Responses to Comments on MMP Blog 45: The JG and Developing Nations

By L. Randall Wray

I am responding quickly because the Minsky-Levy-Ford conference in NYC starts today.

Q1: Philip: I’ve been thinking a lot about the problems with imports and the like because it directly affects, for example, Greece should they exit the euro. If they do so, their large dependence on imports will likely lead to a serious inflation. Another concrete example of heavy dependence on imports is (apparently) Argentina. A large amount of the inflation there — which, to my mind, could undermine the credibility of the Kirchner government if allowed run too long — is apparently due to the cost of imports. Is the most elegant solution to this not to work on the supply-side?

A: Agreed, especially for developing nations that do not produce much that is in demand outside their country. This is particularly true of nations that rely on subsistence agriculture. The JG can be used as a tool for development, including development of exports and/or tourism.

Q2: Hepionkeppi: Inflation in Argentina is an enigma, government says one thing and then the media claims “no, real inflation must be double”. But as Paul Krugman says this would mean GDP deflator would have to double as well and that would mean all the growth in the Argentina for the last decade would have been mirage. There would have not been growth at all. “A large amount of the inflation there is apparently due to the cost of imports.” I would think it would be the other way around, that high nominal price pressures in domestic economy depreciate the currency, and that raises the cost of imports. Maybe these pressures could be the result of cost-of-living adjustments (COLA) in the labour contracts? Who knows. More research would be needed. And I would think that in the presence of these kinds of COLA contracts not even JG would bring price stability. Or in the presence of powerful unions outbidding each other. Continuing price pressures could lead to oversized JG pool, as inflation eats away value of government debt, “outside wealth” in MMT, or right-wing backlash, as they seek any reason to make life harder for the poor. Inflation would be the perfect excuse.

A: Agreed: automatic indexing can be a big problem—it builds inflation into the system. This was the Brazilian problem. It was a major point made by Bresser in his analysis of Brazilian inflation—especially indexing of government payments (government employees plus contractual payments for everything). Breaking this cycle is painful. Note we do not advocate automatic indexing of the JG wage; rather, periodic adjustment. The more frequent the adjustment, the less effective it is at stabilizing wages and prices.

Q3: Golfer1john “Jefes workers produce uniforms for the government. ”Why a JG/ELR program to produce uniforms for the government? If there are clothing manufacturers in the economy, why not buy from them? Apparently there were none before, and the government uniforms were imported? Could the government not simply advertise that it would pay extra for domestically produced uniforms, and a uniform company would be started? Maybe this company could then produce clothing for the domestic market as well, at a competitive price.

A: This is horses for courses: developing nations typically do not produce everything that is required—indeed, in some cases they produce little beyond food for subsistence. The “private sector” is typically very small. It makes sense to use the JG to replace imports by producing things that are needed domestically. School uniforms for kids can be an important product; in such situations reducing imports can be critical. In Argentina the clothing sector had been foreign-owned and in the crisis the owners just abandoned the factories. See the excellent documentary on worker take-overs. Co-ops became an important movement and many Jefes projects were organized as co-ops. It is a good experiment.

Q4: Golfer1john: The floating exchange rate is critical in giving the monetarily sovereign government policy space to pursue full employment. More specifically, is it not actually a willingness to allow the exchange rate to deteriorate that gives them this policy space? But, isn’t a falling exchange rate harmful, too, perhaps just as harmful as domestic inflation? And would not the policies to prevent it, such as tariffs, import controls, and capital controls, be harmful, too? I can see that if every country emphasized full employment, and provided the deficits to support it, then exchange rates would all suffer equally, which is to say they need not change much at all. Is that where we need to be going? Can this stuff work, really, in one country at a time? Especially a really large and relatively free economy like the US, where tariffs, import controls, and capital controls are unlikely to be used

A: Impossible to make a general statement on whether falling exchange rate is “good” or “bad”—depends on situation. It helps the export sector, but does tend to be inflationary. Note Australia deals with wide flux of its exchange rate and thus terms of trade (as do most commodity exporters that float). Read Bill Mitchell on this. Note also many developing nations do not float. I have tried to offer an analysis of JG even for these nations. If they do not float, imports and thus pressures on exchange rates are a much more serious problem. Finally, although I did not discuss it here, capital controls are available and probably should be used by small developing nations.


11 responses to “Responses to Comments on MMP Blog 45: The JG and Developing Nations

  1. Prof. Wray, I’ve just finished Michael Hudson’s INET paper. He gives us the NUT of the issues: “What’s wrong with America?” and “What’s wrong with Europe?” He give Thorstein Veblen honorable mention. NOTHING ELSE MATTERS until Prof. Hudson’s NUT is consumed and digested by ALL at the INET Plenaru Conference in Berlin 2012. The NUT is what George Soros calls: “harsh reality.” The “harsh reality” is that the global “rentier class”–including the “Old Guard” whose forbears satisfied their obligations under the convention of “noblesse oblige” and the “Nouveau Riche” since 1970–is on the verge of CONSUMING every vestige of value that exists in the world, whether “animal, vegetable, or mineral,” and MUST BE STOPPED right now, in their tracks.

    The process of virtual THEFT by the global rentier class began stealthily but emphatically with the Treaty of Versaille, as Thorstein Veblen made clear. Veblen’s thorough comprehension was expertly framed by Prof. Guido Giacomo Preparata in his formal study of the wicked ways of the global rentier class, his book: “CONJURING HITLER: How Britain and America made the Third Reich” (2005); followed through by his trenchant comprehensive argument against Neoliberal Totalitarian villains: “THE EDKOLOGY OF TYRANNY: Bataille, Foucault, and the Postmodern Corruption of Political Dissent” (2007).

    Considering the the NUT of Michael Hudson’s INET paper, can there be any doubt about what steps the global leaders of New Economic Thinking must take promptly, and decisively, in order to save civilization as we knew it before the global rentier class re-doubled its efforts to establish a Global Totalitarian Regime of which THEY are the masters? What we are witnessing is WORSE than “The Rise of the Third Reich,” much worse, because it has ushered in an ERA of Entrenched Global Dynastic Despotism of a MAGNITUDE only dreamed of by Hitler and the Caesars of the Roman Empire–made possible through “1% Lebensraum” enforced by relentless dominance of “C.21 Rentier Technology” in Monopoly Finance Capitalism, by means of C.21 “Maximally Efficient War” by force of arms and by corruption of politicians.

    The Leaders at INET in Berlin 2012 are perhaps the only leaders capable of saving civilization from total destruction by the Global Rentier Class in C.21. But it is only AFTER heeding Michael Hudson’s bed-rock warning that they can begin to serve humanity as it must be served if We the People of the world are to survive.

    Only from HEROIC acts of INET’s agents in time, can civilized discussions follow.

    • Hudson’s paper is indeed eye opening. I share your hope that someone, somewhere, soon does something about the issues raised by Michael.

  2. APOLOGIES for typos, especially the major typo, Par 2:


    Thanks for your understanding.

  3. DrBernard, Do you think that George Soros accepts Michael Hudson’s analysis. Do you think he will throw his resources behind efforts to counter the emergence of a global totalitarianism?

  4. Joe Firestone, my answer to your question is: “Yes.” If his history is any indication of the future deeds of George Soros, what other logical conclusion can be drawn? History shows that, following his father’s heroic example, he has staked his life on the defeat of Totalitarianism and its Tyranny of the closed system. It may be in his “Hungarian blood” to defend human liberty and justice unto death. And he must be aware that if HE will not rise to this occasion to lead in his way, then no-one will.

    Although my knowledge is far from perfect, and surely the life of George Soros is far from perfect, his history tells me that he will act justly with resolve, sparing no expense, if the salvation of democratic, just civilization depends upon his correct action in real time. This is the ultimate test of the integrity of the Just Jew, George Soros. I expect him to pass the test.

    • What a pity that a democratic president is so obviously oblivious about all this. Indeed our elected officials have made scant note of the takeover by the financial classes. That is likely in no small measure due to Citizens United. Money now fully controls our national debate. The Everyman is nowhere in the councils of government.

  5. how can inflation be a concern when there is such inequality? when so much of the population are living in poverty?

  6. I have great respect for George and know him slightly. I was one of his readers for his The Age of Fallibility, and through that book and others I became very familiar with his theory of reflexivity. I’ve done a few posts about it here: Scroll down the page and get to the posts with George Soros in the title. They’re appreciative, but critical to some degree.

    I’m also aware of the many efforts worldwide George has supported to bring about Open Society and I’m a close student of Karl Popper as he is. Having said all that, and noting the very extensive support George has given to progressive politics in the US. I also have the feeling that George and other billionaires worried about maintaining Open Society need to do a lot more.

    In the United States, there is no electoral opportunity to stop the march toward plutocracy/kleptocracy. We can all see that the choice coming up is one between two people who differ in the extent to which they would accelerate this march; but neither would try to reverse direction. There is a third party candidate who would reverse it. Her name is Jill Stein, MD and it looks like she will be the Green Party candidate.

    For her to make a difference in the coming campaign, it will take money, probably a $Billion for her campaign and for other candidates who would be willing to support her in Congress to beat the kleptocrats. Even that amount might not make the Green Party candidates competitive. But a third party effort that was that well-funded would certainly shake the two major parties and force them to talk about the real issues that need to be debated.

    • As an Esperanto speaker, I find his & his father’s involvement with Esperanto to be of particular interest.
      There exists some kind of bond among speakers of Esperanto so that one cannot help but feel a common sense of kindred spirit.
      His father, Tivadar Soros, learned Esperanto during WWI and became active in the movement. In 1922 he founded the Esperanto literary magazine Literatura Mondo (Literary World).
      He was the author of two major works in Esperanto, the short novel “Modernaj Robinzonoj” (Modern Robinsons) in 1923, and the autobiographical novel “Maskerado Ĉirkaŭ la Morto” (Masquerade, dance, around death) about his experience during the Nazi occupation of Budapest, published in 1965.

      Soros is an Esperanto word that means “will soar”
      (although the verb has fallen out of common use)

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