The Politics of MMT (Strange Bedfellows)

By Jonathan Denn

There are the cut-and-dried facts, about how money actually works, which MMT succinctly explains—that those who were unaware—seem to readily grasp.

  1. The US is the issuer of currency not just currency users like households, towns, businesses and US States.
  2. If a country has a marvelous productive capacity, a free floating sovereign currency, and little to no debt denominated in foreign funds—then there is no external reason it cannot spend regardless of taxing or borrowing.
  3. The last seven US depressions were preceded by seven rare public surpluses.
  4. A public deficit is a non public surplus, which means a private surplus after taking into account what leaked overseas.
  5. A private surplus is the point of a prosperous nation, as long as it doesn’t cause hyperinflation.
  6. Banks create money, too. But since it usually has to paid back someday, those dollars are temporary.

The conclusion is that the US is the monopoly issuer of net financial assets. So, given a stable foreign trade balance the only way the private sector can grow is with increased government spending, asset appreciation (inflation), people spending out of savings, or people/businesses borrowing (temporarily) from banks.

But, then newcomers to these rational facts hit the ideology wall. People have it ingrained—that government should be small or at least not interfere unduly in private markets.

I don’t think these two premises, MMT and ideology, are mutually exclusive. What I propose is there are issues and contexts where a majority, perhaps even a supermajority of Americans, could agree on—where, how, and when—public spending can decouple from the restraints of taxing and borrowing.

Small businesses are our country’s backbone, its main employer. If small business owners were to get onboard with MMT, there would likely be a phase shift. So, what does the small business owner want? I propose this package of packaged fiscal reforms.

  1. Not to be responsible for their employees’ health care insurance.

If a person decides to take on risk (which most sane people shouldn’t do, as 97% of new businesses fail) to make a living, get ahead, and build assets—why as a country have we decided to force them to be experts in providing health care to their citizen employees? Isn’t that what government is for? Or isn’t it up to the individual to decide? It is a false equivalence to put it on the backs of small businesses just because it’s easy. If MMT could get healthcare off the backs of small employers, that would be huge.

On main street, I don’t hear many folks who disagree with Medicare for All with available upgrades or fast lanes for those who have worked hard, and want to spend their money that way.

No small business owner, managing their expenses, would design a healthcare service Fee for Service. They would design it Fee for Outcome. This is another reason why small businesses hate the Affordable Health Care for America Act.

  1. Taxes

Many small businesses already take advantage of LLCs and S Corps to avoid also paying corporate taxes. But, again, why do employers who are doing what both sides of the aisle want them to do—employ—have to pay onerous payroll taxes. Geez, if you want more people to be employed, then stop taxing the employers.

Our society is brainwashed about having to prepay for Social Security. If a retired person is essentially living at subsistence levels, eating low quality food, and staying in undercapitalized housing—does it matter where those funds originate? If it’s a prepaid account or simply issued by the Treasury—how will either drive up demand enough to cause inflation yet alone hyperinflation? It almost can’t.

I believe only the large financial industry wants to end/change social security so they can make a profit on it somehow. I don’t think small businesses care about the large financial industry all that much. I think they care about keeping the doors open, making a living, keeping their staff which many consider to be neighbors if not family, and the customers they’re blessed with (or lucky to have). And maybe getting some time off now and again.

If MMT could cut down on red-tape and  paperwork—or—speed up the DMV lines it would be a slam dunk!

  1. Unemployment Insurance

So, when there’s a downturn, why do small employers have to essentially keep unneeded staff on the payroll at half pay? If MMT policies can pick up the slack and alleviate the burden of unemployment costs—small business will stand up and cheer!

  1. Not Competing with the Public Sector for Business/Staff.

This is probably the biggest rub. I believe if small businesses were assured that they would not have to compete with the public sector they would embrace MMT in a heartbeat.

For example: Let’s say a private construction company is minding it’s own business, and along comes a government construction project nearby that pays higher wages to truck drivers, crane operators, carpenters, and the rest of the trades. That private employer can’t compete on wages, and loses staff that THEY took on the risk to train. Geez, thanks Uncle Sam.

But what policies would prevent this? Perhaps index infrastructure work to the local labor pool, and only award contracts to local construction firms.

Hmm, but why is that not happening now? Because Big Government awards Big Contracts to Big Government contractors. These contractors are not barred from making campaign contributions. See the cyclical nature? Both reformers, Robert Reich on the left and Peter Schweitzer on the right have called upon President Obama to issue an Executive Order banning campaign contributions by government contractors. Why, oh why, won’t President Obama do so? Hmm, potential third-act speechifying?  I still have hope that President Obama will do the correct thing.

  1. Jobs Guarantee (JG) Program

Well, a high unemployment rate does drive down the cost of labor—which benefits employers. But unemployed people are essentially removed from the customer pool. So, I happen to like the idea of the federal government being the Employer of Last Resort (ELR) or at least funding the States and/or nonprofits, to be. But here again, if an industry, with small businesses, has jobs that are anti-glamorous, and these JG jobs are even a bit more attractive, local employers won’t support it. Snatching MMT defeat from the jaws of MMT victory.

How do we find a balance? Not sure, but certainly JG shouldn’t pay a higher wage, or for that matter even par private wages. Maybe there is a low “Federal Minimum Wage” that incentives workers to hunt for higher wages in the private sector. Maybe there are subsidies to employers for hiring JG employees. Maybe there are subsidies for employing folks in industries that have inelastic pricing. Maybe expanding the Earned Income Tax Credit (which is already supported by some conservatives.)

I believe there are also public policies that a supermajority of Americans can agree upon.

  1. Veterans’ Health Care Benefits Equal to that of Congress.

Polls show that most Americans want better healthcare for Veterans, but “how can we afford it?” And most Americans disapprove of Congress’ performance. Do we have the productive capacity to give Veterans better healthcare? Of course we do. Are Congress members more patriotic than Veterans? No. If dollars were spent into existence out of seignorage then in a very short time we would likely treat Veterans to the healthcare and respect they deserve. I doubt Congress will line up at the VA. I believe this would bridge MMT with the political will.

Possible dissent: Are there enough mental health professionals, nutritionists, holistic healthcare practitioners, physical therapists, medical devices to help our wounded warriors without causing hyperinflation in healthcare? I think there is, and if there isn’t then our marvelous society will adapt to fill the need. Given the resources MMT can provide.

It is despicable that Congress and the Executive Branch won’t care for our wounded warriors. SHAME ON YOU RED AND BLUE!

  1. The Right to A Fraud-Free Counted Vote.

Liberals want unfettered access to the polls although it makes it easier to vote more than once. Conservatives want to make sure that only citizens vote and only once.

The answer is to assure a fraud-free counted vote. Rather easy solutions only require modest fiat federal funds.

Almost everyone does business with their State or Federal Government. Frictionless automatic voter registration is just a matter of enough coders, and local frictionless double checks. If a State can’t afford voting machines, I mean, c’mon really? Print the currency and give it to the State. This isn’t brain surgery. We can even afford the purple ink for thumbs. What is currency for, after taxes, but to assure a fraud-free counted vote (if you chose to vote that is)?

These last two are what I call—true equivalence—or the greater overlap. All too often the two parties in Congress come up with solutions with false equivalence. Cabbage is good, chocolate is good, chocolate covered cabbage isn’t ordered in any restaurant by anyone. Look at the Sequester or the Affordable Health Care for America Act—is that any way to run a country?

After one or a few popular items decouple US spending from taxing and borrowing, and the world doesn’t end economically, then Congress can get on with the jobs of deciding between freedom and order, between the rights and responsibilities of the public and private sectors, and the roles of meritocracy and justice in our society—but with a better capacity to implement solutions thanks to MMT.

Even with the above policies being popular enough to be passed into law, is it the MMT slippery slope that deficit hawks and doves don’t want to slide down? Maybe. But packaging thoughtful, epistemic popular solutions—first—appears to me to be better political rhetoric.

The US is in an exceptional and enviable position: it has marvelous productive capacity, a willing workforce, and sufficient risk takers—all in a society with a free floating sovereign currency with no significant debt denominated in foreign currency. There is no reason currency can’t be issued for the things WE (the supermajority) NEED as long as it is agreed upon by a majority of the left and the right.

MMTers, in my humble opinion, should consciously split “corporate America” into “main street businesses” and “crony capitalist big business.” It is an insult to do otherwise. Small business owners and leaders are heroes and potential allies of MMT.

—-

Jonathan Denn is the editor of aGREATER.US an internet platform to find epistemic supermajority policy solutions. He is a board member of the Clean Government Alliance, a SCORE Mentor, Vistage Chair, and business coach.

 

59 responses to “The Politics of MMT (Strange Bedfellows)

  1. Jerry Hamrick

    Wouldn’t item number 4 hold down wages for workers?

    I understand the problems of small employers. I owned a dress shop on the square in a small Texas town until recently. Low wages were paid by every shop on the square. The workers could not catch a break. Paying higher wages suppressed profits for the owner. Taxes were minimal. Wages were the biggest modifiable expense. Cost of goods was immovable. Utilities impossible to change. Maintenance, insurance, and the like were carved in stone. Dues to merchant associations were inflexible. Buying trips to Dallas Market Center steadily increased in expense over the years. Wages were the only place to find any wiggle room. So, overall the whole business environment in this small town was to drive wages down and down and down. I did not like it but I could not stay in business otherwise. It is easy to blame all of the other expenses, but the cost of people is the expense that most small employers try to reduce. I paid no health insurance benefits or any other kind of benefits and no other shop did either. So, over time, the owners of these shops finally started working in the shop full time. They replaced one of their employees. Owning a business meant that you had bought yourself a job, nothing more. So, after a while, I sold out to someone who just knew he could overcome the facts of life. Now he has sold out, and more and more of these businesses are turning over. Younger people are coming in from nearby large cities and they bring with them their dreams, and the capital they have saved at better-paying jobs. But the facts of economic life do not change.

    In my opinion, your ideas are simply an attempt to tweak the current economic system. They actually sound rather Republican to me. Trying to make the current system work better will not solve our problems. The current system is fundamentally designed to exploit workers. The only hope is to replace it, and I hoped that MMT would be the answer, but the leaders of the effort are missing in action.

    There are several barriers to change that MMT does not address. It is one thing to have an idea, it is quite another to make it a reality. MMT’s leaders are not experienced in the latter. There are four fundamental questions that must be answered:

    (1) “Where do we stand?” MMT has done an excellent job in answering this question.

    (2) “How did we get here?” MMT has not paid much attention to this question, I suppose because the leaders already have an understanding of “how.” But they have not formulated a coherent, overarching description of the reasons why we are in our present predicament. This description is the foundation to build the answer to question 4.

    (3) “Where do we want to go?” MMT does not have a good answer to this question. They have a few high-level ideas but they fail to drill down to where the rubber meets the road–they fail to tell a story that will get the people excited about changing.

    (4) “How do we get there from here?” MMT has no clue and is not interested at all in developing an answer to this question. This is understandable. They think they have done their part–they have explained to the rest of us how our current system is in error. So, it is up to the rest of us to answer these four questions, and the answer to question 4 must lead to a comprehensive replacement of our current system, which among many other changes, must dramatically raise the income of ordinary workers. Which, Mr. Denn, respectfully, your plan does not do.

    • Jerry, you should keep reading about MMT.

      Warren Mosler says that in a good economy, businesses compete for workers. Like that local construction company with big competition, who is forced to pay the “going rate” for scarce labor, or lose employees. MMT would promote full employment, a good economy, where labor again has bargaining power.

      There has been much written about how we got here and where we want to go. How to get there is not all that hard, and doesn’t require a “comprehensive replacement of the current system”. JG is a radical idea, I admit, but nothing else that MMT proposes is really new. It’s all been done before, perhaps subconsciously in some cases, but those experiences can be referred to with the new knowledge of MMT. Mosler has some simple proposals, e.g. eliminating FICA, grants to the states, ZIRP forever, banking reform – or more aptly, un-reform- and others. It’s all been done before, MMT puts it together in a theoretically coherent package.

    • That’s a good description of life for a small business owner in a fully competitive industry with a very low entry barrier for new market participants. There are plenty of these books and speeches out there from business tycoons turned book-promoters pointing out the importance of finding your monopoly or competitive advantage (such as by Peter Thiel). Not that they could ever tell you where yours actually is. If they could, they’d have done it themselves.

    • Assuming JG would greatly increase employment (since adult workforce participation is still only around 63%) the increased demand from those newly employed would start driving up wages in the private sector.

  2. This post and Jerry’s comment speak to important questions about how best to apply the policy implications of MMT to the task of achieving progressive change that works for everyone (though perhaps not as well as the exploitive status quo works for some members of the 1%).

    It reminds me of several recent NEP posts by Randy Wray, J.D. Alt and Joe Firestone and my comments in response to them, all of which I believe pertain to this post and Jerry’s comment. Since I don’t have time right now to integrate them into something more clear and concise, I’m going to insert edited excerpts from them below [with some additional note in brackets], and hope they strike Jonathan, Jerry and some other NEP readers as relevant. My sincere apologies if they don’t, and for the length of this “consolidated” comment.

    The short version of this comment is that it’s timely and important for the MMT community to link arms with progressives (and, per Lakoff, bi-conceptuals who have a mix of progressive and conservative views) to hammer out a set of MMT-informed progressive policies, and with political/electoral reformers to develop systems that enable our political system to adopt, implement and refine these policies, which typically enjoy support from a majority of the population (but not what Jonathan refers to as “crony capitalists.”).

    For those with time, interest and patience, the long-winded version is below:

    Comment responding to a recent post by Randy (and an older one by Bill Mitchell), suggesting that the MMT and “economic democracy” communities (including the Democracy Collaborative and its Next System Project) are natural allies:

    Thanks for recommending Joe Guiran’s piece, Randy. One thing that strikes me as very positive is that Joe is director of the Democracy Collaborative’s “Next System Project.” This suggests to me that the truth and economic and political significance of MMT is being embraced by key members of the “economic democracy” movement.
    http://democracycollaborative.org/content/next-system-project

    Thinking about this reminds me of a blog post by Bill Mitchell a few years back, and my own post discussing it:
    http://evolvinghumansystems.com/2012/06/03/mmt-the-new-economy-movement-a-macro-micro-marriage/

    As I said back then, I see a political alliance that combines MMT with the principles of economic democracy as potentially very powerful. And, as I also said, I see the addition of an effective political/electoral reform agenda to this alliance as important (and perhaps essential), since even the most compelling and popular policies may not prevail if our political system remains as deeply corrupt as it is today.

    To update the political reform recommendation of my earlier post, I’d expand my endorsement of Larry Lessig’s proposals to also include the Interactive Voter Choice System (IVCS), which Joe Firestone has written about here at NEP. [My sense is that Jonathan’s aGreater.US initiative is complementary to the goals and operation of IVCS].

    I believe that if we can closely link these three components of policy reform–MMT at the macroeconomic level, increased economic democracy at the community and enterprise level, and fundamental reform of our political democracy–we can develop a political movement potent enough to shift the direction of this country in a truly progressive direction.

    Comment responding to and linking recent posts by J.D. Alt, Joe Firestone and Bill Black, regarding how MMT can be central in developing a powerful progressive movement that can succeed politically and deliver the goods once it does:

    I see [Forbes’ columnist Tim] Worstall’s column (and Stephanie’s appointment) as an indicator that MMT’s influence is moving into a new phase, where folks like Worstall are basically saying, “yeah, you’re right about the economics, but I trust the Banker Barons more than democratically elected politicians.” At least he’s relatively honest, if not fully explicit, about his motivations, which takes the debate about MMT in a somewhat different and more political direction.

    In my mind, this new phase in the MMT-related debate relates to J.D. Alt’s recent post about “dynamic” vs. “static” scoring of public investments, and Joe Firestone’s post explaining how the Interactive Voter Choice System (IVCS) can help make our system of democracy work more effectively to support citizens in making collective decisions about how to live together (and with our natural environment) in a relatively peaceful, free, fair, healthy and prosperous society.
    Taken together, what these posts (and comments like Neil’s) point to is a political reform movement that advocates political and governmental systems and public policies that build on the economic insights and “expanded policy space” provided by MMT.

    These include 1) well-developed dynamic scoring of public spending/investment per J.D.’s post, to help policymakers evaluate and compare policy and spending options; 2) a mix of well-designed automatic stabilizers (including a JG program) as described in this and other NEP threads, MMT papers, etc; 3) democracy-enhancing systems like IVCS, which helps ensure that our governmental systems and policies reflect “the will of the people” rather than of the “banker barons” and other .01%ers, and; 4) the kind of regulatory and enforcement policies and mechanisms that folks like Bill Black have been passionately and eloquently advocating for years.

    In response to a 12/2/14 by Randy about how George Lakoff’s work is relevant to communicating about MMT:
    ( http://neweconomicperspectives.org/2014/12/answer-unemployment-problem-jobs.html )

    Great and important post Randy. Something that struck me as I was reading it–especially as you discussed Lakoff’s work and its application in our day-to-day interactions–is that a “putting Americans to work doing useful things that help their neighbors and strengthen their communities” message seems likely to resonate with a good portion of “bi-conceptuals” that tend to lean conservative on a lot of issues (including economic ones).

    In my mind, this is tied to the word “dignity,” and Robert Fuller’s work related to it (see, for example: http://www.breakingranks.net/ ).

    I think it’s fair to say that most people, including “bi-conceptual conservatives,” can appreciate the “dignity of work” and the value of making a contribution to one’s community (local and/or national). My sense is that (“deficit fears” aside for the moment) only those so steeped in resentment, fear and prejudice that they can’t see others (e.g., of different races, genders, religions, sexual preferences) as human beings with inherent dignity (and worthy of being treated as such) would reject a Jobs Program that was grounded in the values of “human dignity,” “the dignity of work” and the social value (and just plain common sense) of “putting Americans to work doing useful things that help their neighbors and strengthen their communities.”

    And my guess is that the percentage of the population with this deeply ingrained inability to accept the dignity of “others” is small and getting smaller as time goes by. That’s good news, at least in the long-term (assuming us humans have a long-term to look forward to).

    From this perspective, what makes sense to me is a policy and communication strategy that STARTS with (and, as Randy suggests, stays grounded in) these dignity-based values and value statements. Once that shared sense of value is established (and maintained), the logical question is “how best can we make this a reality in today’s economy?”

    That’s where a clear and concise explanation of MMT–especially if it maintains this dignity-based value framing–can be especially potent. In my view that explanation should be as simple as possible and (at least initially) explain only as much key details as is necessary to elicit an “aha moment” regarding the fundamental difference between a sovereign currency issuer and “the rest of us” when it comes to terms like “spending,” “budget deficit,” “debt,” etc.

    Seems to me that, if those listening to an explanation of MMT and its policy relevance were pre-primed to listen through what Fuller might call a “dignitarian” emotional/perceptual filter, they would be more patient and receptive to explanations that initially and at various points in the explanation seem to conflict with their conservative “we need to stay within our budget” value frames (which my experience suggests are actually shared by a lot of mainly “liberal/progressive” citizens).

    Thinking about this reminds me of Ken Burns’ recently released “Roosevelts” documentary, especially the segments about FDR and Eleanor. I found their leadership and communication skills, exercised during a period filled with immense national challenges, deeply impressive and inspiring–and very relevant to today’s reality–and I suspect that most other viewers of the program did as well.

    In terms of language, I’d suggest leading with “putting Americans to work” rather than a “job guarantee.” Though the latter follows naturally and powerfully as MMT is explained, I think the former is more likely to travel unimpeded into the conceptual frameworks of bi-conceptuals who lean conservative in their reaction to words like “entitlements” and “guarantees” vs. “making your own way,” “nothing’s guaranteed except for death and taxes,” etc. This isn’t so much a matter of logic as it is a question of words that trigger value frames and emotional reactions…and, too often, the shutdown of logical thinking.

    • Someone has suggested framing JG as “Workfare 2.0” in order to appeal to the self-reliance crowd. I wasn’t aware that “workfare” was a curse word in Progressivism. Maybe both sides need to yield a little in their rhetoric.

      • Joe Firestone

        Workfare has a particular connotation that’s really objectionable to progressives. specifically it has the connotation, based on previous practice, of coerced labor at low wages in place on unemployment insurance and other aspects of the safety net. The JG, most emphatically, is not about coercing people who are unemployed. It is purely voluntary. It calls for a JG in addition to the current safety net. It does not propose low wages, but living wages with excellent fringe benefits. So, it is a different animal entirely from workfare, and I believe we should have nothing to do with that meme at all, but instead, if the subject comes up emphasize how different the JG is from workfare as practiced in the UK and other places where it has been tried.

    • I find IVCS most interesting in the context of a reimagined House of Representatives. The Original First Amendment, as written by Madison, was supposed to cap the size of Congressional Districts to 30,000 people. It was dismissed because of bad language (possible sabotaged) making it unclear how to interpret. You can read about it here. http://agreater.us/billpage.php?id=147. If the House were even as much as 1000 elected officials who mostly stayed in their districts and used a IVCS platform—it would be a phase shift compared to the mess we have now.

      With regard to electing the President and Congress, I have no doubt that Approval Voting is the best method. I wrote about it here. http://ivn.us/2013/05/07/will-banning-single-mark-ballots-make-greater-elections/ It would break the bias of a two party system.

      • The house is not what it was meant to be. If you cannot expect to meet your representative then you cannot expect to be represented. I think it should be closer to 1 every 5000

      • Joe Firestone

        Jon, IVCS isn’t about re- imagining the House or necessarily any changes in the formal structure of Government, even though people who use it may want to change our institutions and may be successful in making that happen.

        What IVCS is about is changing the social and political context of political interaction so that participants in the IVCS, of all political stripes and shades of opinion, will be able to use the IVCS platform to join with people whose views are similar to their own directly, without the intermediation of political parties or Washington interest groups, and without the need for large sums of money for mass media buys, to create voting blocs and electoral coalitions comprised of voting blocs, organized around policy options, priorities and policy agendas they create and favor.

        They’ll develop these voting blocs and coalitions from the bottom up through negotiations with their fellow participants and they’ll attempt to get office holders and candidates to commit to these agendas on pain of foregoing the political support of the voting blocs and coalitions if they do so commit. For office holders who have promised to do all they can to enact certain agendas, the voting blocs and coalitions, will, through using IVCS facilities, hold them continuously accountable by communicating what actions they expect from office holders, and also their satisfaction or dissatisfaction, with the performance of these officeholders, up to the time of their communications.

        Nothing like the IVCS exists today. Sure parties and formal interest groups receiving funding from the rich are in continuous communications with officeholders and their staffs, and these actors claim to represent the people. But voting blocs and coalitions organized by the people themselves do not continuous interact with, monitor, and hold accountable our officeholders. This is the root of the failure of today’s democracies. Day-to-day interaction with ruling elites comes from other elites and that kind of interaction always exhibits the tendencies pointed to by Robert Michelson in his book political Parties, and often referred to as embodying the “iron law of oligarchy.”

        The IVCS cure for the iron law is bottom up continuous self-organizing of people into voting blocs and coalitions, a continuous democratic dynamic that will introduce into the political system a permanent counter to the tendencies for elite interaction to harden into oligarchies. This counter is not based on any changes in current legislation, or any changes in our present institutions even though this new meta layer to politics is very likely to result in many desirable changes. What is interesting about the IVCS will be its very existence and continuous bottom up operation and consensus building, and not any specific effects it may have on Congress or any other institutions, other than the end of their current domination by the wealthy, the powerful, and the big corporations of various kinds, and, of course, the current selling of the Government to the highest bidders.

  3. Jonathan, I think you’re onto something. MMT does need a wider support base than just Progressives, and much of it would appeal to self-described conservatives, libertarians, and Republicans, if the political flavor were to be toned down, a la Mosler.

  4. *Good* employers – the ones you want to keep – will never really compete with the Job Guarantee. They’ll already be offering more interesting work, at better pay with better benefits than the standard Job.

    But you have to remember that businesses come and go. The idea that all must succeed and prosper is nonsense. Busienss isn’t like that. We want to farm good businesses that *will* eliminate jobs with productive machinery and are encouraged to do so.

    So there is a limit to how far the ‘business owner’ should influence policy.

    Because you need to treat businesses like cattle, not pets.

    • Neil,
      To clarify, I’m suggesting that the political power of small business owners and managers, say under $100 million (maybe even under $1 Billion), who are a lion’s share of the employers in the country, may be all that’s needed to garner some implementation of MMT policies that are at the crossroads of popular and epistemic. I suspect this is the same block that handed Congress back to the Republicans because they hate having had this country’s health care crisis dumped on them. There’s a flip side to that coin, and it might be platinum.

  5. In my opinion MMT enjoys a positions that can draw support from left (Spending) AND right (Low Taxes). This is a unique political position.

    I prefer equally distributed helicopter drops for increasing net private surpluses…This woukd be less structured and more politically palatable to those people whom fear and dislike a too powerful and distant central government which we know will be subject to cronyism, and other forms of corruption. …a legitimate concern in my mind.

    • Joe Firestone

      I don’t believe that politics today is about the left and the right, anymore. Now, it’s about the haves and the have-nots.

      • That is what we want the politics to be about….but politics remains framed and pushed by left and right political dipoles in order to keep entrenched interests

  6. Joe Firestone, through his book and many other writings, has done the best job of developing answers to these questions. He and I have had a brief exchange on another blog on the question of what it means to have a new economic system. As far as I am concerned he has demonstrated an open mind and a sincere desire to change our economic system so that it works for the common good. I have watched his work as it has developed over quite a long period, but he has been more or less alone.

    No one should think that Joe Firestone and I agree on very much, because we don’t. But his work seems to be aimed at change, and I know that my work has the same aim. And our mutual aim is based on the most fundamental element of economics: nothing good happens until somebody sells something to somebody else. Saying that the other guy has a poor product is not selling. Saying that I have a better product is not selling. Saying that this product will feed your children, put two new cars in your garage, provide free health care, guarantee a comfortable retirement, provide significant interest on savings accounts with no risk of principal, provide low-interest (or no-interest) home loans, free educations through grade 16, a floor on income, a job that pays well or job training that pays while one is in training, more than double the average household income, etc. and you can have it by 2018 is selling. See the difference?

  7. The jobs guarantee proposal includes the proviso of a “living wage and benefits”
    I don’t believe Shiite wages is helpful or much different than now and unemployment.

  8. The title of Jonathan’s post is actually incorrect – rather than MMT and politics being “strange bedfellows” MMT has no choice but to get into bed with politics. It is only in the political arena that MMT will ever achieve the practical potential of its ideas.
    However, the sixth point in Jonathan’s list “Banks create money, too. But since it usually has to paid back someday, those dollars are temporary” seems to be the incredible blind spot in relation to MMT thinking. The Banks certainly do create “money”, and in truth, they represent the largest source of money creation in probably every nation. Far from this money being “temporary”, the fact that the Banks charge interest on every loan they make, means they have to create a never ending supply of additional money so the interest can be paid.
    In the case of a mortgage loan over, say 25 years, the interest paid will amount to around 200% more than the initial loan. That interest can only come from the banks creating other loans to feed into the system, and thus increase the “money” supply. There is nothing “temporary” about this – it is a perpetually increasing process that makes the private banking system the nation’s largest source of “money” creation – not the Government.
    For some reason, MMT refuses to see the reality of this. But MMT is correct in the concept that the Government ought to be the primary authority for creating the money supply. They could do that by “selling” properly controlled amounts of “credit creation” to the private banking system. The controlling factors would be the relation between productive capacity and the consumption capacity of the nation, or the State, or the region or the town. There is absolutely no point in producing anything, good or services, if it is not going to be consumed.
    As for taxes, if the money supply is linked to the production and consumption capacity there would be no adverse inflationary pressures. Despite all the conflicting opinions about “money”, its fundamental purpose is as an acceptable and guaranteed medium of exchange – and who better to provide that “guarantee” than the Government with the sole authority to create “legal tender”? Lincoln’s “greenbacks” were created precisely for the purpose of providing an acceptable and reliable medium of exchange. They filled a public need and had nothing to do with any tax system to justify their creation.

    • Graham,

      The title is The Politics of MMT, the strange bedfellows refer to MMT progressives and small business conservatives.

      The interest paid on loans in the private sector comes from the private sector. So, no net increase in private sector wealth is created. It’s just one private sector pocket into another—borrowers to banks.

      By the way, just to be clear, I’m not the other Jonathan.

    • “There is nothing “temporary” about this – it is a perpetually increasing process that makes the private banking system the nation’s largest source of “money” creation – not the Government.”

      The Fed has to supply that build up of interest by buying the debt. The Federal Govt is constrained from altering the quantity of money in the economy by the bean counter rule; spending = taxes + treasuries sales. Govt spending/taxing/borrowing moves money around in the economy but neither adds nor subtracts from the quantity. The Federal Reserve controls the quantity of money in the economy and that is their source of power.

      • Are you saying Charles, that the fractional reserve system doesn’t apply to the private banks and all money is created by the Federal Reserve. That is exactly the opposite to everything I have read about the way private banks work. As I understand it, the Fed supplies the Government with funds by buying Treasuries, but every private bank operates on the fractional reserve system that allows them to create loans to the extent of 10 to 12 times their statutory reserve . If I am wrong on this, please correct me.

        • Graham, I believe the Federal Reserve is prohibited by law from buying treasuries from the US Treasury. They can only buy them from people/entities who have first bought them from the US Treasury and that adds money to the economy that was taken out when the Treasuries were initially sold. All of that happens via policy from the FOMC and conducted by the New York Fed and it is the basic tool for control of the money supply per Fed documents. It is a backdoor method that changes bank deposits and reserves but it does via fractional reserve banking control the money supply. And by the way, the reserve requirement makes the judgment of how much debt to buy become critical because if the FOMC makes a mistake of “x” the fractional reserve process multiplies that mistake by one over the fractional reserve requirement.

    • ” That interest can only come from the banks creating other loans to feed into the system, and thus increase the “money” supply.”

      That is wrong. Plain and simple. And demonstrates a lack of understanding of how the circulation works.

      Interest is denominated in $/month whereas the Loan is in $

      Treating interest and loans as the same is a stock/flow mismatch. It is exactly like treating miles per hour and miles as the same.

      Interest comes from the flow of funds – the circulation of money initiated by a bank loan. So what happens is the money circulates, bankers get paid interest and then they *spend* that interest on consumption for their staff and shareholders.

      In other words it is precisely the same process as profit. Interest is just profit for bankers.

      The stability of the private circuit has been demonstrated by Steve Keen in simulation format. You can sit and watch it operating as the same quantity of money circulates around the private circuit at varying speeds – increasing and decreasing the amount of interest that bankers get (and profit capitalists get), but dynamically stable as bankers and capitalists engage with the economy.

      The sovereign’s power is simply that it can change the quantity of money in this circuit by fiat – either increasing or decreasing the amount, and attempting to influence the flow by buying things. It can do this because regulated bank liabilities are pegged to the state’s currency.

      This notion that bank liabilities are somehow dirty or evil needs to die. It is an incorrect belief and has become a religious mission for some. It has no effect at all on how the system operates.

      • Neil, with due respect, I believe your dimensions on interest are incorrect. It should be $ per month per $ otherwise you would be saying the same interest is paid on a loan of 100k as a loan of 10k.

  9. “Living Wage” is quite variable based on local costs, and household size. Certainly a singe person, living alone, making minimum wage is still under the poverty line. But a single person living with roommates or at home with parents is above the poverty line lifestyle because of reduced expenses. And a couple both making minimum wage are above the poverty line. Overheated markets could be managed as exceptions. There may be political will to have JG, or package it as a redefined Workfare 2.0 or Jobs for All as suggested above, if the jobs were short-term, project based, nonprofit, noncompeting, and infrastructure jobs like during the depression. My guess is it wouldn’t get us to full employment but close enough to reignite better paying private sector job creation that would.

    • The JG must get us to full employment simply because it guarantees a job at a living wage to anyone who wants one. If people decide not to take that offer, they are not “unemployed” in the sense that are being forced not to work!

  10. Jerry Hamrick

    To Jonathan who told me that I “should keep reading about MMT.” and who told me twice that MMT’s proposals have “all been done before.” “subconsciously in some cases.” I can only say Jonathan that I have read and read and read MMT here and elsewhere and I say that it has not all been done before. In the movie “Moneyball” the coaching staff of the Oakland Athletics is meeting with Billy Beane (Brad Pitt) to establish the player roster for the coming season. They are in a deep hole because their three best players have all gone to free agency. The coaches are talking about a prospect that is a “real player” and who is a good hitter. Beane asks “If he is such a good hitter then why doesn’t he hit good?” The coaches had no real answer. So, Jonathan, if MMT’s brain trust is so full of good ideas that have already been implemented before, then where are they? Why are we still on the economic system that was established before 1913, maybe many years before?

    There has been much written about how we got here and where we want to go. How to get there is not all that hard, and doesn’t require a “comprehensive replacement of the current system”. JG is a radical idea, I admit, but nothing else that MMT proposes is really new. It’s all been done before, perhaps subconsciously in some cases, but those experiences can be referred to with the new knowledge of MMT. Mosler has some simple proposals, e.g. eliminating FICA, grants to the states, ZIRP forever, banking reform – or more aptly, un-reform- and others. It’s all been done before, MMT puts it together in a theoretically coheren

  11. MMT should side with both Progressives and Right Wingers and support paying off the national debt by simply ceasing the sale of Treasuries. The T$ coin notion essentially does this by the backdoor so why not put it front and center? One great effect that would happen quickly is that the big money in treasuries would have to be spent, invested or put in a bank account like the rest of us. The sneaky part is that it would put the Fed on the ropes. They can’t really function without the national debt. The other sneaky thing is that Congress would have to start dealing with the size of the national money supply using their tools which are much stronger that the Fed’s tools. Spending and taxing are ideal for monetary control; much stronger than the Fed’s open market operations. But an up front “We want to pay off the national debt and we know how” would be an attention getter.

    • Thanks, Charles. Of course I agree with removing the debt as a political issue from the table. However, why do you think using the platinum coin to fill the public purse would “put the Fed on the ropes”?

      • Paying off the national debt would put the Fed on the ropes. And that would be the result of minting T$ coins AND curtailing sales of treasuries. With the debt at zero the national government would have to accept monetary responsibility because they (legislative and executive branches) would have the only tools available for controlling the money supply, i.e. by taxing and spending. The central bank would no longer be able to control the economy by controlling the money supply. The Fed would then become an administrative agency, not a policy making agency.

        • Joe Firestone

          Fed policy now controls interest rates, rather than the money supply directly. In the world of the platinum coin, the Fed could still control those rates by paying interest on reserves at a rate of its choosing. That would then serve as a functional substitute for bond sales draining demand away from economic activity.

          It is true that the Fed in a platinum world would be viewed as having less influence than now, because the role of fiscal policy would probably be much larger, but arguably Fed policies now have very little influence over the economy and only seem important to people in the absence of active fiscal policy and the presence of a raft of false beliefs about the effectiveness of monetary policy and the importance of bond vigilantes.

          So, I guess I’m saying that I think the Fed is already “on the ropes” since its actions have had little positive effect on the economy, and its lack of action in exercising its authority to regulate the banks and curb their rampant speculation, has had nothing but negative effects on the economy and was probably an important factor in the crash of 2008. I might add that the regulatory responsibilities of the Fed would remain even in a platinum world, and that if the Fed accepted its role in this area and actually exercised it, then it could be very important indeed in impacting the future economy.

          • Thanks, Joe. I like to learn. In the T$ world eventually, with greater and greater contributions to the money in the economy coming from govt spending exceeding tax revenues, wouldn’t we eventually have a full supply of interest free currency in circulation with a reduced influence by even interest rates? I haven’t tried to think that through but am interested in your take.

            • Charles, right now deficit spending by the Treasury initially leaves debt instruments as new net financial assets in the economy. These are eventually either converted into reserves when the Fed buys the instruments or when they’re redeemed The instruments can also lead to money creation in the shorter run when they are used as leveraged collateral for bank loans where, as you know banks create money “out of thin air.” So, any way you slice it current practices lead to a great deal of money creation. I doubt that the level of money creation would be any greater if the net financial assets left in the economy by Government deficit spending were in the form of reserves or currency, rather than in the form of debt instruments.

              For a more detailed explanation see here.

  12. Guranteed income. Why does everyone need to be working? To fake it?

    • Everyone doesn’t need to be working. But those people who want to be working ought to be able to find jobs at a living wage. That’s part of FDR’s economic bill of rights, and it’s only just since we know that the root cause of unemployment is the monetization of the economy and the authority of the Government to determine the money supply and to regulate the economic rules and conditions that either create full employment or unemployment. So, if the existence of money and Government policy is the ultimate source of unemployment, it is only right to require the Government to use its fiscal authority to remove the unemployment problem through the JG.

  13. Hi Jon,

    Mostly, I really like this piece, and especially the idea that an MMT-based agenda could be formulated that would be popular with small businesses.

    However, I have some questions and comments for you.

    4. Not Competing with the Public Sector for Business/Staff.
    This is probably the biggest rub. I believe if small businesses were assured that they would not have to compete with the public sector they would embrace MMT in a heartbeat.

    Well, what kinds of assurances are you looking for? Which private sector “small businesses” are now subject to federal competition? I can’t think of any. In fact, I believe that the Federal Government goes out of its way not to compete with small businesses, and that it has even gone so far over the past 40 years or so to farm out what had been Government functions to “small businesses” to the detriment of those functions. Of course, I’m thinking of the course of Government contracting over the past 40 years or so which has turned over Federal business to private employers to their great enrichment with what overall seems to have been a substantial degradation in performance of these functions.

    For example: Let’s say a private construction company is minding it’s own business, and along comes a government construction project nearby that pays higher wages to truck drivers, crane operators, carpenters, and the rest of the trades. That private employer can’t compete on wages, and loses staff that THEY took on the risk to train. Geez, thanks Uncle Sam.

    My impression is that where any “government construction” projects that are contracted out to business, and where the pay is higher than that paid by local businesses, this is often due to local businesses not just minding their own business, but paying substandard wages to vulnerable employees in a less than full employment economy, who have very little bargaining power with the construction company. Where this kind of thing is going on, I wouldn’t want either “MMT” or the Government to guarantee to small businesses that they will be protected from the folly of their own actions.

    But what policies would prevent this? Perhaps index infrastructure work to the local labor pool, and only award contracts to local construction firms.

    So, what if the local labor scale is $7.25 per hour? Then do you advocate that the Government contractor ought to pay that, rather than have to pay the $10.10 the President has mandated for federal programs? I don’t think so. My own view is that private businesses small or large that can’t afford to pay a living wage do not deserve to be in business. I include businesses like Walmart in that category.

    Hmm, but why is that not happening now? Because Big Government awards Big Contracts to Big Government contractors. These contractors are not barred from making campaign contributions. See the cyclical nature? Both reformers, Robert Reich on the left and Peter Schweitzer on the right have called upon President Obama to issue an Executive Order banning campaign contributions by government contractors. Why, oh why, won’t President Obama do so? Hmm, potential third-act speechifying? I still have hope that President Obama will do the correct thing.

    I entirely agree with you here. But I’m afraid that it would be difficult to make this stick without impeaching at least a few of our current Supreme Court justices who appear to believe in plutocracy above all.

    Jobs Guarantee (JG) Program

    Well, a high unemployment rate does drive down the cost of labor—which benefits employers.

    They may think it does. And it probably does benefit a few families like the Waltons in the short run. But we, and you, know very well that high unemployment hurts the economy as a whole and hurts sales, and that ultimately what hurts sales hurts businesses, big and small.

    But unemployed people are essentially removed from the customer pool. So, I happen to like the idea of the federal government being the Employer of Last Resort (ELR) or at least funding the States and/or nonprofits, to be. But here again, if an industry, with small businesses, has jobs that are anti-glamorous, and these JG jobs are even a bit more attractive, local employers won’t support it. Snatching MMT defeat from the jaws of MMT victory.

    It’s not an MMT victory if we have a JG wage and fringe benefits that are less than a living wage and less than adequate to give people decent lives. The MMT JG is not about allowing local employers to continue the bandwagon of screwing workers that has characterized the US for so many years now. It’s about creating a decent transition job that both creates a price anchor and also guarantees employment at a wage that allows people some dignity in life. Private sector employees large and small will have to pay higher wages that the JG to get people. That’s not a tragedy. It’s a beneficial feature of the JG. Again, if a small business can’t adapt to that than it has no business being in business. It can’t be the public purpose of Government to support small businesses that exploit labor. And to pay less than a living wage is to exploit labor and the unemployed who would like to work and must take anything to get employed.

    How do we find a balance? Not sure, but certainly JG shouldn’t pay a higher wage, or for that matter even par private wages. Maybe there is a low “Federal Minimum Wage” that incentives workers to hunt for higher wages in the private sector. Maybe there are subsidies to employers for hiring JG employees. Maybe there are subsidies for employing folks in industries that have inelastic pricing. Maybe expanding the Earned Income Tax Credit (which is already supported by some conservatives.)

    I really don’t understand this comment. Why should businesses ever have the right to pay people less than a living wage, and why should the Government facilitate this by committing to a JG at less than a living wage? That’s nonsense. I care a lot more about whether workers have a decent life than I do about whether they are incentivized to look for better paying private sector jobs by a Government JG starvation minimum wage. In fact, I much prefer the situation where the Government is paying that living wage in the JG program and this incentivizes all businesses, large and small, to offer higher than living wage to hire people off the JG, when they need them to benefit from the recovery. That’s the kind of incentive that MMT talks about, not the “workfare” incentive, you’re considering.

    Also, it’s important that the JG not be subsidizing private sector for profit employers. We know that doesn’t work well. We’ve seen that from Government subsidies to businesses like Walmart which won’t pay a living wage forcing their workers to apply for Government safety net benefits. I don’t think we want to consider maintaining and extending these kinds of “lemon socialist” measures.

    On the other hand, the JG by paying wages of workers in the program would be subsidizing the community organizations and non-profits that would be the primary JG employees. This kind of subsidy will enrich the commons and support projects that fit the public purpose rather than just businesses primarily designed to create profits for owners.

    Well that’s it, I guess. Bottom line, I think you’re way off on the JG, but generally, I like your post and particularly the suggestion that MMT agendas appealing to small businesses are important.

    • Hi Joe,

      I always welcome the feedback. In no particular order…

      Government competition: Post Office with private freight carriers. Public transportation projects taking customers away from private carriers. Public colleges competing with private and for-profit colleges. To name a few. And perhaps more importantly competing for labor…

      Now, granted I live in Massachusetts, so in my construction company example, the crane operators get $35 per hour in the private sector, but the government job pay $60. This doesn’t make the private sector small business pleased with government largesse. Hence, they have not much recourse but to pursue small government, libertarian, policies/parties.

      Now your Walmart example. This is what I mean by not throwing in crony capitalist companies with small business. I don’t have the exact numbers but suffice to say if you add up the revenues from mom & pop and small retailers, in the aggregate it rivals Walmart revenues. Many of these smaller retailers are in underserved markets, they create jobs, and struggle to keep the doors open against the Amazon B2Me trend. I think they’re heroes. I think in most cases they are great neighbors and doing the best they can.

      You wrote, “Private sector employers large and small will have to pay higher wages than the JG to get people. That’s not a tragedy. It’s a beneficial feature of the JG. Again, if a small business can’t adapt to that than it has no business being in business.”

      Saying that they should go out of business if they can’t pay better is callous. Many companies and industries have inelastic pricing for many reasons including foreign competition. Affectively small businesses are already the employer of last resort. The Earned Income Tax Credit seems a more elegant solution, and one the American Enterprise Institute and even Milton Friedman supported expanding.

      If the EITC were indexed to region and funded out of seignorage—isn’t that a huge MMT victory?

      Jobs programs at minimum wage but not a living wage: I still think it’s a huge initial victory. A couple, both working, and making minimum wage living together do crest the poverty line depending on region. Of course, add two children and they don’t. But a teenager living at home is probably above the poverty line, too. Again, the EITC funded out of seignorage keeps small business owners in the MMT camp.

      Walmart is a bit complex, too. Conservatives will point out if you add up all the “consumer” benefit that their low prices have given frugal shoppers it is a larger benefit than anyone ever got from a government program. So, for consumers, conservatives argue Walmart is a valuable member of society. Now, it is crocodile tears for Walmart to claim they can’t pay a bit more, as Costco does—so wanting Walmart to pay a higher wage is not the same as saying that every small retailer in every market can and should. It just pisses off small businesses who end up voting Republican, and because of confirmation bias in believing that Federal budgets should be balanced with taxing and not much borrowing. Which we MMTers know is not true.

      The point of this piece is to suggest that full implementation of MMT policies are a staircase. JG as you see it may be at the top of this staircase. But in my opinion the first step is to identify simple overwhelming popular policies that would decouple public spending from taxing and borrowing—to prove it can be done without the economic sky falling. Small business owners seem to me to be the correct political block to impress this upon. I’m guessing that they are, largely speaking, the “swing” vote in America. I plan on writing more about this when I get a chance.

      • Joe Firestone

        Jon, the private freight carriers (Fed Ex, UPS, Airborne) are not exactly small businesses, are they? Also, most colleges aren’t small businesses either.

        But, apart from that, Colleges perform a function that is infused with public purpose. In industries like that the people have the right to have public institutions that will perform the educational functions more cost effectively than private institutions. So, we’ve had state colleges and universities for a very long time now. And that’s been a very good thing since many of us would not have our education right now, or at least the full extent of it if such institutions did not exist and had not provided a lower cost alternative to private institutions.

        On crane operators in Massachusetts, I’m skeptical about your facts and would like more detail. Which public agency pays an individual civil service crane operator a wage of $60 per hour? Which private businesses pay only $35.00 per hour and why is it that they can get employees at that rate? Are those companies unionized? Are the Government agencies unionized? Are Government contractors allowed to pay less than $60.00 per hour to their crane operators?

        I don’t think your comment on Walmart is very relevant, but mine is. The reason why, is whether it’s Walmart or it’s a small business, it’s the same difference. It’s a company or a proprietor paying less than a living wage and then benefiting from the employee turning to the social safety net to keep body and soul together. This should not be allowed where the business’s purpose is wholly private in nature and purpose. Period, end of story!

        Remember, the present minimum wage isn’t market determined. It’s set by Government. It is not good for wage earners that it be set at below a living wage. It is exploitation pure and simple.

        Also, if there was no minimum wage, the free market would still not be setting the prevailing wage, since the market we have now is dominated by large organizations that are using all kinds of non-market-based methods to depress wages. Wages are determined largely by political forces right now and not merely by economic market-based factors. So, the question becomes: will politics operate with justice to ensure that wage earners are paid a living wage or not? That is the foundational question here.

        Now your point about underserved markets. I agree that in underserved markets there is a public purpose in having small businesses there to both employ workers and offer the products people need. So, if community-based businesses want to operate in those areas, then I’m all for them applying to the JG program to get JG wage earners paid by the Government directly to help them in their businesses. But, of course, then they would be accountable to someone to show that they were, in fact, providing necessary services in such underserved areas that were not being provided by businesses already paying more than JG wages.

        On who is a “hero,” I don’t think a person employing others at less than a living wage can be called a “hero.” To do that is to assume that there oughtn’t to be a JG program in the area paying a living wage and that there is no alternative to the substandard wage the “hero” is paying. However, there is an alternative and that’s the functioning living wage JG program you are opposing right now.

        I’m sorry yu think I’m callous. But I think you’re clearly biased in favor of small business owners who are exploiting workers, and I very strongly believe that your view is callous. After all the small business owners don’t have an inalienable right to be in business if they need to exploit other people. However, wage earners do have a right to a job at a living wage, provided that a Government with a sovereign fiat currency system has the ability to provide one as our government does.

        On purely moral grounds, since it is generally true that those who go into business are more well off than those who work for them, why is it callous to suggest that the less well off people have a right to be treated fairly? Isn’t it much more callous to suggest that the more well off people have a right to exploit their workers? I think it is.

        Also, If many companies and industries have inelastic pricing for many reasons, and they can’t afford to employ workers at a fair wage, then they can go out of business. That is capitalism. Remember Adam Smith. He believed that competitive free markets would produce the lowest possible prices for consumers and that they were therefore a good thing, but he did not believe that businesses ought to be protected from inelastic or falling pricing, and I don’t see the justification for that, unless a particular business or group of businesses ought to be protected for a definable public purpose.

        To say that small businesses are the employers of last resort now is really a strange reply. First, many people prefer to work for small businesses, because they don’t like big companies, other things being equal. But, second, and more importantly, your comment really distorts the ELR idea. The ELR connotes an alternative that people can always turn to if they want a job.

        Small business still leaves many people unemployed who want to work. So clearly small businesses are not employers of last resort. Right now that kind of alternative doesn’t exist. The JG proposal is one that would make the notion of an ELR reality. In fact, it is just another, clearer, name for the ELR.

        You ask:

        If the EITC were indexed to region and funded out of seignorage—isn’t that a huge MMT victory?

        No, I don’t think it is. First, the negative income tax protects existing businesses, and allows them to continue to pay substandard wages, while raking off excessive “profits” resulting from their payment of unfair wages. So, it protects uncompetitive businesses stopping “creative destruction.” Second, that situation doesn’t do much for inequality which is at such a high level in the US that it is threatening democracy, because it protects undeserving businesses and their often well off owners from losses.

        Third, the negative income tax won’t substitute for a living wage because it is a basic poverty subsistence income proposal. Fourth, the negative income tax will not result in people working on badly needed and socially valuable, but not private sector profitable, projects in local communities, and it will not result in many of those receiving it to maintain basic skills and habits needed for employment. The JG will, and will also provide people with a sense of pride in performing useful work at a living wage without a Government handout.

        And fifth, the JG not only has the initial effect of raising wages, but the more important long-term effect of being a price anchor moderating wage inflation when labor markets heat up and employees have an incentive to make excessive demands on employers. In those situations employers can always turn to the pool of JG laborers, still functional employed workers, to hire them away from the JG at a lower wage than that being demanded by some unsatisfied current employees making unreasonable demands, very much higher than the living wage.

        But with the negative income tax, when recovery occurs and the market begins to drive up wages, employers will eventually have to turn to workers outside of the labor force to restrain excessive wage demands. Then they will have the tradeoff of doing that or paying the higher wages being asked of them. Judging from their historical preferences, it is likely they will drive up wages more quickly than they would in the situation of the JG.

        In short, the JG is better than the NIT as an ensurer of a living wage, a force for greater equality than the NIT, a moderator of inflation, a sustainer of the labor force and its feelings of pride and worth, and finally, a provider of employment on public purpose projects funded by the federal Government, but designed and implemented by local community-based organizations and non-profits. The negative income tax is an idea whose time has gone. And it is no recommendation for it that it is (was) advocated by the Koch-funded AEI, and Uncle Miltie, both of which have never ceased to demonstrate their lack of regard for working Americans and doing good things for small businesses.

        The idea that Walmart has benefited our local communities, our labor force, and us as people, is absolutely outrageous. It is well documented that it has had destructive effects on local businesses and their profits, local communities, wage scales, the environment, inequality, American industry, and, most recently, our food supplies and the pace of adoption of solar power, which it opposes.

        People are not merely consumers. They play many roles and Walmart has negative effects on communities on every dimension except the price of goods, and even pure consumers, if any exist, care about more than the price of goods.

        In addition, one can’t discuss Walmart as an abstraction. Trader Joe’s and Costco are two other notable organizations that are both profitable and have avoided the negative impacts of Walmart in many of the areas I’ve mentioned earlier. So, it is possible to be profitable and to be a much better corporate citizen than the extractive and exploitive Walmart is. And while wanting Walmart to pay more may not be the same as wanting small businesses to pay more, wanting both Walmart and small businesses to pay a living wage because wage earners have a right to job at a living wage from everyone is the same standard for everyone.

        Finally, on MMT priorities, you may not think that the JG ranks high on the MMT list, but in the MMT literature you will find that the JG at a living wage is a core component of what distinguishes the MMT approach to economics from other approaches. I’ve argued that at length here, with many references that have only multiplied since I wrote my series. Two very important public purpose goals of MMT are full employment and price stability. MMT research indicates that the JG creates full employment, implementing FDR’s economic right to a living wage in the nation’s businesses, and also strongly facilitates price stability. That is why it is a very high priority of MMT-based policy.

        Further, there are no policies that must be legislated to demonstrate to people that taxing and borrowing may be decoupled from Federal spending. To get that done, all that’s needed is for the President to mint the $100 T coin and begin to use it to pay back the debt and cover the deficit. Once that is done, then case closed; they are decoupled.

        As for popularity, what makes you think that the JG would not be overwhelmingly popular once spending is decoupled from taxing and borrowing and the JG is legislated and experienced? I think it would be a lot more popular than a negative income tax, especially if it were coupled with a subsistence Basic Income Guarantee (BIG) for people who can’t or won’t work.

        Small businesses may be ambivalent about it at first, and some may may be fearful, but once they experience the inflow of customers resulting from full employment at a living wage, most of them will realize that they are better off, in spite of having to pay higher wages. The rising tide of demand will lift most boats, even among small businesses.

        • I don’t have time to jump into this discussion between Jon and Joe, but wanted to at least say that it strikes me as very interesting and important, and worth digging into more (as you’ve started to do here). I’m inclined to side with Joe on most of it, but I think considering issues related to the welfare, perspective and political support for MMT among truly small businesses and entrepreneurs is an important and worthy task for those of us eager to see MMT adopted as a foundation of public policy.

          It also reminds me of books like Marjorie Kelly’s “Owning our Future,” which focuses a lot on the difference between (financially) “extractive” ownership models (common among most large corporations and especially large banks) and “generative” ownership models (which can include co-ops, non-profits, B-corps and a range of others). This topic gets back to some of what I discussed in my earlier comment, about the integration of an MMT macro-econ perspective with the kind of micro-level perspective that Kelly (now with the Democracy Collaborative’s Community Wealth project) discusses in her book. I’d also recommend Kelly’s earlier book, “The Divine Right of Capital,” which deals with fundamental issues (and big problems) related to the structure and dynamics of publicly-trade corporations, and their role in our modern world.

        • I just saw a link to this paper and thought it might be relevant to this exchange between Jon and Joe and, in general, to issues related to “living wage” rates.

          http://www.sciencedaily.com/releases/2015/01/150120155027.htm

          Here’s the summary: “Researchers have released a working paper verifying the ability of American fast food restaurants to more than double the minimum wage of their lowest paid workers to $15 an hour over a four-year period without causing the widespread employment losses and decline in profits often cited by critics of such increases.”

        • Hey Joe,

          Roughly in your same order.

          This from the American Trucking Association: Number of Companies:
          According to the U.S. Department of Transportation, as of December 2011, the number of for-hire carriers on file with the Federal Motor Carrier Safety Administration totaled 408,782, private carriers totaled 662,544 and other* interstate motor carriers totaled 168,680.* ‘Other’ interstate motor carriers are those that did not specify their segment or checked multiple segments. All other categories were excluded. 90.2% operate 6 or fewer trucks / 97.2% operate fewer than 20 trucks

          The Crane operator story was told to me in confidence by the small business owner. I’m sure it was total labor cost including benefits. Anecdotally, I’m hearing rising wages in our area because of a serious lack of skilled labor.

          You wrote: “Walmart or it’s a small business, it’s the same difference.” Joe, it’s about risk and markets. Eg. If small hardware stores (who are barely holding on now) have to pay a living wage (and the AHCAA) and they go out of business—that is entirely different then Walmart having to pay a living wage and shaving a few points off EBIDTA. And politically there is serious hay to be made supporting small business. By hero: A job provided below a living wage where there would otherwise not be a job is valuable to society. Also, what’s the economic difference between a society deciding to support businesses in marginal industries to create jobs for the public good, and government deciding that something else is for the public good? It’s politics not economics.

          I REALLY like your JG for businesses in underserved communities. Excellent! I’ve always found the actual logistics of JG to be daunting, maybe logistically almost undoable. Putting 5 million people to work on demand is a monumental administrative task. And politically, which is the point of this piece, make-work jobs (digging holes and filling them in) would be a disaster.

          Okay, on JG and EITC or NIT. You may very well be right that JG in its purest form is the best answer to a more equitable society. However, the point of “The Politics of MMT” is do-ability. I’m sure you’ve noticed that Congress is now controlled by the Republican party, and our President is a deficit dove. This is not a fertile field for MMT.

          Here’s an analogy. If early Equal Rights Amendment advocates had engaged with conservatives to address how to keep America a meritocracy while otherwise assuring equal pay for men and women (and any other special interest group), I’m guessing the ERA would have passed. It only needed a couple more States.

          So, let’s say, you are the President of the United States. And Congress has sent you a bill for Earned Income Tax Credits to a LIVING WAGE paid for out of seignorage. Would you veto it because it wasn’t JG? And if so, what risk do you take JG never passing just as the ERA still hasn’t? Which is the least callous decision?

          My post is about politics not the best case scenario. If the EITC, hey let’s call it the ELITC, L for living, as written above were passed, then the groundwork has been laid for JG for those this new more prosperous economy leaves behind. And that JG is a much smaller program to manage. And, by the way, wouldn’t the ELITC drive up private wages, too, as more members of society fully participate? Same result, different paths.

          Anyway, that’s my view from main street with a small business bias, an anti-poverty mission, and an alternate MMT take.

          • Joe Firestone

            Jonathan, I don’t believe you’ve shown that the Government competes with private freight carriers or would do so under the JG Program. That is, your numbers, show that there are plenty of small firms competing with one another, but not that the Government is competing with them. In fact, I’d hazard a guess that if anyone is driving down their profits it’s Fedex, UPS, Airborne, and the giant Moving companies.

            Also, my question about the Crane Operators was trying to clarify whether the $60 per hour was the rate for a Company performing a Government contract or a for a Civil Service employee. If it’s for a Company contract, then the actual compensation for the Crane Operator would most probably be comparable to that $35.00 per hour, or even a lower rate. That’s because the difference between the two figures would be accounted for by the benefit costs, overhead, and profit paid to the private contractor company by the Government.

            On small business paying a less that a living wage, I don’t think you’ve shown that the weakness of certain small businesses should automatically give them the right to exploit workers, or the right to demand that Government refrain from paying a JG living wage, so they can continue to exist, or not having a JG program at all. After all there’s no necessity for most small businesses to stay in business that is greater than the necessity for all workers to have a living wage. if you can’t see this you’re just showing a bias towards small business people and against workers at the expense of economic justice. A minority of people however sympathetic they may be simply has no right claim that their right to do what they want to do is greater than the right of all workers to have a living wage and be able to raise a family. That claim simply has no justice or fairness to it.

            Now, we agree that where small businesses are serving a public purpose then it might be justified for them to be subsidized. But that subsidy should not be in the form of letting them pay workers a less than living wage, and providing a subsidy to the workers, because that undermines the principle that everyone should have a living wage if they want to work In those cases, the form of the subsidy should be that the business is assigned JG employees wholly paid for directly by the Government as part of the JG program, and assigned to the small business only as long as they serve the public purpose.

            Subsidies like this would not be extended to all marginal small businesses, because a business is not necessarily serving public purpose because it’s marginal. On the other hand, a new business serving a public need, may well benefit from the ability to hire multiple JG workers at that living wage, and this help could well make the difference between success and failure for that business.

            I agree with you about make work jobs. That’s why the MMT JG emphasizes strongly that JG jobs must always pass muster as socially useful work fulfilling local community needs not being served by the private sector. They would pass muster by getting proposed by community-based and non-profit organizations, and then being approved by the JG program administrators. The jobs would also be formulated with consultation from the JG participants themselves.

            On do-ability, I’m all for it. But the question is what one proposes to do and whether that will work. An MMT JG program that is an emasculated quasi-MMT JG program will not work if it’s passed. Then the “lesson learned” will be that MMT does not work and neither then the JG. So, I think we ought to oppose any so-called MMT JG program that is not consistent with the principles of MMT, because that will not work either for the participants, the party that tries it, or the participants, and I am not interested in feathering the nests of the plutocrats with “compromises” that we know are going to fail just for the sake of passing something.

            I’ll stop for the moment and continue this reply later!

            • Jerry Hamrick

              Joe, four or five years ago, maybe six or seven, I had two different conversations with my next-door neighbor and my across-the-street-down-the-hill-a-little neighbor. We were outside, working in our yards in the early summer. I asked each how things were going at his place of work.

              One neighbor works at a nuclear power plant. He has worked there for a long time and he was probably in his late fifties. In this area, working at the power plant is regarded as a really good thing. The pay is good and the retirement plan is even better. I specifically asked him about a planned renovation at the plant. It had been announced a couple of years before and if it materialized 14 thousand people would move into our area for a period of years and more than half of them were projected to become permanent residents. This was great news for our county–the county seat is less than 3,000. My neighbor had bad news. The project had been canceled in the after math of the Bush crash. In addition, management had made severe changes to the retirement plan. This was painful news. My neighbor was clearly undergoing a devastating adjustment in his retirement plans.

              Sometime after this first conversation I was talking with the other neighbor. He is in his middle forties and he was a very hard worker. He painfully told me that UPS, his employer, had made some severe changes of its own. It not only reduced the retirement plan, but it had reduced the hours he was allowed to work. He was not wiped out, but he was hurt badly.

              Both of these men are still working hard, but I can tell that they have been injured. And I can tell it throughout my county and the one next door, where I had a business for years. Things are slowly declining, and I see no signs of improvement.

              So wages and retirements are being depressed and government is the cause. Government is also the only possible solution.

          • (Continued) Your analogy isn’t compelling to me. I think the ERA did try to engage conservatives, though they were conservative women rather than conservative men. Also, I think it didn’t pass because constitutional amendments are very hard and require overwhelming majorities. The JG is different. what it requires is a change in the temper of the Congress so that left and right are both interested in solving the unemployment problem once and for all with employment, or a sizable, but not overwhelming majority of progressive Democrats. Depending on conditions these things can occur in 2016 or 2018, if the economy crashes again, which I believe is a very good bet.

            So, let’s say I’m the President of the United States. If someone who shares my views did get elected, it’s pretty clear that a lot of MMT progressives would be elected along with me, so I wouldn’t have the choice you gave me. Especially not if my first move in office is to mint the $100 T coin, which, of course, it would be. Assuming someone like me would get elected only in the midst of an economic crisis, what I’d do next would be to get rid of the filibuster for good, and then take the big banks down immediately, so they and their economic and political power would vanish from the political scene, and also so that the Government would have a free hand in making as much credit available at low cost as small business needs to expand.

            Then, I’d pass a comprehensive fiscal program while the public was in a mood for leadership on how to stabilize the economy. The program would include a huge green stimulus infrastructure and new energy foundations program large enough to, along with an SS tax holiday, and enhanced Medicare for All, get rid of most of the under- and unemployment in the country. It would also include the JG to give transition work to people, while the other programs got going and the stimulus woke up the private economy.

            So the JG would be wrapped up in a much more comprehensive program passed in the glow of my recent election and in the context of the country’s needing to get out of what was promising to be another Great Recession within the long depression. it and the rest of the program would surely passed as these things would have passed for Obama if he had rammed them through Congress in February 2009. Any way, this is my scenario, which I think would be a highly likely one if someone like me were elected.

            Finally, let me add to two pieces of information about me. First, I’ve been a small businessman since 1977, so I know what it is to operate a small business and to have tough times. Second, I know politics really well. I’m a Ph.D. And former Professor in political science. so, please don’t try to suggest that I’m not aware of the business or political aspects of what we’re talking about. From where I sit your own political imagination seems to be limited to the current political context and working with it given only small changes from what exists now. In my view the past 45 years show that is a losing game. I’m about finding a way to change the political context in such a way that real solutions and not just band-aid policies that will fail can be passed. That’s why I don’t have a lot of sympathy for your way of going about things. I do think it’s important to engage small business, but I also think we have to engage them with our ideas and on how these proposed would improve their situation and not seek to hurt the effectiveness of these policies through compromises that will ruin their effectiveness.

            • Hey Joe,

              Again, elegant responses. And, again, you are probably correct. But you didn’t answer my question. Presidents have proven that they are remarkably inefficient at getting their way. There are three branches of government. Which requires compromise.

              If Congress sent you an Earned Living-Income Tax Credit would you sign it or veto it?

        • financial matters

          Joe, thanks for these well thought out points on the JG.

          I think this is so key to getting labor back on the right track as a social construct rather than just supply and demand being played out with the destructive force of unemployment.

          This allows government (properly constructed as a democracy) to protect people from unbridled capitalism. It continues the balancing themes of unions, safe workplace standards etc. Labor, as human beings, should have a prominent place in political economy.

      • Btw, on entirely justified Post Office competition with the banks see this very good piece.

  14. 2. Employers don’t give us working people enough. They only give what they give now because government made them. Tax them because they have so much of our wealth. We need those dollars so we can pay for infrastructure and entitlements.

    Or so the average American would have you believe.

    4. MMT can be embraced based on the easily provable facts. There are biased conclusions derived from the facts. Those will always face headwinds.

    5. “Well, a high unemployment rate does drive down the cost of labor—which benefits employers. ”

    A lower cost of labor allows the unemployed to remain competitive.

    6. VA healthcare is awful because it is government run. I have private insurance in addition to the VA care by necessity. It is just a poor program and throwing more money at a bad system won’t help.

    Tricare functioned great. I had it when I was still enlisted. I was easily able to bypass bottlenecks in the system by using civilian clinics and hospitals. I almost stopped seeing military providers altogether my last 2 years of enlistment.

  15. Just because you provide everyone with paid healthcare does not mean there will suddenly be more doctors and medical facilities. Infrastructure must be built. To expand one without the other merely causes one to pay with wasted time instead of productive money.

    • Joe Firestone

      How do you know the present Medical facilities and providers can’t serve everyone? And while facilities can’t be constructed instantly, certainly very good Doctors can be imported from other nations to fill shortfalls in that category. So, if you intend this as a an argument against enhanced Medicare for All, then I think it doesn’t work..

      • As Joe’s response suggests, public investment in a highly effective yet lower cost “enhanced Medicare for all” healthcare system is both strategically smart and “affordable” for the country to embark on. It will take time, but it’s so much smarter to start down this path than to let the current system crank on and on.

        And, with increased public funding available for investments in this enhanced Medicare- for-all system, the federal government and the citizens it serves can reclaim control of healthcare-related research and professional training, which have become increasingly (and dangerously) controlled by Big Pharma and subject to the dysfunctional dynamics of a fee-for-service system that won’t pay anything for low-cost preventative steps that might avoid diabetes or heart disease, but will pay a ton of money to “treat” these diseases with expensive drugs and high-tech interventions that, in some cases, aren’t even effective and come with serious side effects (which increase costs further).

  16. Howard Switzer

    I think this MMT thing is obfuscation of the system not a solution, the US does not issue currency, the banking system does, be it individual, business or government. So I continue to be disappointed with the material coming out of NEP, at least what I’ve seen so far. I support the NEED Act which would go much farther in solving the devastating economic problem that is capitalism. Trouble is the Marxist definition of capitalism so often used is more insidious obfuscation on behalf of the international banking system. As Benjamin Franklin noted, “The colonies would gladly have borne the little tax on tea and other matters had it not been that England took away from the colonies their money, which created unemployment and dissatisfaction. The inability of the colonists to get power to issue their own money permanently out of the hands of George III and the international bankers was the prime reason for the revolutionary war.” The international bankers are still in control and that “reason” for revolution remains unresolved!

    • Joe Firestone

      We’ve addressed this so many times, I’m not going to bother doing it again. Read the MMT primer above or Randy Wray’s book Modern Money Theory. Then, if you still think currency is issued by a wholly private banking, I have a bridge to sell you.

    • Howard, I view MMT as apologists, in the classical sense of the word, of the present monetary system. As apologists they present the very best aspects of their subject and perhaps, and I am NOT accusing MMT of doing this, use contorted facts and thinking to defend their subject. That is what apologists have always done and MMT has definitely accomplished that task. But if you want, as you write a different monetary system, then you need to go elsewhere. There are a lot of interesting ideas around such as Ellen Brown’s public banking initiative which is a very neat approach. People are still talking about the Chicago Plan and an academic up in the NE proposed an interesting approach by making all banks trust banks and, as I recall, changing the currency that is in circulation.

      • financial matters

        I think MMT makes a nice fit with Ellen Brown’s public banking.

        One of the problems I see with MMT is that they need a fraud free private banking system. We don’t seem to be able to get there.

        Public banking has a number of positives such as being able to put dividends back into the public purpose, avoid exorbitant executive pay, and stay out of derivatives. They also would have a natural affinity to work more in the local public interest.