policy (or at the very least a static low interest rate policy). They don’t think it’s a good idea to try and control inflation or asset bubbles by raising interest rates. Traditional monetary policy is seen as a blunt tool with complex distributional effects. High interest rates can also ADD to inflation when the government is running a deficit. Interest on government bonds or on reserves is also characterised as ‘corporate welfare’ which serves no productive purpose and encourages a culture of rentierism. However Scott Fullwiler argues that alternative forms of monetary policy, such as changing bank capital requirements, might have a useful role to play.

          Steve Keen is mainly focused on the specific problem of private sector debt and how to solve the current ‘debt-deflation’ type problems. He advocates a debt jubilee, and other policies for the future such as “jubilee shares” and “property income limited leverage” (PILL). He’s also interested in developing complex dynamic models for analysing credit economies. I think he differs from MMTers in that he sees government money as less central and may not accept the “taxes drive money” thesis.

          • Actually I should add that even if a country has a current account surplus, the government may still have to run a deficit to maintain full employment and an optimum level of (sustainable) growth, given excess domestic private sector savings desires.

            Personally I think governments can also alternate cyclically between budget deficits and surpluses, but this means the private sector has to do the same to maintain growth. The main question is what level of private sector deficit is sustainable. MMTers might add the additional argument however that there is no real need for the private sector to be in deficit, and that this achieves nothing other than providing excessive profits to banks.

          • Alex Seferian

            Thanks very much! I have been studying MMT and you’ve managed to explain things succinctly and in a manner which makes a lot of sense. Much appreciated. I have another question if OK. I hope you don’t mind. It relates to the “quality” of the Government spending… whether or not MMTers believe that what the Government actually spends money on is important, very important, or of secondary importance? To better drive home this question, I reference what is happening now a days, and the notion that our problems were largely caused by excessive private sector credit-induced demand growth, “green slime”, fraudulent loans, etc. MMTers argue that what is needed is Government deficits, not surpluses. This ties in very logically if one thinks about the sectorial balances: if the private sector now has to go into savings mode, balance sheet repair, “belt-tightening” after years of “living beyond its means”, etc., then it follows that one other sector has to step in. Ignoring the foreign sector for a minute that leaves the Government. Now if the Government deficit is to involve some Government spending, and not just tax cuts, then I have to assume that this will be a good thing, if and only if, the Government spending truly serves public purpose (e.g. building better schools, greener energy alternatives, useful roads, etc). If the spending is not useful (for arguments sake: people just dig holes and then fill them up again), then the “system” would be better off if the Government would not go into deficit, and the economy were just allowed to shrink a bit, since after all a lot of past growth was debt induced and “excessive”. Does this make sense or would MMTers see things differently?

            • All federal deficit spending benefits the economy, but some benefits it more immediately. The people being paid to dig holes, then fill them, spend their paychecks, which helps other businesses, which pay other people, and on and on.

              That said, I suggest this deficit spending program, as having more focused benefit:

              1. Eliminate FICA
              2. Medicare — parts A, B & D — for everyone
              3. Send every American citizen an annual check for $5,000 or give every state $5,000 per capita
              4. Long-term nursing care for everyone
              5. Free education (including post-grad) for everyone
              6. Salary for attending school
              7. Eliminate corporate taxes
              8. Increase the standard income tax deduction annually
              9. Increase federal spending on the myriad initiatives that benefit America

              Rodger Malcolm Mitchell

        • Federal surpluses preceded every depression in U.S. history, and reduced deficit growth preceded every recession. But you are correct, that there also needed to be a trigger. Reduced deficit growth, by itself, was not sufficient, which is why, for instance, ten years of surpluses were necessary to cause the Great Depression.

          A discussion of possible triggers is at: http://rodgermmitchell.wordpress.com/2009/10/01/causes-of-recessions-and-depressions/

      • Federal deficit spending is not constrained by GDP growth, but rather by inflation. The so-called “bubble” you mention was not related to federal deficit spending. It was a real estate bubble fueled by bad lending practices. Reducing the federal deficit might actually have exacerbated the “bubble” by encouraging more speculation in real estate vs. other investments.

        • Right, the bubble in housing was due to bad lending practices, which was the main element of the credit expansion. I agree the proper action would have been to quash the bad lending practices in the first place, and thus avoid the bubble. But that wasn’t the question. Rapid expansion of credit might occur without a bubble in any particular asset class, and without any bad practices or fraud. Increasing incomes makes for increasing numbers of credit-worthy borrowers, eager to participate in the American Dream by buying cars or houses or boats or country club memberships or dot-com stocks. How should the government respond to that? Does it matter if they all flock to one particular asset, causing a bubble in it, rather than the demand being distributed across several asset classes?

          How could a decrease (or slower growth) in the NFA of the private sector cause an increase in the NFA devoted to the speculative commodity of the day, or to unsustainable private debt levels in general? Seems to me that those inclined to take on excessive debt would be encouraged by having more to “invest” with, rather than less.

          One of the theories of GM’s latest problem was that during the boom, lots of people bought new cars, because they could afford them, and annual car sales of about 17 million, I think, was far in excess of what would be required to replace the cars that expired each year, and to accommodate driver population growth. Besides, the newer cars were lasting a lot longer than the ones that were wearing out, so that source of demand was diminishing and would continue to diminish. In short, 17 million was unsustainable. But, it was a cyclical phenomenon, part of the natural order of things. It would be inevitable that sales would drop, and auto companies would start laying off people. What is the proper government response to unsustainable demand, not just for cars but in the aggregate? Accommodate it, and try to sustain it when it starts to decline? Or throttle it before it reaches its natural peak and crashes, hoping to reduce it to a long-term sustainable level?

          • Alex Seferian

            Hi Golfer1john. Thanks again for your responses.

            In turn, I gather that in response to your last set of questions the key word is “unsustainable”.

            In your example, one of the alternatives would be to lay off all the car factory workers that were part of the “unsustainable” portion of the production process. In this case there would be unemployment (an undesirable outcome). However, at least the system would not be attempting to “sustain the unsustainable”. Eventually, those unemployed workers would (in theory at least) find their way towards other production process that (hopefully) would be addressing a “sustainable” demand. If one believes that, then the response to your question could be: have the government do relatively little.

            Another alternative would be for the Government to step in, or “accommodate” the imbalance and generate an alternative demand itself. If that demand related to “public purpose”, then “the system” could be better off. The debate would centre around what is public purpose, and there would be a distribution-of-income debate as well. In a sense, the Government could be accelerating the process in the above example, and therefore, minimizing, or all together avoiding, the negative impact of unemployment. In this case the answer could be: have the Government step in.

            However, if the Government spent on projects that did not advance public purpose, or in fact were inefficient, then the system I would argue could be worse off, because the Government would be helping to perpetuate something that cannot (by definition) last forever (again, I go back to the word “unsustainable”). In the process, it could actually make things potentially worse (e.g., if energy plants that do not work were built, or if people were just asked to dig holes and refill them – instead of looking for more productive alternative uses of their time). In this case the answer could be, avoid having the Government to step in.

            For these reasons I go back to the question related to the “quality” of the investment… whether it be private sector or public sector investment… which is the same as saying the “quality” of the people, or at least the quality of the actions taken by the respective decision makers. Your question about throttling before a natural peak is reached is also one that depends on the quality of the Government decision makers. How easy could it be to time things badly?

            I’ve lived many years in Latin America, and in some countries (by no means not all) you’d want the Government to stay free and clear, as much as possible, from any advance tweaking of the system, or of any attempt to make up (post fact) any market demand-supply imbalance that the private sector may have caused. In other countries, I saw a bit of the opposite. It was the private sector that was the issue…

            In the end, it all depends on the people and there is no perfect answer… it may vary from time to time and from country to country… that would be my humble response to your questions.

          • Maybe JG is part of the answer. For a thought experiment, let’s assume we have implemented all of RMM’s and Mosler’s proposals that we want to implement, and the economy is doing fine, the JG has been implemented, and the JG labor pool is small. We have a deficit that just balances the savings desires of the non-government sectors, and everything is just hunky-dory.

            Then something happens. People feel more optimistic (maybe the confidence fairy comes back) and they start buying extra cars and extra houses. Car companies and homebuilders hire more workers, further depleting the JG pool, but also driving up demand for raw materials that may be in short supply, and for all the ingredients of a car or a house, like water pumps and refrigerators. Prices of houses go up. Speculators are attracted to real estate. Mortgage lenders stay on the straight and narrow path this time, though, and don’t make liar’s loans or commit other frauds. The borrowers are creditworthy. The decrease in the JG pool reduces government spending, and the extra activity adds to taxes. The deficit goes down. Eventually, the buying spree ends, and the homebuilders and car companies (and others) lay off the newly hired workers, who join the JG pool. The government budget trends are reversed, taxes go down and spending (on JG) goes up. Some housing speculators lose money, but don’t go underwater and “walk away” or get foreclosed in large numbers.

            I think maybe the trick is that the automatic adjusters in the government budget must very closely match the changes in private credit. In 2002-2006 they couldn’t keep up, and the mortgage fraud only made that more difficult. I had thought that maybe we should have a quarterly review of the economy, and some economic official could decide to adjust something, perhaps the level of an “inflation control tax”, a percentage taken from employees’ paychecks. Delegated authority from Congress, with a limited range of adjustment, and clear rules about the conditions under which to make an adjustment. Just anything more responsive than an 18-month budget cycle, and not requiring an act of Congress for every little tweak.

            Anyway, as the bubble develops, the automatic adjusters and the increase in taxes at each quarterly review keep the boom from booming “too much”. Government is naturally counter-cyclical already, but in 2002-2006 it was not counter-cyclical enough to prevent a disastrous rise in home prices (and oil, copper, grains, and other industrial and consumer commodities). And in 2008 it was again not counter-cyclical enough. The “stimulus” was too little, too late. (Much of Fed policy was misguided, as well, but that’s another story.) JG would have helped in both the up and down cycles, damping the oscillations. Quarterly adjustments would have been more timely than the stimulus law.

            It’s fine tuning, to be sure, and we have never been very good at that. JG would improve our capabilities, because it is more $ than unemployment insurance, and doesn’t expire when it is most needed, like unemployment insurance does.

            OK, I’m happy now. I think I know what should be done, but the main task before us remains to get MMT into the public consciousness and into policy makers’ brains and actions. By educating, not by abusing. Being nice, not nasty. Making more friends, not more enemies. Persuading. Convincing.

  27. The argument about JG or BiG being inflationary or not is something of a red herring.

    JG and BiG are no different from any other component of a deficit (assuming we have one). If inflation occurs because of a too big deficit, every dollar of spending has the same inflationary effect. Spending on BiG or JG is no different in inflationary effect from spending on Homeland Security agent salaries or building a new Congressional Office Building.

    Both JG and BiG are counter-cyclical. When the economy booms, they shrink. If inflation occurs, and it is caused by excessive deficits and not some external shock like oil prices, a strong case can be made that the programs that are shrinking are helping alleviate the problem, not causing or aggravating it.

  28. The problem with the high and growing productivity of modern production systems coupled with a capitalist system of distribution is not the productivity of workers both in general and in special cases.

    As the author notes, again physical / engineering terms (efficiency, productivity) are being applied without due respect to the logical, mathematical and operational conditions that give them meaning.

    It is as by the reputation of the technological feats of engineering people use engineering like parlance to make ‘respectable’ their otherwise obviously unacceptable by others ethical options.

    The problem with the high and growing productivity of modern production systems coupled with a capitalist system of distribution is to keep a growing number of people occupied in sane ways; in both a social as well as a personal perspective.

  29. Economists and people who prescribe economics all want the economy to be sufficiently simple so that they can claim to understand it, broadly, but sufficiently complex so that they don’t have to make accurate predictions.

    They want a mechanism, and all of the above explanations are in terms of mechanisms.

    But what if the economy is an open, evolving, complex system? Open == affected by events outside of the economic system, e.g. weather, fads, position of the earth in the galactic orbit. Evolving == the equations are changing continuously as inventions are made, materials substituted, … Complex == lots of feed-back and feed-forward connections, positive and negative, and connections outside of the economic subsystem.

    Then the question is “How do you make a better rainforest?”

    The conceptual gulf between mechanisms and systems is far larger than that between Newtonian physics and quantum physics. Economists don’t want to understand that, as doing so would require them to give up their role as witch doctors.

  30. Alex Seferian (we’re out of reply links),

    Re “the “quality” of the Government spending”

    I recommend you to read all 50 of these MMP blogs, but in particular some of them (the JG ones, toward the end) address this point. My understanding (not MMT-official) is that

    Progressive MMTers have a very strong preference for spending directed at the needy. They say that such spending directly attacks the problem of the capitalist economy not being willing to consume all that it is capable of producing, and the unemployment that results from that truth.

    I also recommend Warren Mosler’s blog, and his policy proposals there. He tends more to undirected spending, such as direct grants to states, and broad tax cuts (eliminate FICA, for instance). If he has a political preference, I can’t detect it. He allows that people will have different preferences based on their political views.

    Direct grants to states, or broad tax cuts, are somewhat similar to digging and filling in holes, in that the first round of action does nothing to increase production. But, in each case, the recipient of the money has more spendable income, and his spending will stimulate the economy to produce more.

    Spending by government to buy something directly increases production in the first round. Thereafter, it has the same general effect as just giving away the money somehow. Progressives say that this, like all government spending, is “directed”, but tends to be directed toward people who are already relatively well-off, like big defense contractors or big construction companies. They call it “pump-priming”, which is a derogatory term for them, and say that it doesn’t “work”, not because it doesn’t add NFA to the economy, but because it benefits the wrong people.

    JG is somewhere in between, because JG workers will often not contribute to what we measure as production, but their spending will stimulate the economy.

    When the economy is not at full employment, there is nothing wrong with the extra spending being “non-productive”. Mosler says “our taxes are too high for the size government we have”. Reducing taxes, or increasing transfer payments, in this situation does not cause any shortage of real resources and so cannot be inflationary, even though it does not add directly to production.

  31. Alex,

    Rodger Malcolm Mitchell has some different ideas, and has developed his own line of thinking under the name “monetary sovereignty”.

    MMTers argue that traditional Keynesian “pump priming” is inefficient and its inflationary impacts kick in before full employment is reached. So to eliminate unemployment they advocate injecting money directly in the economic “base” and allowing it to “trickle up” instead. This is achieved through the JG, which, it is argued, directly tackles the problem of involuntary unemployment in a way which also introduces an inflation control mechanism through the wage floor (a nominal “price anchor”). Wray has argued that JG work should be useful (not just digging pointless holes), and that paying people to do useful work is better than simply handing out money, for a whole host of reasons.

    Beyond that I guess there is debate to be had about which forms of spending are most efficient and productive, or most wasteful and inflationary; what the optimal size of government is and what government should provide directly. Mosler largely tends towards an approach in which people receive the means (money) to make their own decisions on how to allocate resources, within a system of rules (such as those on the banking sector) laid down in advance. Thus government deficit spending provides the fuel which allows the market economy to operate optimally. Much of this can simply mean taking less money away from people through taxes. The zero interest rate policy (which by the way only applies to the base rate) supposedly discourages passive rentier-like behaviour and encourages private money towards productive investment instead. Also, providing a decent income in retirement, and heath care, reduces the need to save, which again frees up resources for private consumption and investment, all of which encourages growth. Other less central though significant policies include reducing dependency on oil through investment in alternatives and de-militarisation.

    Banking sector reform is a crucial part of MMT. I think some MMTers are in favour of debt jubilees, whereas Bill Mitchell for example advocates nationalising the banking sector (this view is not shared by Mosler).

    Mainstream ‘solutions’ to current problems seem to be all about re-inflating asset prices and house prices through monetary policy, whereas MMTers advocate focusing directly on unemployment and generating real growth through direct job creation. I suppose the “malinvestment” (if that’s what it is) of the credit boom would be gradually liquidated over time.

    All of the above is just my personal understanding, and is a simplification.

  32. Alex Seferian

    Golder1john and y: thanks for the responses. I had before reading these set another response linked to the previous thread… a bit of a mix up in terms of how these responses show up. :))

  33. Most of America’s job loses are NOT due to productivity gains but by replacing American labor with non free market labor. Selling off the farm as Warren Buffet once set.

    Mitt Romney made his wealth selling out his fellow Americans. He is a modern day slave owner, not an undertaker.

    Easy debt (printed money from the federal reserve) was used to keep Americans feeling wealthy as their jobs and country got sold out from underneath them.

    Blue collar jobs to China, white collar office jobs to India and the Philippines, and even local menial labor has been replace by illegal non us citizen.

    Nothing do to with free market capitalism.

    MMT simply uses complex language to recommend printing even more money and directly giving it to Americans so that they do not rise up and revolt against the new slave owners / empire owners / … pick your term but they are certainly not capitalists.

    MMT completely fails to account for the global nature of capital and complete lack of a global free market in labor. “Globalization” and “Deregulation” allowed capital to move outside of capitalistic systems into socialist and communist countries were free market labor cannot complete and so was destroy.

    • You said, “Globalization” and “Deregulation” allowed capital to move outside of capitalistic systems into socialist and communist countries were free market labor cannot complete and so was destroy(ed).”

      If by “capital” you mean “dollars,” the U.S. has the unlimited ability to create dollars. We never can run short of dollars. We could pay China, India et al trillions of dollars per year and never run short.

      We also could pay our own people trillions of dollars every year. Unemployment results from the twin mistaken beliefs that the U.S. government is short of dollars or that creating dollars causes inflation. Want to reduce unemployment? See: The Nine Steps To Prosperity

      Rodger Malcolm Mitchell

  34. “our most valuable resource, labor” is one of many blatantly unjustified assumptions.

    None of these MMT blog entries pass simplistic logic tests and are filled with gaps in reason.

    Please provide data to prove that labor is our most valuable resource?

    Please define the words “our” and “valuable”?

    Does Ben Bernanke provide any useful labor that contribute any value to human kind? to American society? I would say not one iota.

  35. Example of how the above MMT arguments are formed and an example of how MMT are similar to religious extremists:

    Are dinosaurs alive today? Scientists are becoming more convinced of their existence. Have you heard of the `Loch Ness Monster’ in Scotland? `Nessie,’ for short has been recorded on sonar from a small submarine, described by eyewitnesses, and photographed by others. Nessie appears to be a plesiosaur.

    Could a fish have developed into a dinosaur? As astonishing as it may seem, many evolutionists theorize that fish evolved into amphibians and amphibians into reptiles. This gradual change from fish to reptiles has no scientific basis. No transitional fossils have been or ever will be discovered because God created each type of fish, amphibian, and reptile as separate, unique animals. Any similarities that exist among them are due to the fact that one Master Craftsmen fashioned them all.”

  36. This is to Alexander in re: labor as the basic unit of value in a real wealth-based economy, I suggest reading Soddy’s “The Bearing of Physical Science Upon State Stewardship”.
    http://habitat.aq.upm.es/boletin/n37/afsod.en.html

    Also his : “Wealth, Virtual Wealth and Debt”.
    Thanks.

  37. This is really pretty disappointing. The subject of inflation is the single biggest obstacle to the recognition or adoption of MMT, yet in all the MMT Primer posts only this one even has ‘inflation’ in the title. But then the post doesn’t even discuss inflation; it only discusses efficiency.

    MMTers have to do a better job of tackling the inflation objection. It should be the first thing they talk about, and they should talk about it a lot. Go into what went on in Zimbabwe, etc. and show how and why that won’t happen under MMT. No one is going to take MMT seriously until they overcome the inflation objection.

    (I know MMTers have answers to the inflation objection. My point is that this blog and perhaps the MMT movement itself doesn’t seem to me to do a good enough job of addressing the objection first and foremost.)

    • It’s correct that MMT begins merely as a description, but evolving from that description are recommendations, most of which recommend increased deficit spending — and that is where concerns about inflation begin.

      Historically (at least since the U.S. became Monetarily Sovereign on August 15, 1971), there has been no relationship between federal deficits and inflation. See: “Federal deficit spending doesn’t cause inflation; oil does”

      MMT does say that deficit spending can lead to inflation when there is full employment, but of course, we are a long, long way from full employment.

    • golfer1john

      It’s true, inflation is the major and most successful argument against deficits. MMT will not be accepted by the public or be adopted by politicians until that argument is debunked. Publicly. Loudly. Convincingly.

      • “MMT will not be accepted by the public or be adopted by politicians until that argument is debunked.”

        The public believes what the politicians tell them. The fact that deficit spending has had no relationship to inflation in 40 years, never will make a dent, if the politicians keep saying otherwise.

        The politicians say it, not out of belief, but because they are told to say it by the .1%. Reducing the deficit increases the gap between the rich and the rest, so the .1% spreads the myth that deficit spending causes inflation. Then they toss in such irrelevancies as Zimbabwe and the Weimar Republic, and the public is brainwashed.

        The only fact that can change this is the fact that politicians are being bribed to widen the gap between the rich and the rest. That’s something the public will believe. Let that be the lead-in to the data, and there might be a chance for the truth to emerge.

        Don’t blame MMT for not debunking the inflation myth. Blame MMT for not telling the world that the politicians say it because they are BRIBED by the .1%.

        • golfer1john

          I won’t argue again about the 0.1%, but I think polling shows that many people, maybe a majority by now, don’t believe much of what they hear from politicians. http://www.gallup.com/poll/5392/trust-government.aspx Skip over the institutional questions, to the bottom where they ask how much people trust the office-holders, and how many they think are “crooked”.

          I think the inflation argument has credibility with people because of their experience with inflation, most especially for those of us who lived through the “guns and butter” of the 60’s and the stagflation of the 70’s.

          And I believe what Warren and Stephanie tell of their conversations with politicians, who echo what FDR said, that a politician can’t afford to advocate any position that the people haven’t first adopted. A leader would not feel that way, but politicians do. The change has to come from the ground up.

          • Yes, people say politicians are liars. And people say the media are liars. And people say the economists don’t know what they’re talking about. And people don’t think their neighbors know economics.

            But, when the politicians and the media and the economists and the neighbors all agree the debt and deficit are too high, because deficit spending causes inflation, people believe it.

            And most of the time, people “prove” it by citing Zimbabwe and the Weimar Republic — not the 1960’s and 1970’s — perhaps because there was zero relationship between deficit spending and inflation during those periods. See: http://research.stlouisfed.org/fredgraph.png?g=iUw

            It’s a volume thing.

  38. While I’m not entirely sold on all the MMT claims/solutions yet there is something I like very much here, which is that you guys seem to take a realistic but still human look at the situation. I have to admit I came from a semi austrian mindset (semi as it was always a bit too out there to accept 100%) and one thing I liked is that they realized you can’t boil a society of so many complex beings and numerous environments into simple numbers, models, equations and etc
    Obviously I do see the need for some numbers, models, aggregation and etc but you here at MMT seem to use data, real life examples and the logical thought processes BUT also mixed with humanity. That these are people with real lives, not just numbers, and great point about how “efficiency” is really not so.

  39. “So now MMT is saying that innovators and entrepreneurs are “undertakers”? What kind of warped view of reality do you have where you write these kinds of things? It’s frightening that you actually believe this.”

    Do they not ‘undertake’ activitities on the behalf of others. Of course they do.

    But as any smart entrepreneur knows it is not them that creates the jobs. It is the people buying the product/service.

    People with money in their pocket demanding goods and services are the real job creators. Entrepreneurs and innovators just ‘undertake’ the creation process on behalf of their customers.