John Carney has written a series of excellent articles pertaining to Modern Monetary Theory and why he believes there are many similarities between Austrian economics and MMT.  I’ve previously described some of my issues with Austrian economics (see here and here), but I must admit that the Austrian school makes many significant contributions to the field of economics.  For instance, I have previously expressed my displeasure (or uncertainty) regarding the MMT Job Guarantee due to praxeological elements.  This is a component of Austrian economics that is particularly strong.  When it comes to understanding the uncertainties surrounding human behavior the Austrians make many excellent contributions.  Most mainstream economists don’t appreciate the fact that human behavior can’t be modeled in pretty equations that lead to best selling textbooks.  Unfortunately, it’s this lack of provable mathematics that often leads to criticism of Austrian economics.  But while there are certainly elements of Austrian economics that MMTers agree with there is one large hurdle….

I agree with John that there are more overlaps than most presume.  But the largest hurdle is substantial.  MMT is based on the state theory of money.  We acknowledge that anything can be money.  Gold can be money, pieces of paper can be money, credit cards can be money, a simple promise can be money.  But what MMTers are very precise about is the fact that a sovereign nation with endless supply of currency in a floating exchange rate system names that which is money as defined in economic terms within that particular nation.  In the USA, the US government deems “money” to be the US dollar.   You might claim that gold is money (and it certainly is in some regard), but if you take a bar of gold to the IRS on April 15th they will request that you exchange that gold into US Dollars before they can extinguish your tax liability.  In other words, while gold might be money to you and your neighbor, it is not money when it comes to extinguishing your liabilities to the Federal government.  When it comes to transacting within the US economy, this is the crucial distinction when it comes to “money”.  But there is a more complex disagreement in these schools of thought.

MMTers understand that “money” is always a social construct (whether it be gold, pieces of paper, social agreements, etc).  In the same regard, money is always a debt that helps fulfill some particular social construct.  And since “money”, in a modern society, is always a creature of the state (as described above) then the “money” that a government creates is merely a social construct of the society that creates that government.

As human beings we have evolved to the point where we reside in these incredibly vast and complex societies.  We are, after all, the ultimate pack animals.  We like to think we’re these independent creatures, but we’re actually incredibly dependent on one another for our survival and success.  And as a society, we choose to maintain some semblance of order, rules, law, social structure, nationality and economic coordination through a centralized government.  We can quibble over the size of that government (I tend to prefer less government than most other MMTers), but we cannot ignore the reality that governments exist for very practical purposes and will likely always exist in some form (if for no other purpose than to provide a legal system and a coordinated military).  Austrians tend to veer towards the misconception that governments are these exogenous entities that infringe on our personal liberties when the truth is that we create governments for some public purpose.  We do not create governments to impose hardship on ourselves.  That’s not to say that governments can’t become corrupt or excessive, but it’s rather naive to claim that a moderately sized government cannot provide some level of services that benefit the society as a whole.

The most hardcore of Austrians take this myth to another level in believing we can reside in these “Crusoe Islands” where no government is necessary at all.  Never mind that no such fantasy island exists in reality….The problem is, this totally misunderstands the evolutionary aspect of society, government, money and why we have the social constructs and infrastructure that we do today.  Austrians want to attach “money” to a shiny rock or the detach it from the reality where humans reside in complex social structures which require complex entities to help these societies achieve goals.  Both ideas are misguided as they misinterpret the intricate link between money and society.

Ironically, the greatest strength of Austrian economics is also the cause of its broadest misconceptions.  Ultimately, they misinterpret human nature and the very nature of the societies in which we reside.  The idea that the human being can survive and thrive entirely independent of complex social constructs is a sheer myth.  Even worse, they assume that small factions of the society can regulate and behave rationally and responsibly enough to eliminate the need for government.  As I often say, government becomes corrupted when the power of the many falls into the hands of the few.  This applies to the small factions on Crusoe Island as well.  The point being, in trying to prove this ideological argument they create myths that lead people to believe that we do not need strict social constructs to survive.   In doing so, they try to separate a society from the social constructs (thereby breaking the links between society and money) that make up its very essence.

This idea of money being a creature of the state is a substantial hurdle that some Austrians like John Carney are willing to overcome.  But I fear most Austrians cannot overcome their political biases that lead them to conclude that government is always bad and therefore, the state issued fiat money is always bad.  And in doing so they misinterpret the nature of society, the role of government in society and the “money” that governments create.


Got a comment or question about this post? Feel free to use the Ask Cullen section, leave a comment in the forum or send me a message on Twitter.

Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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  1. You make some good points. At the end of the day, there is debate over the nature and extent of public goods and whether incentives are structured to create them. Some Austrians would say there are few public goods – some even say a common currency is not a public good – although MMTers would disagree. Others would argue that, even if public goods exist, there is little incentive to economize on public spending. In some senses, the euro situation is a classic example, where some countries abused their privileges and the resultant damage could potentially outweigh the positives of a single currency.

    MMTers, while recognizing public goods, do not seem to have a good theory on why government should ‘do the right thing’ and not abuse its monetary power. Yes, bad things will happen if they don’t but that has never stopped the elites in the past. Why do some countries display prudence and others profligacy? How do we recognize it when it occurs (I.e. not in hindsight)?

  2. This idea of money being a creature of the state is a substantial hurdle that some Austrians like John Carney are willing to overcome. CR

    Actually, government money (inexpensive fiat) is absolutely essential for a true free market in private money creation else whatever money or money forms that are accepted by government will have an enormous advantage over those not chosen.

  3. The other big failure of Austrians, besides their contempt of group survival traits (public goods are a form of that) is their disingenuous use of the fact that human behaviour is complex.

    Instead of embracing complexity and analysing aspects of it scientifically (which is very much possible and desirable), Hayek just throws up his arms, declares the human economy unknowable and goes into crazy metaphysical speculations while being freed from the burden of scientific rigor and being freed from the obligation to provide … proof.

    This type of sloppy thinking is the common cop-out of cults and sects.

  4. Cullen
    Is your version of MMT moving away from those who developed the theory in the first place? My understanding is that the JG or full employment is essential to the theory.
    We should be told.

  5. Bill Mitchell makes the point today that the buffer stock anchor of the Job Guarantee is central to MMT. It is not just an add on.

    So if you’re not with the Job Guarantee idea, then you’re not talking MMT. You are talking about some other economic theory that lacks a stabilising nominal price anchor system.

  6. “…Even worse, they assume that small factions of the society can regulate and behave rationally and responsibly enough to eliminate the need for government…”

    Small means less than big, but more than zero, that is local very small government structures. Some form of government is essential, otheriwise we have complete anarchy.

  7. To emphasise Neil’s point above – from Bill Mitchell:

    ….Those who haven’t come to MMT from a solid background in macroeconomics can easily just think the JG is a tacked-on “leftist” or “social democrat” policy aimed at providing jobs to those who cannot find them. So I often get the view expressed in E-mails etc that the JG is all very nice but peripheral to the deep financial and monetary insights that MMT provides and should be culled from the writings or de-emphasised so as not to alienate the hard financial market types……
    The reality is that the JG is a central aspect of MMT because it is much more than a job creation program. It is an essential aspect of the MMT framework for full employment and price stability.

    I would note that the “MMT school of thought” is different from the various blogs that have developed since the academic material emerged in the 1990s which draw on that conceptual material. There are many “blogs” now that are sympathetic to MMT or suggest they espouse MMT which have been derived from the early academic work that a few of us (Warren, Randy, Stephanie, Scott, Matt, myself and a few others) developed. I always agree with the contributions of the early MMT writers but often disagree with some of the statements that the blog writers outside of this group make in the blogosphere.

    I consider the early MMT writers to be the MMT theorists.

    As Neil says above: “if you’re not with [inclusive of] the Job Guarantee idea, then you’re not talking MMT”. Bill Mitchell suspects John Carney has never read his works and says why!


  8. G’wan – keep repeatin’ the MMT lie…one of these days you’ll be invited on CNBS.

    It hurts so much you can taste it!

  9. Not sure who died and made Bill Mitchell king. The logic of MMT certainly permits a JG program but I think it can be coherently argued that lowering and raising taxes (modulating fiscal deficits)will also regulate the economy.

  10. It has never been my intention to move away from the “MMT Theorists” as Bill Mitchell refers to them. Carney very clearly stated that he learned MMT from me and Bill says he very clearly disapproves of the “source” Carney mentions in his original post. I don’t know why Bill Mitchell is so upset about my contributions. He made the same vague inferences when Paul Krugman responded to my primer. I’ve generated SUBSTANTIAL attention to MMT thinking as my audience is by far the largest in the MMT group. So even if Bill disagrees with my work I have no idea why he’s so upset about people understanding his life’s work due to my contributions. I’m not expecting a thank you (I don’t even talk to Bill Mitchell at all), but I’m a little surprised at how closed off he is to young economists and analysts adopting some version of his work. You’d think he’d be more open about it. I know Warren and Scott quite well and they’ve been nothing but huge supporters of my contributions.

    I do have some disagreements with the “founders”. Primarily the idea of currency demand (via production, currency mgmt AND taxation – as opposed to just taxation) and the JG. I’ve learned a great deal from the “MMT Theorists”. But even they admit that their theory has holes in it. After all, it is being developed by a hand full of people. It’s not perfect and I believe that one of the reasons why people like Krugman and Carney are citing my work is because my work is much more agreeable to their thinking (for whatever reason). If Bill Mitchell is not going to be open minded about young economists (and people with huge megaphones) adopting their work (or some version of it) then they’re better off writing an MMT manuscript and burying it in a hole in Afghanistan.

  11. Bill Mitchell is the man when it comes to MMT. I think a point to be made is the job guarantee is a prescriptive aspect as opposed to the descriptive facts of our monetary system. The JG does not yet exist, but all the other MMT points that describe how a central bank coordinates with the reserve banks do exist. Banks do not lend reserves. Government spending is not revenue constrained. We do not have to borrow from China. Etc.

  12. This is the number one reason why I love this blog! Brilliant piece TPC. If Karl Popper has taught us anything, it is that there is no one paradigm that adequately explains everything. In science, even math.

    This is especially true in economics, when so much is dependent on the unknowable quantity of human behavior. Personally, I like a blend of MMT and Austrian theories.

    It is folly to ignore the current monetary system and the advantages and flexibility it offers the currency issuer. It also is folly to pretend that being the reserve currency and a currency issuer allows one to go completely off the reservation of fiscal sanity.

    If someone would just step into the void, demand real regulatory reform, keep our deficit wide over the next few years with REAL government spending, i.e., infrastructure, and reform long-term entitlements and take a REAL shot at reforming the healthcare system, we could come out of this much much stronger.

    Alas, I think our politicians shall take us down the road to serfdom. Hayek was brilliant in that he recognized one thing: one cannot use socialism/government planning to run something like an economy. That ends in tears. All the government can do is what it is supposed to do in the first place. As TPC pointed out, the government is supposed to enforce the rule of law and ensure, as best as possible, a non-corrupt playing field. It can also incentivize risk taking and investment. It also can return a lot of money to the economy via stimulus/tax cuts, etc., to fill the void as the shadow banking system continues its inevitable collapse.

    Then, apart from that, the government needs to let the economy get back to work and get the f out of the way.

    Nice piece Cullen.

  13. You can measure certain aspects of human behavior in certain circumstances. However generalizing it on every circumstance and on a group as a whole, then putting it into calculations for calculating economy is nonsense.
    That’s exactly what economists do, they approximate human behavior through one parameter in a linear function and then they make projections for next 10 years.
    The inability to calculate humans in terms of macro economic environment and society is a fundamental mathematical problem which we encounter in every complex system. Once things get out of linear range, you feel the pain. That’s what most economics don’t understand, since their math skills are modest, to put it gently.

    As for the article. I agree with the author that it’s a naive perspective that government can’t do any good at any given moment. But in the long run, government will always suffer from poor competence of people governing it.

  14. Cullen,
    The biggest reason you are a great MMT source is that you are readable. Billy’s posts are too long for non-academics. You have broken down MMT to a few very learnable lessons. It wasn’t until I absorbed your stuff that I was able to take on Mitchell’s. BM has given you credit in some of his posts. I would surmise that he has a very favorable opinion of what you are doing for MMT. Don’t go by what you read today. There is always a difference og perspective between academics and the real world.
    Keep doing what you’re doing!

  15. FYI- I don’t know if a lot of readers here follow Mosler on a regular basis-

    Next edition of The Economist is supposed to have a piece on MMT.

  16. I don’t think he is just talking about regulating the economy in general, but preserving price stability. He argues that there are only two broad approaches to setting a nominal anchor for prices, and that the job guarantee/employment buffer stock approach is more efficient and more beneficial than the alternative mainstream aproach.

  17. Please don’t ever change. I’ve said it before and I’ll say it again- if you do some sort of stage show or stand up I’ll be the first in line to buy a ticket.

    “Angry because I’m wrong” could be the name of the show.

  18. From Wikipedia (source prestige is irrelevant when content is correct):
    “Bill Mitchell, from the Centre of Full Employment and Equity (CofFEE), at the University of Newcastle, Australia, refers to modern Chartalism as Modern Monetary Theory in the body of work he has developed in the field.”
    “Cullen Roche, a California based investment manager, published one of the most widely read pieces on MMT titled “Understanding The Modern Monetary System.” [29] Roche has become one of MMT’s most vocal proponents and has engaged Paul Krugman in several debates on the subject of MMT. “

  19. Government is a necessary EVIL, with the emphasis on the evil part. For this reason, it should be always watched and kept within its bounds, with as little power as practical. Otherwise it goes corrupt and slowly corrupts the whole society. The corrupion process is irreversible, if one looks at the history. I think the US govenment progressed a little bit too far too fast on the road to corruption in the last 100 years. Yet US is still the least corrupt of big countries in the wolrd, which is not very comforting.
    MMT , which recognizes the important role of the government in economy, crosses into poltical economics from pure economics. And this is where people have trouble with it, I think. Does MMT have a solution for controlling the government corruption and mismanagement through economic means, or does it assume “perfect govenment” model ? ))

  20. Chartalism was developed by GF Knapp. I think it’s funny how MMTers think they created some totally new. All they did was apply Knapp’s theory to the modern economy. And Bill Mitchell is using it to push his socialist agenda.

  21. Job guarnatee is an interesting idea, and it ill become even more widely discussed in the “age of the machines” that we are entering. Sadly, a major slice of the poplutation doesn’t have the education,the skills, and the parental persistence to get them where they need to be in order to work the “machines”. Plus, as machines get more productive, even with education there simply migyht not be as many jobs needed. See an example of South Korea with its overly educated population and all kinds of scums, because the educated people don’t have the jobs.
    In the end we habve 2 options: 1. pay them to do nothing 2. pay them but force them to do something superficial, just to make them to do something.

    First option has been tried in the US and Europe and while it contributed to stability of the society as a whole, it created a whole welfare underclass with no survival skills .
    Second option was sort of tried in USSR, where everyone of legal age had to have a job, regardless of their skills, motivation, ethics etc. That created a whole set of problems in the workplace where you had to deal with people who simply didn’t care, yet couldn’t be fired. So, those who cared had to cover for the rest and with average results. Because very few people contributed, they didn’t get the recognition they deserved or the results.

    Is there a third option? Because both options have shown to be unworkable.

  22. Of the big countries, I said. Generally, the northern European countries are pretty good, but they are very small and that helps to manage corruption. Germany, Canada and Australia are also OK.

  23. Primarily the idea of currency demand (via production, currency mgmt AND taxation – as opposed to just taxation)

    For some reason this pinged back your hyperinflation paper in my brain. Could ‘0 currency deamnd’ be considered a synonym for hyperinflation- where (domestic) currency demand is a binary.

  24. I know that, but MMT is credited to Bill Mitchell.
    Political implications are not in the scope of the article or the discussion.
    I also agree with Chewitup that Cullen is readable. Mitchell is hard to swallow.

  25. I don’t think the issue with it is out yet.

    Quoting Mosler’s Twitter account-

    “Just told MMT article in next issue of The Economist magazine”

    Saw it a little after 4pm yesterday.

  26. The thing is, you don’t have a fiat currency system without productivity and demand for goods and services. This is a simple point of logic as Zimbabwe proves. but some MMTers will take the extreme view that all that state needs to do is impose a system of taxes….Of course, if there’s no productivity to tax then do the math….

  27. I’m not getting into an argument, just answering Jason’s question.
    Whether or not the MMT = JG is above my level of understanding.

  28. Quote:”Austrians tend to veer towards the misconception that governments are these exogenous entities that infringe on our personal liberties when the truth is that we create governments for some public purpose. We do not create governments to impose hardship on ourselves.”
    I think this is the biggest misconception of MMT’ers.
    The greatest thinkers of Austrian economics, von Mises and Hayek, were never against governments per se. But Austrians see a potential cluster risk in big governments. Austrians will always favor small governments and (many) small companies over big governments and (few) big corporations. Austrians have more of a problem with cluster risks and limited competition. Thus Austrians see individual liberty at stake because the bigger a company or the bigger a government the more it can cover corruption, mismanagement and so forth.

  29. I don’t intend to be argumentative. The facts speak for themselves. Unless Mitchell believes the JG explains a modern fiat monetary system then it’s abundantly clear that his post today is contradictory to past statements. He is trying to do precisely what causes most people to reject MMT – he is politicizing it by trying to connect its descriptive aspects to its prescriptive aspects. And it’s one of the reasons why his message is not being disseminated to the extent that mine is. I’ve been writing about MMT for 3 years. He’s been writing about it for 2 decades. And yet people like Carney, Krugman and Weisenthal are constantly referring to my work. Why do you think that is? It’s not only because I am “readable”. It’s because my work is politically unbiased.

  30. A job guarantee is best done as a temporary measure during big credit busts. These Depressions create an opportunity for the Federal Government to do big things on the cheap, as there is an excess of workers available for a decade or more. I think the USG should implement a big long term program to colonize the Moon and Mars in a serious way, and establish absolute US military supremacy to the entire space domain. The problem is that the political elites in the USA don’t think big anymore, and those that do just want to funnel maximum cash to specially favored client groups, instead of actually doing something.

  31. The job guarantee seems to be a kind of low wage, mandatory and temporary military service for the unemployed.

    No wonder the idea isn’t attractive to many people, even within the MMT camp.

    Maybe we could put it this way, with a little help from the History of antiquity: pro- job guarantee types are Spartans, who approve of military type discipline. Athenians will simply stick to MMT without the JG add-on.

  32. Bill Mitchell’s lifework is predicated on the JG so of course he is pushing its connection with MMT. The only problem is that you seem to have caught him in a stone cold lie. Unless he wants to base his economic work on the idea that a modern fiat monetary system can only be understood by understanding that a government needs to employ everyone who is unemployed. No one would believe that and you’d be totally discredited if you published academic work, but that’s what socialists do. They push their political agenda on other people and try to pretend that it’s fundamental to understanding the world we live in. Bull sh$t.

  33. A social system in which moral hazard does not exist is not possible. People must have the incentive to avoid pain or society will devolve to the point that we are all sitting on the beach scratching our unmentionables. That is, all of us that are not raping and plundering.

    Your error is your assumption that (relative) poverty can be eliminated. Our own society has essentially eliminated poverty in real terms. (Even the poorest among us is vastly better off than most residents of, say, the Congo.)

    Yet still some people find it problematic that Bill Gates has many more dollars then they do. But Bill has made vastly greater contributions to the well being of all of us. He’s earned it.

    Technological advances will continue to amplify income disparity. However, at the same time, the actual economic circumstances of the “poor” will continue to improve. This is obvious in the ubiquity of cell phones among all Americans, among other evidence.

    Misguided attempts to eliminate moral hazard will ultimately destroy the ability of the productive to produce. Equal wealth for all will always in practice consist of equal poverty for all. (Except for the most violent and adept thieves.)

  34. Quote:”As I often say, government becomes corrupted when the power of the many falls into the hands of the few.”
    Unfortunately this is a misconception too. People like to float with the current and this might gain momentum.
    Look at North Korea, Hitler, Stalin or Mao. These individual people where able to win a majority of citizens for their beliefs and this made this fanatics to powerful men. Their power was always backed by the masses. Even though these masses were misguided by propaganda these fanatics had the support of many.
    It is a myth that a few people can control the rest without strong support of many other citizens.
    This is of course a two-edged sword. Look at the Arab spring. Governments lost control because more and more people changed their beliefs. Without strong support from the masses the Arab spring would never have happened.
    The Arab spring showed us, that for individuals it is much more complex and difficult to organize the masses then for any big government controlling media and military. This inequality changed only now with social networks.

  35. Excellent, clear and concise statement of the psycho-social nature of ‘money’ (as opposed to the naive desire for it to exist as a Platonic ideal).

    I may be equally naive in believing a global system may be the only answer to otherwise intractable trade/currency imbalances, resource limitations, inter-state warfare, and climate change. However, such a system could only work with highly limited powers under a federal principle – with government, and also economic relations, at the local level playing a greater role. In that sense, I sympathize with Austrian/libertarian instincts (and if we don’t develop global solutions, we may have to fall back on much more local economic levels anyway, if not ‘Crusoe Islands’).

    Under current conditions, I also have some sympathy for the ‘Job Guarantee’ but (again with conservative instincts) believe that in general, theory always needs to be combined with practice and subordinated to reality. Hence, implementing a limited version (eg as part of a ‘national service’ program) seems the most sensible way to approach this.

    Thanks again for raising the broader issues.

  36. The fact that Hitler or Stalin were supported by their people does not mean the power of the many had not fallen into the hands of the few. It just means that they were geniuses in promoting their views and manipulating the populace. The power of Nazi Germany was not based on the power of the people. It was based on the ideals of a mad man. The fact that the mad man was able to convince the people to jump off the cliff with him only proves that he was that powerful….Why do you think all of the countries you mentioned are associated with one specific person? Mubarak, Hitler, Stalin, Kim Jong Il….

  37. “The job guarantee seems to be a kind of low wage, mandatory and temporary military service for the unemployed.”

    No, it does not seem like that unless you search the most creative part of your mind for something that it ‘could’ sound like that is also horribly negative for no good reason.

    Its a jobs guarantee, as in, ‘We’ll pay you money to show today (TODAY ONLY) here and do work. You can come back tomorrow if you like.”

    If you think that JG program sounds like ‘mandatory military service’ you have made a horrid conclusion by making overtly-negative assumptions. There is NOTHING mandatory about the Jobs Guarantee programs many MMTers advocate. I do believe Warren Mosler uses something to the tune of ‘A program to provide work to anyone who is willing & able’ WILLING & able… If you (and for all I know you are simply trying to describe what anti-JGers think) really think what you wrote above then I doubt you have read anyone who actually advocates a JG program…

    For the record I don’t like the Jobs Guarantee program for the same Praxeological reason TPC doesn’t like it. I do think it could be altered, however, to make it more palatable.

  38. I don’t think anyone owns the rights to MMT, and there is no definite gospel that is the MMT scripture. But there are definitely some canonical texts. One of those texts, for example is Randall Wray’s Understanding Modern Money: The Key to Full Employment and Price Stability – and that text certainly contains both descriptive and prescriptive elements. Is MTT a purely descriptive account of the fiat money system? Or does it contain prescriptive elements as well? I think either answer can be justified, but there is no call for saying that one of the main formulators of MMT is a “liar” because he happens to think some of the prescriptive elements inherent to MMT.

  39. There are all sorts of ways a job guarantee program could be implemented in practice.

  40. In general I agree about the necessity of moral hazard, but what you do in a society where the only means to survival is a job, and you have millions of people who cannot get one due to either lack of demand or lack of skills?
    If you don’t keep them gainfully occupied they start seeing themselves as separate from society, from its laws and that will eventually lead to major unrest and instability.

  41. Not to get too off track, but the way dictators come to power is by harnessing the herd power through “us vs. them” mentatlity. If you are not with us, you are against us. The best it was put as “divide and conquer”. The conditions have to be right to inspire hatred towards another group of people. This is why social instability and unrest have to be avoided at all costs. Only during times of extreme strife a dictator can come to power. Once dictatorship is in place it can sustain for a long time through elmination of any opposition. That is why in the end all dictators become so paranoid and bloodthirsty. They know they cannot allow the opposition reach critical mass.

  42. So answer me this. BM says: “(MMT) is a statement of the way the system functions and what opportunities (and consequences) are available to a government that issues the currency as a monopoly.”

    Do we need the JG to understand how a modern fiat currency system works? Obviously not. BM is just pushing his personal political agenda. No one needs a government job program to understand how modern fiat monetary systems operate.

  43. I agree that the JG could be made “more palatable”. But the operative word is could.

    Under an unenlightened, authoritarian government it could also turn into the king of low wage, militaristic nightmare that no reasonable person should support.

    I’d rather scrap the whole idea and revert to good old demand management policies – extra public expenditures or tax cuts – in order to reach full employment.

  44. Precisely. He’s mixing up the theoretical prescriptive aspects of MMT with the fundamental truths in the descriptive aspects. I don’t have a problem with prescriptions, but boy is it misleading to imply that one can only understand a modern fiat currency system by understanding potential govt policies. This is the sort of stuff that detracts from MMT going mainstream. Anyone with a bit of common sense sees right through it and says “well, that theory is pure ideology”. And if it’s not in-line with your own personal ideology then you reject even the factual parts of MMT (because the policy prescriptions have poisoned the fundamental truths). It’s really destructive and explains in large part why MMT has had so much trouble being accepted. We’re shooting ourselves in the face with this sort of commentary….

  45. Cullen:

    I don’t know that Bill “clearly disapproves”. He stated “I always agree with the contributions of the early MMT writers but often disagree with some of the statements that the blog writers outside of this group make in the blogosphere”.

    We have to be able to have room for disagreements in order to have dialogue.

    Bill has also praised the non-academic blogs for spreading the MMT message in earlier posts.

    He also makes it clear that the Job Guarantee (JG) is a “central plank in the MMT policy framework that seeks to maintain full employment with inflation control.” So, it is a policy component that derives from an objective to maintain full employment and low inflation.

    What this represents in theory is the notion of buffer stocks applied to labor markets. I would say that is one of Bill’s major contributions to MMT theory.

    A macro model that does not incorporate labor markets is a poor one indeed.

    This is NOT saying that the JG is a “statement of the way the system functions”. I think you are unintentionally mis-characterizing Bill’s point.

    Perhaps because labor markets are so personally close to the non-academic blog readership, it is not surprising that financial blog sites accepting considerable parts of MMT might avoid discussion on labor buffer stocks and the impact on price stability and monetary policies.

    You have to ask the question: What if (by a miracle) somehow the public and government got their act together and decided to truly embrace MMT. That would mean the government would have to spend a greater amount than it currently does.

    What would it spend on that would not put excess pressure on prices and yet still lead to full employment?

    The US has a tradition of government spending on high-end labor, that is expensive labor (programmers, engineers, overpaid managers) or labor requiring large capital expenditure (space programs, military).

    This tends to create inflation at the high end of the wage market and implies some kind of “trickle down” effect to generates jobs at the low end. Most importantly, it does not create an effective buffer stock, which is a required method to manage price stability for any commodity.

    You really need to dive into this a bit to understand the implications.

    I think that Bill does a great job of pulling all the various pieces together into a coherent package.

    I also think that the Job Guarantee would do a great job eliminating two sources of moral hazard: 1) work instead of government unemployment payment, 2) force the financial sector to clean up its mess faster – the “natural” tendency towards a slower economy after a crisis would be mitigated – a slow economy provides more excuses for government to bailout financial firms and allocate its money creation capabilities to the financial sector.

    But I am willing to have a reasonable discussion and debate on the JG.

    Bill’s job is not to win over the masses, that is your job. His job – with great success – is to win over the influencers who win over the masses.

  46. We certainly agree about the ‘could’- this is the same reason I hate SOPA, laws are almost always used for ends that are outside the original spirit of the law (insert a bunch of links and stories from Beowulf here). We are in agreement, but to jump immediately to something that the JGers specifically support the opposite of (mandatory v of will) I felt was a bit much.

    My main work around for the jobs guarantee to make it more palatable is to make it non-permenant. Have it only come ino play when unemployment reaches X%. Once non-JG employment increases to Y% you start removing the JG program.

    That and the wage for the JG program should be slightly below minimum wage to make JG jobs less desireable than jobs at minimum wage that service real demand.

  47. As far as what will help spread MMT among the general public, I can’t agree that downplaying or dismissing the job guarantee is the way to make the sale.

    Most people care about economic theories only for the sake of what you can *do* with the theory. The public policy prescriptions that are associated with a body of economic thinking aren’t distractions – they’re the selling point.

    Trumpeting the job guarantee might turn off a few conservatives who hate anything that sounds like government fiscal activism. But there are many millions of unemployed and underemployed Americans who might think otherwise. A lot of these folks – and a lot of folks who aren’t in trouble themselves but who care about the people who are – have been intimidated and duped into believing that we can’t afford to hire the unemployed because we are “broke” or “out of money.” They have also been taught to believe that the hyperinflationary bogeyman is right around the corner whenever the government’s spending exceeds its revenues. These folks will be *very interested* to discover these demagogic views are false. So I hardly think playing that JG aspect of MMT thinking is a case of shooting MMT in the foot.

  48. This all goes back to why many people hate the term “modern monetary theory.” Maybe the theory part comes from an inclusion of the prescriptive with the descriptive and the latter should be broken out specifically: either as chartalism, state theory of money, modern money analysis, etc.

  49. It’s no one’s job to win over the masses. We’re not ideologues pushing some belief on unwitting fools. We should be honest and informative members of our society whose job it is to provide rational and unbiased explanations based on our expertise. When you start implying that you can’t understand the monetary system without understanding a govt jobs program then you are being politically biased. There’s no two ways around that. No one on the planet needs to understand modern fiat monetary systems by understanding large scale employment programs.

    Bill and other MMTers have been very explicit about the fact that MMT has descriptive aspects and prescriptive aspects. Scott’s primer, probably the best one out there, is very precise about this:

    “At its core, there are two parts to MMT. The first is a description of how the monetary system actually works, mostly focusing upon interactions between the central bank, the treasury, and the financial system, though this part also requires a very thorough understanding of the Minskyan-related literature of many MMT’ers (I note this because so many critics of MMT ignore or not aware of the vast MMT literature on financial instability and reforming the financial system). The second is a set of policy proposals that arise from this description and is largely outside the scope of this particular post but which can be found in any number of MMT publications and blogposts (and, again, including the sizeable MMT literature on reforming the financial system).”

    When you try to imply that the prescriptive aspects ARE the descriptive aspects then you’re politicizing the conversation. You’re doing exactly what I accuse other schools of thought of doing. No one in the world needs to understand large govt programs to understand how the state theory of money works. And if MMT = 30 million govt employees then that’s something I am certainly hesitant to be associated with. We’re mixing politics with fact and in doing so we are marginalizing our own strengths.

    I haven’t had huge success in spreading the MMT word because I don’t understand all of this extremely well. I’m not going to tell other MMTers how to talk about MMT, but I’ll tell you one thing – this theory isn’t going anywhere if you start trying to claim that you can’t understand the state theory of money without understanding the JG. And if all MMT amounts to is a huge govt job’s program then good luck selling that to anyone. Cause I certainly won’t do it….

  50. > It isn’t until you can get yourself centered into a perspective where you suddenly realize that every frickin’ human being on this planet is YOUR brother that it begins to dawn on you (very much like Jesus, the Nazarene, articulated).

    I always felt that way , being a mix of many bloods, not really belonging anywhere. But in Russia where I grew up there was quite a bit of multi-national bickering – russians vs. jews, russians vs. azeri and so on. Now it is even worse ,after the collpse of the USSR all this rivalry is in the open. Europeans are the same.

    In the US I hear all the time about chinese and indians taking “our ” jobs. Having been in the shoes of said “indian” in the past, I always ask, why do you think an indian is less deserving of the job? An indian probably needs that job more since they have no welfare programs in place.

    Our “City of Sun” is many may thousands years away, unless we self destruct sooner.

  51. Great discussion here TPC.

    As a frequent reader here as well as Bill’s blog and others, I agree that Bill comes off as more overtly political in his writings than Cullen does. His contributions to understanding MMT have been substantial though, but the JG drum that he beats just distracts from his fiscal and monetary insights.

  52. Austrians? The guys who believe suffering through regular depressions is good for you? Nothing like a dose of old-testament style economics. If elected, Ron Paul will set the economic clock back to 1840. You’ll need to eat your gold bars when you run out of food, assuming your neighbors don’t shoot you first. Or the Africans don’t come and kill you in the race war.

    All kidding aside, Cullen you are the best point man for MMT going right now. Mitchell is way too cranky for the mainstream.

    As for the JG, I’ve never understood it. If you need to suddenly have 20 million American jobs running next week, who’s going to manage it? Some new giant bureacracy? What are the jobs? Digging holes and filling them back in? Some would say, “Work on our crumbling infrastructure.” While it’s true that it needs it, it also needs skilled workers, not Joe Schmoe who can’t get a job at the kwikmart and whose main skill is watching t.v. It also needs management of the type that private construction companies typically provide. I just don’t hear anything about how it would be implemented. It remains a sort of Shangri La in my mind, someplace we’ll get to if we just try it, but no one has presented a blueprint that I’ve seen that makes any sense. What do these jobs consist of, exactly?

  53. If you look at the crazy quilt of linguistic relationships, it’s clear people have been traipsing around N & S America since the first homo crossed the Bering strait (here in Western NC, the ‘Mexicans’ are mostly Tarascans – whose native tongue may be related to ‘Penutian’ languages distributed from Alaska to southern Chile). That has been the natural human tendency, despite the establishment in the last few centuries of ‘national’ boundaries (which are even more a social construct than ‘money’).

    I think in spite of differences of terminology and perspective, our comments above are getting at much the same thing: a balance between integration and differentiation, as opposed to radical separation. I agree that the degree of transformation required for achieving this on a global level is daunting, but the survival of the species (or at least the large portion of it) may require it.

  54. Off the top of my head, in addition to

    Infrastructure needs:
    Home health/elderly care
    Child Care
    Tutoring (college grads who can’t get a first job)
    Youth recreation
    Natural disaster/climate change preparation/response (increasing need)
    Military Service broadened.

    Most of these are a good fit with a ‘national service program’ plus support additional economic activity; make regular employment more achievable, eg for parents of minor children, relatives of chronically ill/disabled/elderly; help bring healthcare costs under control; help immigrants develop language skills; spread military risk more equitably; promote social cohesion across lines of class and culture; help address other social needs/problems.

  55. Actually, affordable childcare is sorely needed. Especially, for the lower income families. But it can’t be run by unemployed since it needs trained, reliable people, who are good with kids and who are trustworthy.

  56. “In other words, while gold might be money to you and your neighbor, it is not money when it comes to extinguishing your liabilities to the Federal government. When it comes to transacting within the US economy, this is the crucial distinction when it comes to ‘money’”.

    This point may be seen as extraneous but this really jumped out at me in light of what is in play these days. Money—the US dollar—is also an essential clue holding us all together around one common thing we all agree on and value. Something that is becoming rarer by the day.

  57. Cullen

    I take all your points. I can see this from both sides but your success at attracting publicity for MMT seems to be as a result of taking the bits of the theory that describe the functional and operational realities of the monetary system. Fair enough.

    So that leaves the obvious question. Is that all that MMT is?

    Warren, Scott A view?

  58. the assumption being that humans grouped in smaller numbers are less prone to the human failings that lead to the diminishment of personal liberty?

    I would argue that smaller groups with power of some degree over that group pose a bigger threat to denying personal liberty to the individual.

    Examples being any and all cults, religious sects and outlier social groupings.

    The smaller the grouping the narrow the cracks to slip between enabling one to be oneself.

  59. “Why do some countries display prudence and others profligacy?”

    governments tend to abuse their power to do public good and act in the interest of a subset of the public when that subset has undue (undemocratic, opaque) control of that government.

    that doesn’t make the concept of government flawed beyond redemption it only calls into the question the correctness of that particular state’s government.

  60. There is also the prescriptive component of MMT. Ultimately, MMT’s theoretical component is all about how to utilize the state’s money to help achieve some sort of economic and/or societal goals. But the distinction is very important.

  61. Add Farm work –

    establishing a living minimum wage here would have the added benefit of providing incentives for job creation in Michoacan (at a much lower, but living, wage there) so that the Tarascans could find work at home rather than making the arduous journey here to do this kind of work (the 13th Amendment did not end the breaking up of families to meet the demand for cheap labor).

    Also, for ES: a program combining jobs plus service could attract people qualified for child care; and training would be an essential part of a successful one (I’ve had relevant experience here as a preschool teacher, with ‘AmeriCorps’, and other nonprofit work).

  62. ” It also needs management of the type that private construction companies typically provide.”

    I think your ideology is showing.

    The assumption that the public sector can’t do quality and efficient pick and shovel; dozer and backhoe; grade and pave; mix and pour concrete work is myth verging on slander.

    In fact the public sector regularly and routinely does better at quality and efficiency when compared head to head on a level playing field.

  63. The ‘bad guys’ in power are either supported or at least tolerated by the masses. This means there is no concentration of power without the support or tolerance of masses.
    So it is a myth to think that some man, or a few men, can concentrate the power and rule over a whole country.
    For people working for the government it is very simple to manipulate the masses. Therefore big government is always a cluster risk and to be avoided.

    This just shows that your assumption that government becomes corrupted when the power of the many falls into the hands of the few might be wrong. It is quite the other way round. When a few fanatics may turn the masses around corruption and mismanagement (or even worse) will occur. The government installs a so called tyranny of majority.

    Therefore I understand the case of Austrians against big government and their often ‘well-intentioned’ interventions.

  64. Precisely and it appears you are uncertain that JG or Full employment should be one of those social/economic goals (and you have given your reasons) but clarifiation is crucial here surely for all our sakes.

    How do we promote MMT? As an accurate description of how things work, as a reassurance we are not about to enter total meltdown, or as a opportunity to advance public purpose not to mention utilising productive capacity to the max by bringing about full employment?

  65. Childcare programs could and should be ‘run’ by trained professionals. However, workers, who could become the future professsionals, could be drawn from a jobs/service program (My co-teacher/director and I, responsible for 30+ kids aged 3-6 in a low income area school supported by tuition, strained our budget to add paid interns – one now a lead teacher there – as she neared retirement age; we’d have made good use of a government paid aide or two).

  66. Well, my approach has always been to focus on its core descriptive components and show people how we can use our understanding of the core components to prove that MMT is an accurate description of our reality. It’s why I said austerity would be a disaster in Europe. Why I said int rates in the USA would remain low. Why the USA would not have a sovereign debt crisis. Why I said QE would fail. And on and on. I think one of the reasons why people are attracted to pragcap is because I get a lot of macro calls right. I help people see how you can use an understanding of the monetary system and connect it to reality. I connect the dots that academic economists often fail to do.

    I use the descriptive component of MMT to show people how understanding the monetary system can lead to better decisions. Once people understand the descriptive component then we’re ready to have the prescriptive debate (whatever that might be). But we should not poison the waters of the descriptive component by trying to convince people that the prescriptive component is somehow a vital component of the descriptive aspects. That’s simply not true. The state theory of money has been around for a very long time.

    If Bill Mitchell and the others are intent on proving that MMT = Job Guarantee then good luck to them. Their theory will go no where in the USA. Mark my words. Americans didn’t build the greatest economy in the history of man kind on these sort of extreme ideals and there’s no way they’ll be accepted any time soon (as in, the next 500 years). If, on the other hand, the “founders” are willing to sacrifice immediate acceptance of the prescriptive component in order to get people on board with the descriptive component, then the theory has a fighting chance of making it in the mainstream. But alienate people like me who are skeptical of the JG and I guarantee you that this theory will go nowhere. And if they don’t consider me an MMTer because of my JG beliefs then so be it. I haven’t succeeded in life by riding other people’s coattails.

  67. I didn’t argue that small groups of people are less prone to human failings. But the consequences and impacts of human failing in small groups will most likely to be smaller.
    And this is a very important point. Our world is highly leveraged in any way, not only in financials.
    Whenever it is possible one should always argue for the small government or small company. Legislations should be in favor of keeping governments and companies small or at least in competition.
    Highly interconnected government or company monopolies will most likely do always much more damage then many smaller entities in competition.

  68. Something that recognizes people exist and screw things up is a refreshing change. Recognizing that human beings need a social existence is brilliant insight. Why do the Republicans not believe that this is so. As Bachmann declared today she will stamp out socialism. There you go any social construct is bad, bad, bad.

    I did enjoy reading this article.

  69. Keep in mind Cullen that Mitchell (and Randy Wray) are unapologetically “progressive”. As academics and ideologues, they cannot separate out their politics. I think you and Warren are very good at understanding all of the political perspectives. That is why you are “readable”. Most of us that follow your blog know the JG will not be a plank on any political platform anytime soon.

  70. Cullen
    Thanks for your response.
    In truth I don’t know enough about the JG proposal to form a view. My natural instinct is to side with Bill because most of what I’ve learnt has come from him. I will now look into it in detail and review your reservations.

    I think you, Bill, Randy, Warren need to have a conversation because if you can all get on the same wavelength then I think the sky’s the limit. It feels to me like MMT is about to go mainstream. In the light of that these spats are nothing more than clearing the air and good for everyone in the long term.

    Keep up the good work.

  71. Someone needs to inform Bill Mitchell that he didn’t invent the state theory of money. MMT is Knapp’s work modernized. Mitchell’s only real contribution has been to apply the JG to it. No one needs to understand the JG to understand the state theory of money. The fact that Mitchell thinks MMT is all about the JG and that you can’t understand or be a MMTer without the JG is purely playing politics.

  72. I just finished the Mitchell article. It reads like a bitter old man whining that you’re getting the attention again. Forget Mitchell and keep on doing what you’re doing. You’re not making waves in the MMT world because you aren’t providing anything unique. In fact, I’d argue that if you really wanted to you could rebrand MMT as your own “theory” and sell it much more succesfully without the other thinkers watering down your work with stupid things like job guarantees and bog government programs.

  73. Great discussion; it’s nice to use my brain between pig out sessions, football/bball etc.!

    I agree with TPC that the two issues (MMT operations/descriptive & JG) are separate. (Of course, someone could have the debate whether “MMT operations” is the “right name”, but that’s a nomenclature and ego/historical issue.)

    (1) MMT operations is what actually happens *right now* so it’s clear that the JG need not be part of that framework. (2) Social policy can clearly exist in any monetary system so again, is separable.

  74. I think of it like writing a musical score or painting a picture. Brush stroke upon brush stroke (adding, modifying, deleting) riff upon riff. That is MMT in Bill Mitchell’s mind and that is MMT in Cullen’s mind (or anybody else s mind for that matter). The work is a whole. That is how economics changed collectively through primitive tribal, slave, feudal and capital societies – because people changed and their way of conceiving things changed. Regardless of those who wanted everything to remain the same!

    I just think we should be clear about who’s painting we are talking about, and discuss the perceived merits and demerits of each. In the case above, I happen to like and appreciate the efforts of both!

  75. +10, and that doesn’t even include the extra points for good taste in beers.

  76. Somewhat offtopic, but praexology is a failure from a epistemological point of view, pure non-sense methodology. But there are some ‘austrians’ (for the lack of a better term) which don’t adhere to this epitestemological ‘school’.

  77. Sigh. When MMT divides into political factions?

    I just can’t get through Bill’s “wall of text”. Yes, that’s a me problem. And I wish Warren used MORE text. As such, I don’t really follow either. For me, Cullen is the Goldilocks of MMT. And contrary to what some people may think, he’s also very approachable on this site.

  78. “The idea that the human being can survive and thrive entirely independent of complex social constructs is a sheer myth.”

    This is not an Austrian assertion!

    “Even worse, they assume that small factions of the society can regulate and behave rationally and responsibly enough to eliminate the need for government.”

    I think Austrians and anarchists (like myself) are PRO-regulation. We just don’t need a violent monopoly calling itself government imposing these regulations!

    “ As I often say, government becomes corrupted when the power of the many falls into the hands of the few. “

    Government is always corrupt because it is immoral to steal from people. Let’s put the guns down and try to organize society without monopoly government backed violence.

    “The point being, in trying to prove this ideological argument they create myths that lead people to believe that we do not need strict social constructs to survive.”

    I’m fine with social constructs. I know a lot of anarchists and Austrians and they are too. Your assertion here is just invalid!!!

    “But I fear most Austrians cannot overcome their political biases that lead them to conclude that government is always bad and therefore, the state issued fiat money is always bad”

    Government is immoral because it funds itself through violence. This is not a political bias—it is standing up for what is right. Cullen, it is WRONG to throw people in cages for not paying whatever bureaucrats decree. Please stop advocating stealing.

  79. How is any debate on a JG as policy prescription going to gain traction when the other side is still saying we can’t do it because we’re broke?

    Framing the contest of ideas in terms of MMT monetary descriptions is the essential prerequisite. Accomplish that and the rest becomes much easier as poverty and unemployment quickly become indefensible policy goals without TINA to hide behind.

  80. Govt’s exist because this magical Utopian society where private individuals are free to do whatever they please failed.

  81. @ Dave

    I had a look at Fekete a while back but got the impression he was a very strong “return to gold standard” proponent.
    I did not follow up with further investigation.
    Do you have any insights into what his philosophy for economy includes?

  82. size, as we can see around us in many examples, does not always correlate with power which is the cause of much of today’s dislocations.

    the one exception being the size of one’s accumulation of wealth which always correlates with power.

    and power is always at the heart of economic theory, discussions and policies.

  83. “In fact the public sector regularly and routinely does better at quality and efficiency when compared head to head on a level playing field.”

    Examples – in construction – please. Most public sector construction is done by bidding out jobs to private contractors. It’s not a matter of “ideology” it’s just the practical reality that is taking place.

    If you need an example of ideology, find a congressman to propose the JG in the next session and watch the republicans scream bloody murder and socialism until they’re blue.

    I continue to wait for a workable plan for the JG. A list of “what we need people to do” is not a plan.

  84. “A macro model that does not incorporate labor markets is a poor one indeed.”

    Or a very general indeed…

    “Government is a necessary EVIL.”

    Government is necessary as there are some social coordination and control functions that must be done in a centralized way.

    No set of rules is known that can make governments immune to corruption and other malfunctions. (This can be considered an evil or as a good.)

    What this means is that only continuous monitoring of government by concerned citizens can in a sense ensure that government functions in a reasonable good sense. There is no thing as a government functioning well in “automatic mode”.

  85. In a strict scientific sense, a theory is a description of how things behave (after experimental confirmation) or of how things can possibly behave on the grounds of logic and what has been experimentally confirmed.

    A theory in itself is not and cannot be prescriptive, unless a goal for action has been established (externally to the theory).

    The JG is a theoretical answer to the question: can full employment and price stability be attained simultaneously? MMT answers: yes, through a JG (or buffer stock employment). Let one note that no other theory relating to economic matters answers yes.

    Of course, if one does not value full employment and price stability or if one does not trust the theoretical solution being proposed as the JG for the assumed goal, one will be not interested in exposing the JG as part of MMT.

    It is something similar (similar, not equivalent) to knowing and exposing nuclear physics but not exposing how nuclear physics can be used to build nuclear reactors by some conceivable reason.

    Crisp distinctions of everything that can go and cannot go inside a set (and a theory is a special case of a set) are for the most part subject to non agreement. That is why Lotfi Zadeh invented fuzzy sets and fuzzy logic.

  86. MMTers, while recognizing public goods, do not seem to have a good theory on why government should ‘do the right thing’ and not abuse its monetary power. Yes, bad things will happen if they don’t but that has never stopped the elites in the past.

    MMT does not propose to fix human nature. The elites we have today are already abusing the system we have now. Why would you expect MMT to solve this problem? Does Austrianism propose to fix it? The very same elites would trample all over an Austrian system, perhaps with even greater ease because there would be no democratic safeguards over private control/hoarding of resources. It seems Austrian economists love to ignore the obvious dangers of corporate hegemony and point solely at government. Which accounts for Austrianism’s popularity among corporate types.

    MMT has descriptive elements (how the monetary system works) and prescriptive (what we should do with it). I think you’re ignoring the difference.

  87. In our current political environment there’s only one way for MMT to become widely accepted, and that’s to amputate any elements that might actually benefit the average citizen. This will be done mostly without conscious thought, in the same way that fish don’t have a word for water.

    Even if we quibble with the form of Mitchell’s objection, his recognition of this is natural and timely.

    I still think a widespread understanding of MMT is beneficial. But JG proponents need to understand that anything about MMT that might benefit the middle class will be nuked from orbit. The middle class have been losing ground for 40 years. Can MMT slow the eroding tide? Not if mainstream academics can help it. Know this, and let the fight begin.

  88. Hi Collen, your tpc at pragcap dot com email address doesn’t seem to work, so I’m re-posting my question below. Hopefully it’s not a stupid question:

    Hi Collen, wrt to your statement: “The issuance of government bonds is merely a monetary tool that helps the Federal Reserve to control the overnight rate.” my question is how is issuing a 10-yr bond or a 30-yr bond help the Fed control the overnight rate? My understanding is the intermediate- and long-end of the yield curve is determined by the market. What is the point of issuing bonds at the long end of the curve if what you said is true — that the bond market does not fund anything the government spends?

  89. Hi Cullen, wrt to your statement: “The issuance of government bonds is merely a monetary tool that helps the Federal Reserve to control the overnight rate.” my question is how is issuing a 10-yr bond or a 30-yr bond help the Fed control the overnight rate? My understanding is the intermediate- and long-end of the yield curve is determined by the market. What is the point of issuing bonds at the long end of the curve if what you said is true — that the bond market does not fund anything the government spends.

  90. Cullen,

    Scott Fullwiler left this comment at 3spoken. I found it quite enlightening and practical:

    “Bill did at least partly “invent” Neochartalism. He did not invent Chartalism or the state theory of money, and would not claim to have. But what Neochartalism is or at least has been to this point is in significant part as a result of his work, whether you want to accept that or not. In fact, your own example of Keynes proves my point, as there’s not much in the Keynesian school that actually resembles Keynes.

    Let’s be clear, though, as there are two different points to make and I’m only disagreeing with you regarding one of them (and agreeing with regard to the second). First, again, Bill DID invent Neochartalism, partly. Second, having said that, where MMT or Neochartalism go is not up to Bill or any other specific person, as the Keynesians proved.

    By putting MMT out into the blog world and getting our wish of having a following, the consequence is that we don’t have control over the path it takes. We can do research and hope it influences that path, but it’s no longer ours exclusively. We could have kept tighter control if we had chosen to continue to work on the fringes and remain almost completely unknown.

    So, going forward, and perhaps even now, whether the JG is required part of MMT is not for us to decide, even as it certainly is central to previous academic MMT literature. Such are the costs of gaining popularity and having others jump on board. I personally prefer this reality to the alternative path of remaining obscure.”

  91. Also, Mosler suggests the Treasury issuing nothing longer than 3 month bills.

  92. I don’t see any difficulty in cooperation between MMT and Austrian economics to the degree that both side limit themselves to fact rather than desire. The fact is that sovereigns like the US, UK, Canada, Australia, and Japan are all monopoly providers of a non-convertible floating rate currency, even though one might wish that the facts were otherwise. Until that system should change we have to deal with it as it is, and MMT provides the clearest and most comprehensive description of those states of affairs and operations. MMT builds a macroeconomic theory (explanation) based on that description. This explanation enables predictions, and these predictions regarding alternative courses of action and their consequences set forth a spectrum of policy options. Choice concerning which options to implement is political. Various MMT proponents advance different policy options based on political persuasion. This advocacy should not be confused or conflated with MMT as a description of the monetary system or as a macro theory. Both of these stand alone. Even if only only adopts the description of the monetary system one will be ahead of the game in understanding what actually is, rather than what one wishes were the case but is not.

  93. Bill, your earlier comment asked ‘What are the jobs’ and I responded with a list, most of which are already being implemented to a degree with some success through VISTA/AmeriCorps, working with existing nonprofits like Habitat for Humanity (and hospitals, schools, government agencies, and even private businesses also potential partners), as well as through a CCC type component. We also have the examples of the military, and the rapid and efficient mobilization of the entire society in response to the emergency posed by WWII.

    In other postings on this site, I have sketched out a proposal for 2 years of paid national service as a condition for full citizenship rights (federal voting, employment/office holding, educational aid – with the military getting first pick unless conscientious objector status is claimed) at a time of the individual’s choosing. This could constitute a limited version of the job guarantee, as it would be an option with particular appeal in times of job scarcity. The examples cited above would provide pretty good ‘blue prints’ for how to set up and run such programs (and other countries have effectively instituted universal military service); however, no amount of substance is going to sell any kind of federally provided employment to those opposed on ideological grounds.

  94. Meanwhile, Tyler Cowen gets op-ed space in the NYT to talk about how we’re in trouble because we borrow all this money.

    The fact that deficit terrorists control the narrative is bigger than a debate over the JG.

    As far as Mitchell, you have to wade through his whole Chomsky act to get to the gist of his articles. Sometimes he’s great. But he could use an editor.

  95. The issue surrounding the JG is achieving truly price stability along with full employment, that is, subtracting frictional from the group of people that are willing and able to work and have employment with no so frustrated as to be not participating. This is the holy grail of macroeconomics. Mainstream macro believes this to be impossible and therefore define full employment down. MMT is the only macro theory that provides a path to actual full employment with price stability. The question is whether the JG is a necessary component in achieving that goal. If it is, it is an essential aspect of MMT as a macro theory.

    MMT is often considered by some to be chiefly a description of the existing monetary system. While it is that, it is not only that. It is a macro theory (explanation) that enables predictions that set forth a spectrum of policy options. The choice of implementing any of these governmentally is political. These choices are made by elected representatives based on the wishes of voters regarding the kind of society they desire. MMT as a description of monetary operations, a macro theory build on this, and a spectrum of policy options that follow from it should not be confused or conflated with advocacy of certain policy options by MMT economists speaking as citizens of a particular political persuasion.

  96. Agreed Tom. I think Scott’s comment is most appropriate here as well. The role of the MMT “thinkers” is to provide the research and ideas that help generate the public’s debate leading to policy. But it is not our job to jam this down people’s throats or imply that you can’t understand a modern fiat monetary system if you’re not on board with our political agenda.

    Personally, I am beginning to question whether full employment and price stability are the true targets that economists and politicians should obsess over. It seems to me that the more important component is standard of living and while employment and price stability are components of std of living, they are not the whole story. I need to formulate my thinking on this much more though….

  97. Agreed, Cullen. I think we have to realize, however, that there are two things going on here. The first is professional economists talking to each other in terms of the prevailing issues in the academic universe of discourse, and the second is us “ordinary folks” interested in living a better life based on cutting edge knowledge and practice. Economists talk to each other an what we say is essentially noise to them. As far as most academic economists are concerned one of the principal challenges of macro is achieving full employment and price stability. That is just the way the issue is framed. Academic economists are tremendously influential is how policy is determined. The Fed’s mandate, for example, is full employment and price stability.

    I can see from things already said on various blogs that professional economists don’t take bloggers who aren’t pedigreed economists very seriously. If something is not developed in a professional publication, forget it. In fact, some take pains to say that when they criticize MMT they are not criticizing the MMT economists, but the blogger cohort, which they deem quirky. Good heavens, Jamie Galbraith referred to Warren as an inspired “amateur” even though Warren can lay claim to being the founder of MMT as the author of the paper that launched it, namely, “Soft Currency Economics.” Building on that as well as his own insights and other input, including Bill Mitchell’s buffer stock of employed as a replacement for the buffer stock of unemployed, Randy Wray wrote the first book on MMT, Understanding Modern Money; The Key to Full Employment and Price Stability (1998), setting forth the basics of MMT as a macro theory based on monetary theory, accounting principles, stock-flow consistent modeling, and functional finance. The bulk of the rest of MMT is in various papers by MMT economists. The blogs are an afterthought. If it were just blogging, MMT would have no professional cred.

    As Scott says, MMT is out of the hands of the initial developers (Warren, Randy and Bill) and the economists that followed them like Pavlina, Scott and Stephanie. I can appreciate that, as in any field, some who devoted their lives to something are not comfortable seeing it take a direction they see as not completely consistent with their ideas. But the developers of MMT stood on the shoulders of giants, too, and perhaps some of those giants would not agree with the use to which their work was put. Human knowledge is contributory and cumulative. It’s always a work in progress.

    Rather than get bogged down in such issues, we all need to do our best to use our talents to effect the change that we feel is needed practically speaking. MMT is just a tool, not an end it itself. Let’s build something true, good and beautiful using it as one of the tools in the tool box.

  98. Tom, I very much agree that academic economists hold this dismissive view of non-academic blogs. But, also, orthodox academic economists hold a similar dismissive view towards heterodox academic economists. And, frequently, other heterodox academic economists hold this dismissive view towards academic MMT economists. Etc.

    IMO, academic economists, in general, rate themselves too highly. :-)

    Cullen, lately I have come to the conclusion that I will just take the understanding of monetary operations partly developed by MMTers to inform my own (non-academic) thinking on possibilities within a modern monetary system. Politically, you and I are very different. I tend to be wary of MMT policy prescriptions from the left rather than the right. But I think we are both in agreement that the understanding of modern money is liberating. People can make up their own minds on policy once they understand the basic insights.

    Personally, I have no problem with the MMTers defining MMT as they wish, although it may not be controllable in the public sphere as Scott’s comment acknowledges. But if their definition did survive, all it would mean is that what I am thinking about is not “MMT” but something else highly influenced by MMT. Probably doesn’t matter that much.

    My first introduction to MMT was through billy blog, and Bill Mitchell is the MMTer who has influenced my thinking the most. This is probably unsurprising given we are both politically left leaning, which is not to say we necessarily agree on policies or the kind of society we want. But I just wanted to mention that I really enjoy your blog and follow it closely. You are doing great work here! You are demystifying something that is very confusing to many people (myself included not so long ago), and it is so important. Keep it up!

  99. Great comment Tom. I agree with everything except for one part. I have found that one of the primary problems with economics is that its dominated by people with very little real world experience. Why does a guy like Sumner garner more credibility than someone like Warren who is on the ground fighting the real battle? No offense to either one, but it’s totally ass backwards. People think that having a PhD somehow makes you more qualified than anyone else? As if it’s some world beating lifetime achievement. Not a chance. I could have easily gotten a PhD. I chose not to. I chose to enter the world of finance and fight on the front line. But for some reason the guys with field experience are told to take a back seat to the guys who have never even looked down the barrel of an enemy weapon….That makes zero sense. The two should compliment one another in order to provide proper insights. There’s nothing about having a PhD that makes Scott Sumner more qualified to discuss economics than Warren….

  100. Hey Peter. I always enjoy your work as well. It’s important to see the other side of the argument. Like you, i am reaching a point where i wonder if I am actually an MMTer or if I am simply a chartalist highly influenced by Mosler and Fullwiler (the two I lean on almost exclusively over the years). I thought Scotts comment via LVG was superb.

    I also agree on the academic economist points. If you’ve ever worked at a Wall St firm you know the hierarchy. The guys making the big money on the floor often look down at the academic publishing research. Theres a reason for that. One hunts and kills. The other writes about hunting and killing. And while writing about hunting and killing can be extremely valuable it doesnt mean you’re necessarily an expert in it…..

  101. The JG is a dangerous fantasy. Millions of government workers will be guaranteed employment funded by taxation, which is itself supported by the police power of government and its monopoly on force. All of them will be voting to expand their wages, benefits and rights to employment and will be seeking due process and formal grievance procedures. Public employee unions are already in the process of bankrupting cities and states; does the USA really need tens of millions more of these entitled workers whose lifestyles are supported by taxation and the threat of coercion? The idea that the JG will provide day labor at low rates with limited benefits for the unemployable in our complex economy and society is naive at best because it ignores the influence and power of organized labor in the public sector.

    This is the fundamental problem with government employment and public sector unions in the US today: you are forced to purchase government services in a monopoly sector (e.g., education) at prices set by public employee unions and their acolytes in government, and if you do not cooperate the police power will be exercised to take your house and perhaps your freedom away. Adding collective bargaining rights to civil service protections created a monster that traditional trade and industrial unions never anticipated, because private sector unions live in a free market for goods and services that lacks coercive power. If we do not buy GM cars, the UAW is in trouble. If we do not buy public education, we are in trouble; the teachers’ union is not.

    MMT describes the truth of fiscal, monetary and banking functions in our fiat system; it is invaluable because it demystifies these functions. Linking it to leftist nostrums such as the jobs guarantee only delays the day that MMT plants its flag and declares victory over the neoclassical gibberish that now passes for mainstream economic analysis. The prescient MMT call on the instability of the Euro is the eureka moment that is gaining the mainstream for MMT. Don’t expend this credibility on policy dreams of the left, even if they are the dreams of seminal thinkers. Win the war first.

  102. JWG – your fantasy world sounds like the opposite of today. Glad to see MMT attracts the right wing nuts too. I guess that means it has a fighting chance.

  103. Most modern economic models are neither linear nor do they pretend to be able to extrapolate 10 years into the future. They are more like climate models: they need supercomputers to run and have increasing inaccuracy into the future.

    Weather systems are immensely complex as well, still objective science is able to do a pretty good job with it.

    But even linear, simplified models tend to do better than Austrians when it comes to predicting (hyper-)inflation. Austrians will be worth listening to once they have the predictive track record of Roubini or Krugman – their current track record is worse than that of a random coin toss.

  104. The point of deficits is supposidly to create spending and so create employment.

    I’m just doubting whether asset taxes act like other taxes in terms of reducing private spending. If asset taxes do not reduce private spending, then the argument for deficits is gone. So balancing government spending with an asset tax is a balanced budget way to get as much employment as any MMT proposal could hope for.

    Some people’s spending is limited by how much income they get and how much they pay in servicing debt. If the government takes money from such people by taxation then, as he says, that shrinks the economy. If you look at the distribution of wealth then clearly much of it is held by people who have a growing surplus. Taxing that growing surplus will not reduce spending and so will not limit employment. Government spending ultimately filters through the system and finally comes to rest as asset prices. If tax is directed only at that end point then the cycle is complete and can continue in equilibrium. Our current problem is because taxation is not limited to that end point. So the flow of value piles up into higher asset values whilst diversions from transaction taxes etc cause unemployment.

    Does that make any sense?

  105. What I meant by an asset tax in the above post was a flat % tax on all gross assets of every citizen irespective of where the citizen was resident or where in the world or in what form the assets were held. The entire tax burden would be shifted to being that single tax. That would ineffect put a decay in the value of all real and financial assets ensuring that full use was made of all capital. Supposidly deficits counteract “leakage to savings”. An asset tax would draw such “leakages to savings” back into circulation.
    I much prefer a citizens dividend idea to a JG. A citizens’ dividend distributes financial power widely. Our problem is that financial power is too centralized. Deciding what the economy needs is a very complex task. How can we hope for a JG administrator to know what everyone wants doing? By contrast a citizens’ dividend by definition empowers every person to do what they want. By definition that is what they want. A citizens dividend would allow people the financial freedom to start up new businesses. Anyone could become an entrepraneur.

  106. Nothing matters but good arguments clearly communicated. You’ll find much more success with this than with privileged affiliations, degrees, hero worship, etc.

  107. Oh, I am generalizing for sure. Don’t get me wrong. For every bad economist there are probably 10 equally bad pvt sector investors….I’ve noticed there are a few good economists out there. :-)

  108. “But there are many millions of unemployed and underemployed Americans who might think otherwise.”

    That’s a bad selling point. Pushing policies b/c people will support them for one reason – it benefits them now. You don’t want people on board b/c they have a need and some policy helps that need now – you want them on board b/c the policy is the best for the country, now and for the future. JG may fit the bill, I don’t know, but I know we don’t want that as a motive.

  109. I think the PhD only matters to others w/a PhD, or those who don’t really study themselves and feel PhDs have some credibility. I think even that group is shrinking tho, I feel people are tiring of the “experts”, who seem to be wrong too many times.

  110. Cullen,

    No offense meant in any of the following but I think you are mistaken thinking that your contribution is comparable to Mitchell’s.

    You come from investment work in which using a theory to produce an analysis is called “doing original work”, but not so in science. I would say you produced excellent summaries of MMTers’ theories, with maybe an exception of hyperinflation where you made original contribution. Predicting that QE2 will not do a thing is simply using a theory developed by someone else, not “original work”, although it could be viewed as such in investment world. You contribute to MMT when you create an idea not thought of before. In the same vain, Mitchell could not call on its blog to say “my work”, his work are his academic contributions and the blog is simply writing about his and others’ ideas for the laymen.

    All that said, I am not sure I share Mitchell’s claim that JG is central to MMT, but he may have a point, because he views this not as some do-gooder’s “let’s get everyone a job” scheme which is merely allowed by MMT, but as a price anchor via buffer stock (therefore Buffer Stock Employment was a much better name!). A price anchor is central to a macroeconomic theory that wants to get past NAIRU, so maybe JG is a vital part of MMT.

    Again: No offense meant, and keep up the great work!

  111. Cullen

    “It’s no one’s job to win over the masses.”

    Sure it is. Getting more people to question the “answers” they have been hearing for decades is a big part of this and other MMT blogs. Once more people understand they will demand different answers.You are trying to educate all of us better (and doing a great job) so you may not like the term win over but it is what you are doing.

    “When you start implying that you can’t understand the monetary system without understanding a govt jobs program then you are being politically biased. There’s no two ways around that. No one on the planet needs to understand modern fiat monetary systems by understanding large scale employment programs.”

    When the answer to the question about why there are so many unemployed people is that 1) They arent trained enough or 2) They are choosing leisure or 3) They are overpaid (sticky wages)….. there is a problem. The majority of people know they were laid off for one reason…… their previous employer couldnt justify keeping them because whatever product or service they sold was in less demand….. PERIOD!. So once we get past the notion that we dont have enough money to employ everyone who would like a job people will start asking why cant they do something to earn a paycheck?! Sure a removal of payroll taxes (without a termination of SS payments) and other private sector taxes will get us part of the way there (maybe ALL the way) but the fact remains that after reducing the taxes( as is suggested by Bill, Warren, Randy etal), we still must have a JG of a sort in order to get to a place where all INVOLUNTARY unemployment is eliminated.

    If one is in favor of having any level of involuntary unemployment, I have to ask why? Why should a society wish to have people who wish to do something….. anything…… productive, unable to do so, except as out of mean spiritedness?

    Once you lose the unaffordability/dont have the money argument you have no reason not to have such a program in place.

    Not to put words into Mr Mitchells mouth but I believe this is part of the sense in which he means that a JG is a necessary part of understanding MMT. The people will demand it if they understand MMT and the private sector cant “afford” them.

  112. I’m starting to dislike the oft used verbiage ‘..the DE-scriptive part of MMT and the PRE-scriptive part of MMT’ It keeps an already heterodox school even more at arms length; even the prescriptions are labeled as apart of this little known and poorly understood school.

    In my time since first discovering MMT I have read other amazingly brilliant, dedicated and, of course, unappreciated economists & proponents of MMT. I wish I could read more of Mr. Fullwiler’s work but sadly his writing is regularly at a level that is above my head and reading his work therefore requires large swatches of my time, and whisky collection, to get through (I wear the hat for a reason). It astounds me that such venerable people, Bill Mitchell, Warren Mosler, Scott Fullwiler, Stephanie Kelton, Cullen Roche, and anyone else I’ve missed, take time out of their lives to educate the likes of me by putting their work up on the internet. It is humbling.

    I have a deep respect for Bill Mitchell, but I have to say some of that has been eroded. As several of the comments and conversations above illustrate, it seems he is attempting to ‘sneak’ a political bias in with the inherent truths that MMT describe. I fear this will not be good for him.

    Contrast this with the stylings of Cullen or PeterC, who sit on distant and arguably opposing parts of the political spectrum, and you will see that wearing their biases on their sleeves actually bolsters their arguments and points. Blatanlty outlining your bias actually works to remove it from the discussion when there are root truths underlying the discussion. ‘Bias’ has become a dirty word and it should not be. We all have biases and as long as we accept them, recognize them and treat other people’s biases with respect then biases are in fact healthy and necessary. Attack Cullen or PeterC based on the ‘political bias’ in their writing and you will receive a quick retort explaining you are missing the forest for the trees, which you are. Continue attacking down the line of logic and you will find yourself arguing against the descriptive truths of whatever is the crux of the conversation.

    A world without individual biases is a world without individuals. Almost all things we humans can have an opinion about, we undoubtedly are biased about. That’s kind of the point of being an individual thinking entity in the first place. This is why I dislike the wording of the second part of the separation between de- & pre-, ‘… the prescriptive part of MMT.’ The prescription is really that of the individual not of MMT. It is the prescription of the individual who has opinions and is biased, that also happens to understand the inherent facts that the descriptive nature of MMT elucidates.

  113. BTW, Winterspeak has a recent post up on the importance of mainstream academic economists in the acceptance of policy options and how this affects acceptance of MMT by policy makerhere.

    Winterspeak: One point I will add, though, is that I think attempts to pin the failure of MMT to spread (Steve Keen, Steve Keen! seems to be doing better) on politicians is misplaced, as are attempts to make it easier to understand to laymen, and attempts to reconcile it with standard macro. This stuff is technical, and on technical material like this the government takes its marching orders from the University…. Secondly, while making MMT easier to understand is a laudable goal, the outcome of this will be to win over Austrians, the other leading candidate for a “people’s economics”. This will not help in the Academy, but it will fill the blogosphere with semi-correct rantings and it will make Austrians really mad. Finally, the history of paradigm shifts in the Academy is well documented, and they have always happened via dead bodies, never by the future playing nice with the past. When something is true, that is enough.

  114. I hate to see the divisions that are forming between long-time advocates of MMT. Those of us who have been around a while know that the whole project really gets up-and-running when we encounter Warren Mosler in the mid-1990s. Warren’s Soft Currency Economics was the first modern statement that pulled together the fundamental ideas. Ask Warren what it means to be an MMTer and he will say (as he did on Facebook yesterday):

    Warren Mosler The only thing that makes anyone “not mmt” is if the don’t recognize the dollar as a (simple) public monopoly and all that implies as in ‘soft currency economics’ and ‘the 7 deadly innocent frauds of economic policy’
    Yesterday at 5:18am · Like · 3

    Warren Mosler And that includes the fact that the ‘price level’ if a function of prices paid by govt when it spends and/or collateral demanded when it lends.
    Yesterday at 5:20am · Like · 2

    The second comment is important. For many years, Warren funded a research center at the Univ. of Missouri-Kansas City. It is called The Center for Full Employment and Price Stability (C-FEPS). Getting price stability in there was absolutely critical, and the means to achieving price stability (for Warren and the rest of the ‘founders’) was the anchoring of prices via a Job Guarantee. And so I agree with Dan Kervick. The JG is not an appendage to MMT. It is a core component of the macro theory that describes the way in which an economy operating with a non-convertible fiat currency can achieve full employment AND price stability (standing the Phillips Curve on its head).

  115. Ron,

    Let me be very clear. I am not claiming to have made substantial contributions to MMT. I have filled in a few holes on the hyperinflation front, on the currency demand front and I think I’ve added a few ideas about the prescriptive aspects. But I am by no means claiming to be on the same level as Mitchell in terms of original contributions. Now, I have had far more success in spreading the message, but that’s different. When I refer to the academic debate vs layman I am more referring to Warren and the academics. I see no reason why Warren’s contribution is any lesser than Mitchell’s. In this regard, I think we often oversee the importance of contributions from non-academics. The main point being much broader though – academics don’t hold some holy grail into insights into our world. In fact, they too often have a misguided view of it because they don’t hire people, pay people, eat what they kill, etc. I approach economics in a totally different way than a Bill Mitchell does because I literally eat what I kill. It’s a very raw capitalist perspective of the world that can only be appreciated if you live and breath it. Warren has done that. Yet, because he doesn’t have PhD behind his name we have (as Tom said), academics calling him an ”
    amateur”. Amateur my ass. When it comes to real raw experience there are few people I’d rely on more heavily for advice….

    And no offense taken. Sorry I wasn’t clearer to begin with.

  116. No need to add to the rhetoric, Cullen. Bill Mitchell has been writing seemingly 24hrs/day for over a decade (publishing/teaching/conferences/consulting even before his blog). His post re Carney simply implies that he’s never read your work, nor ever talked to you. That’s simply honest, and not at all surprising knowing him.

    Best thing to do is not escalate invented slights. There’s simply no point in it. Jealousy, like currency, is fiat. Difference is that there’s no jealousy tax to pay at years end. We sometimes just fear there is. :)

    That only amounts to a self-imposed paranoia tax. Ignore it. Occupy the paranoia! :) [with magnanimity]

  117. I can think of a significant reason why Cullen seems to have the largest MMT following on the internet:

    He engages the followers of this website! He doesn’t just post material and then let others comment. He takes the time to PARTICIPATE in the discussions. This is crucial. Take a look at the comments section at New Economic Perspectives. There’s great material on that blog, but the crew at UMKC doesn’t engage the commenters. I think if they did then they would see their viewership and followers increase.

  118. Hey,

    I fully agree with you that being an “academic” is not a prerequisite, in the field of econ it may be just the opposite! I learned to view econ academics with huge suspition (although, where I come from (Physics PhD) non-academic “contributors” are exclusively crackpots!) I think Mosler’s contributions may actually dwarf anyone else’s within MMT. He showed persuadively that the government as a monopoly issuer of money can set the price, he showed the mechanisms, and his understanding of operational side is crucial to make all the claims persuasive. That is the real strength of MMT.


  119. Isn’t the JG basically just about paying unemployed people a bit more than they would normally get from the unemployment allowance, in return for work? Essentially it appears to be about raising the basic income from the level of the unemployment allowance to the level of the minimum wage, and getting people to do productive things at the same time instead of being ‘idle’.

  120. I’m certainly not the first to point this out on TPC, but it seems like those with scientific backgrounds who start ‘self-educating’ themselves on economics end up drawn to MMT. Obviously the scientific (data, facts, re-proudcable) nature of MMT is what is the underlying draw, especially when compared to other economists who’s models use VERY simple mathematics when comapred the seemingly infinite complexity of one human’s nature, and the almost unfathomable complexity of a group of humans’ nature.

    I’m quite certain that Economics should be taught at much lower levels in the US’s school system, but few are qualified to teach it- I graduated from High School in spring 2004, I took an elective second semester class that was simply called ‘Economics’. The class worked through some overly simplifed basics, lots of time on supply and demand graphs. The teacher, an otherwise very smart man, was a history teacher by trade. More than once, MORE THAN ONCE, someone had to point out to him in the middle of classes that he had accidentally swapped the demand and supply lines he drew while he was talking (I won’t say teaching, he was unintentionally poisoning students) thus negating whole concepts he had thought he had outlined. This is not in some poorly funded public school system. This was at a very well funded public school. The kinda of public school that exists in a small, affluent town where the vast majority of families could afford to send their children to private schools, but didn’t bother spend the money to because the public education was at that level.

    My generation will not be the one that realizes these gaps in what we, as a society, think are core veins of education that must be taught at even the lowest levels (Mathematics, History, Literature, the Sciences, etc..). I cannot even get my well educated, physchology major, friend to understand the (obvious to me) logic that a bar in NYC that sells tickets for a New Years Eve celebration and advertises that they cap the number of tickets they sell (but won’t tell you what number the cap is- its the fire code occupation limit for anyone wondering) will actually be severely crowded and a cheap small bar that isn’t even offering a special for New Years Eve will be relatively low key.

  121. Ding, Ding, and MF’ing Ding.

    @Cullen- If you ever retire from the markets (yeah I know it won’t happen, you’re a junkie) & blogging (please don’t) and refuse to go into politics, please become a high school teacher.

  122. Cullen:

    I misunderstood your statement: “And it’s one of the reasons why his message is not being disseminated to the extent that mine is”. I wouldn’t expect an academic to have the impact (or audience) that someone commenting on the markets. Very few Krugmans out there.

    At any rate, this post and comments has generated a lot of good discussion in the JG with few “damn guvmint” invective. Nice to see that we can have a civil discourse on controversial subject.

    It might very well be possible that a government following fiscal spending based on MMT understanding would generate enough demand to get to full employment without a JG. Certainly unemployment would be lower.

    I still prefer the policy of a job vs. unemployment benefits. And if it were implemented as a permanent JG, you could eliminate the minimum wage law, as the JG would set the floor. And for high school graduates, it would be a good transition into the private sector. As long as the vast majority of jobs were administered at the local level, I am not in favor of huge federal programs (although it would have to be funded federally). Also has the potential of reducing local taxes.

    So there might be 30 million working in state and local agencies, the alternative of 30 million on unemployment benefits is more attractive? That 30 million could help to generate enough demand to kickstart the private sector such that their time in the public sector would be relatively short.

  123. I’m all in favor of the replacement of UE benefits for a small scale temporary JG. So, it’s not like I am oceans apart from anyone else here. But I don’t think the founders envision a small scale JG….They envision permanent full employment. Tough sell. Especially given the millions of unknowable variables that will result….

  124. Yes but there’s another step down the line- the ultimate goal is to also combat deflation (more specifically to achieve price stability via a ‘backstop’) that would come along with the unemployment the JG is designed to combat directly.

  125. In the UK the government already guarantees you an income if you become unemployed and have less than £16,000 in savings – it’s called the Job Seeker’s Allowance. If a Job Guarantee program were introduced, unemployed people would also be given the option to gain a higher income (minimum wage) in return for work. Short-term unemployed people might choose not to take it, and to spend their time instead exclusively looking for private-sector work (either funding themselves or taking the unemployment allowance if they were eligible). The long-term unemployed would see it as a way back into private-sector employment – a way to begin to ‘earn their keep’ and gain experience, instead of living purely on handouts. So the JG might actually encourage and promote economic self-reliance in the long term. It could provide a practical way out of unemployment for the otherwise terminally unemployed, whilst not necessarily rendering short-term unemployed people any more ‘dependent’ on the government than they otherwise would be.

  126. “Human knowledge is contributory and cumulative. It’s always a work in progress…MMT is just a tool, not an end it itself. Let’s build something true, good and beautiful using it as one of the tools in the tool box.”

    That quote describes in a nutshell anything that deserves the name of ‘science’. The valid theoretical paradigms that have allowed the advanced specialization of the natural sciences within academic institutions, as well as the explosion of technological applications, were largely developed outside of these (by eg Einstein, Darwin, Newton – the latter two with independent means of livelihood). These paradigms enable a (necessarily inexact) modeling of reality, as well as for the latter to provide an external check on the validity of any theoretical elaborations.

    Lacking such valid paradigms, much of what has come to exist and be perpetuated in the ‘Social Sciences’ within the Academe, deserve more the label of ‘anti-‘ or ‘pseudo-sciences’, arguably influenced to favor vested interests (which tend to be the underpinning for ‘ideological bias’), and persisting in spite of having shown no other real utility, or even when shown to be flat out wrong (as the case with the dominant approaches to economics in the current financial crisis).

    I left the U. of Chicago, when it became clear that within the climate of the time and place the study of human nature in any depth or breadth was not possible (although I did acquire a solid and valuable grounding in the neurosciences). Since then, what I have learned, teaching, working with ordinary people struggling to manage (and having had a direct hand in creating several currently existing jobs) in a low-income area, could never be replaced by purely academic study (and is also what largely informs my posts on this blog, in spite of little contact with the world of high finance).

    The ultimate validation for scientific theory as well as justification for the Academe, is that they enable the meeting of real human needs in the real world

  127. This is a great thread. I think it’s really exposing some key insights in the main MMT thinkers. It looks to me like there are two groups forming. One in favor of the JG and one not in favor of it. The ones in favor of it appear almost socialist while the people not in favor of it are more free market types. This is similar to the Austrian school with the Rothbardians and the Hayekians.

  128. “The ones in favor of it appear almost socialist while the people not in favor of it are more free market types”

    Maybe we could have an MMTlite for traders.

  129. Cullen, the discourse is more important than labels or theoretical purity. While you are right to hold to what you know to be true, please don’t let yourself get pushed into ‘pro’ or ‘anti’ stands that would detract from the valuable forum you are providing.


  130. I first learnt MMT from Mitchell, and he suits me well. But we are all entitled to disagree, and while Buffer Employment may be a good or important thing, I find the most important tenet of MMT to be the realisation of the true nature of money – money is a creature of the State who holds absolute monopoly over it. For me, everything derives from here, but everyone has his own theory and conceptions. So, when Prof Mitchell said a Job Guarantee is crucial to MMT, it may very well be, in his personal theory – and if we think it right, the very applicability of a Job Guarantee depends on the realisation of the nature of money.

  131. As far as I can tell MMT is about recognising the real constraints to economic growth and prosperity, rather than labouring under imaginary constraints. The JG concept can be seen to be central to this as it is about ensuring that no individual should ever have to be unemployed and unproductive due to the imaginary constraint of there being “not enough jobs”. In essence the government can create employment just as it can create money, and thereby ensure that (human) resources are never wasted. However, the real constraints to a government’s ability to create employment are a) the potential negative effects on people’s behaviour, and b) inflation. Therefore the wages paid by the JG must not lead to accelerating inflation, nor should the JG act as a disincentive to people seeking non-JG employment. This would suggest that if the JG were to be capable of working it would have to be quite miserly.

  132. I am trying to stick to what I view as the facts here. Bill Mitchell has previously been very clear about the fact that MMT “explains” the monetary system and also offers options that we can then use to benefit from this understanding. I don’t care if you talk to liberals or conservatives – when you start telling them that they can’t understand a modern fiat monetary system without understanding a large govt jobs program then you just make yourself look bad. And anyone who tries to sell a theory whose core component is a large scale govt jobs program is going to run into enormous resistance in this country. I know foreigners might say that America doesn’t have all the answers, but it’s pretty much undisputed that the USA has built the most powerful and prosperous society in the briefest of periods on the back of largely anti-govt thinking. I think when we mix the JG with the core of the explanation component of MMT that we are indeed politicizing it. Bill Mitchell might not think so, but every single American will. You can say to hell with Americans, but if you’re looking for recognition in the world of economics you’re better off shooting yourself in the foot. I am the last person looking to label MMT this or that or create a division in the thinkers, but we have to better understand our environment if we’re going to ever even get the debate started….

  133. Cullen

    As I understand most of your objections to the JG aspect from past posts, they seem to center around a fear that the size of the pool could get “too large”,that we might not really be able to find enough truly productive work, that not getting the wage right might be inflationary and that we might be creating a permanent underclass that is happy to be unproductive, which will make the rest of us work harder to provide for them.

    So lets compare that to today. Isnt the size of our unemployed pool too large? Arent we having trouble finding productive private sector work for these people? Arent there some, who even in our low inflation or deflationary environment, arguing to lower minimum wages or remove child labor restrictions (Yes Im talking to you Newt!) because they think high wages are a problem? Hasnt our current system already created a sort of permanent and growing underclass?

    My point is that our current design already has the bugs you worry about from a new approach to employment. The privates sector never will have work for everyone who wants a job. By design our private sector firms are moving towards doing more with less people, thats how we make profits. So some entity must provide income for those not needed by the private sector.

    Once people understand MMT, they will not take the “we cant afford to pay you” as an answer.

    Maybe you dont like the phrase “job guarantee” . Maybe income guarantee is better.

    I fail to see how providing the equivalent of 8$/hr for 40 hours a week (about 320$) can be inflationary? What products are these folks going to be bidding up the prices of? 320 a week will get you in the market for a low income apartment, basic food needs and maybe a used car. These folks will not be bidding up the prices of things that most of us gainfully employed people are seeking.

  134. This spat within the MMT camp is getting a bit overblown, if not ridiculous, I’m afraid to say. Reminds me a bit of the old, scholastic debates within Marxism on whether believing in the dictatorship of the proletariat was an essential part of the official credo…

    The JG may well be a central part of MMT in the personal opinion of its founders – but I don’t think Mosler or Mitchell or Kelton would ever say that if one drops the JG then the operational realities of a fiat monetary system or the sectoral balances approach or the financial instability hypothesis cease to be valid.

    In any case it’s not as if MMT “belongs” to its founders, any more than the theory of relativity “belongs” to Einstein or deficit spending “belongs” to Keynes.

    Every tenet of a theory should always be subject to the test of empirical evidence. Soon before he died, Bertrand Russell reminded us all of the importance of respecting the facts even if they are unpleasant to our long held beliefs. This is a principle that neo-classical has unfortunately abandoned a long time ago – and that the post-Keynesian camp has at least made an effort to follow since the 1940s.

    The strength of the MMT approach is precisely this respect for things as they are, not as they ought to be. Warren Mosler studied in detail the operational and accounting realities of central banking in the post-Nixon world and came to the revolutionary conclusion that governments were not money constrained and that budget deficits put a downward pressure on interest rates.

    No neo-classical economist could arrive at such a conclusion – not because they are dumb (on the contrary, some of the brightest minds are within the mainstream, see the case of Krugman) but because their ideological approach blinds them to the observation of reality. They only see things through the distorted looking-glass of the neoclassical axioms.

    So please let us stop this dumb debate on the JG as a core component of MMT. We should instead sharpen our minds and direct our energy to the great struggle for a more rational economic policy that takes into account the realities of the post gold standard world and paves the way for a world with more economic growth, employment and freedom from want.

  135. I completely agree. MMT’s descriptive aspect is the closest thing to scientific empiricism that exists in economics, which claims to want to BE a real science. The neo-liberals and neo-Keynesians drove me away because they rely almost entirely on theory and put observation on the back burner. When I talk to others who know nothing about MMT that’s what I emphasize about it, that it can be observed in action and verified.

  136. LVG: This is a great thread. I think it’s really exposing some key insights in the main MMT thinkers. It looks to me like there are two groups forming. One in favor of the JG and one not in favor of it. The ones in favor of it appear almost socialist while the people not in favor of it are more free market types. This is similar to the Austrian school with the Rothbardians and the Hayekians.

    What is significant is that all the MMT academic economists, and Warren Mosler as the originator, are in basic agreement over what “MMT” is. See Stephanie’s comment above (12/29/2011 at 10:34 AM). In the blogosphere, there are many versions of what MMT is. Which is the “real” MMT? The obvious answer is that MMT is what the developers and other economists have joined them say it is. It is a macro theory as expressed in professional literature after all. There is no other way that a macro theory can be framed professionally and expect to be taken seriously.

    MMT is built on a lot of what went before and does not claim originality in this respect. If others wish to take aspects of MMT as articulated by the originator, developers, and economists that have joined this emerging economic school of thought, then they should just attribute this without trying to define MMT as something else than that, which only results in confusion over what MMT actually. (BTW, Bill and Randy are working on a text that will be a rather definitive statement of MMT as a macro theory when it is released.)

    There really should not any problem here if we keep our categories straight and don’t introduce ambiguity in labeling. If anyone has an issue, then probably the best way to deal with it is to ask the MMT economists how they would like to see it handled in a way that is satisfactory to all parties concerned and avoid needless confusion and controversy.

    At the same time, MMT as a professional macro theory needs to be broken down into bite-sized bits for wider consumption. Certainly the blogosphere is useful in this endeavor. So let’s all work together in harmony on this project insofar as possible. Issues can usually be resolved through clear and timely communication.

    Glad this came up here. We are moving toward greater clarity.

  137. “I think when we mix the JG with the core of the explanation component of MMT that we are indeed politicizing it. Bill Mitchell might not think so, but every single American will.”

    I very much appreciated nuanced comments about a Job Guarantee that you have made in the past. I’m not deeply versed in MMT theory, but I’m not sure I could disagree with the first part of the statement above either. However, not only are Stephanie, Randy, Dan, and others factually Americans, but an implication that they are ‘un-American’ is heading toward name-calling, and I don’t think that’s your intent. I also don’t detect any suggestion of ‘to hell with Americans’ in any of the comments on this thread.

    I also see a difference between a political leaning and ‘ideological bias'; the former being often a reflection of background and experience. I respect your conventionally ‘right’ leaning, pro-Americanism (while my mixed-race background and life in a low-income milieu have contributed to what would conventionally be considered a lean to the ‘left’).

    My request above was not meant to ‘take sides’ in the current debate, but more to express my appreciation for the general tone you have set as host of this site.

  138. @ LRM

    Yes he is for a gold standard. But he does not favor a gold standard in any case.

    He basically just demands to open the mint to free coinages and let the market decide whether people want and accept silver and gold as currency and legal tender or not.

  139. If you need a definition of ‘communism’, contact the party central office and they will be able to inform you.

  140. we can think about mmt as an understanding of the modern money system, which i think is good enough to qualify as a ‘school’, and ignore the twin goals of price stability and full employment. this gives you latitude to support, say, 5 or 6% unemployment and variable inflation, but still understand how the system is set up and controlled to allow you these goals. i think you should be able to consider yourself an mmt’er.

    you can also understand the system *and* support price stability and full employment, but choose something else besides the jg to accomplish it. there are other nominal anchors. the debate is then whether these other approaches are on net more beneficial than the jg. this is the debate that should be happening, but all those debating should be able to consider themselves mmt’ers.

    i could be wrong and there could be a strict dress code for an mmt dandy: “must understand monetary operations, must support full employment and price stability, must choose jg as the key policy.” but this is a terrible, terrible development for mmt as a project. the tent needs to be big

  141. scott, there’s a debate over at worthwhile that discusses the stuff from your interest and fiscal sustainability paper. maybe worth taking a look

  142. Government does not ‘fund’ itself through ‘violence’, government enforces the law with the threat of ‘violence’.

  143. America, MMT & the JG …

    TPC, not only will most Americans be against it, but many liberal democracies have already retreated from state-sponsored/directed labour/welfare policies. Take a look at Sweden, Denmark, Netherlands, Canada etc. over the past 50 years. There is a sweet spot in the welfare state.

  144. There’s also the group which might like the JG in theory but doesn’t want MMT saddled with it as a necessity because it will be doomed in the U.S. I can’t imagine MMT surviving the political firestorm that would ensue as the right labelled it “socialist”.

  145. In a scientific discipline who decides what’s in a theory or not …

    The discussion is great, but I think it illustrates that economics has a way to go. You never hear these types of debates in science. The “discoverers” don’t have a say in what part of the theory is valid or not; proof, rigor and withstanding peer review wins the day. Another tip from science … reduction is incredibly powerful; find the simplest set of laws possible. Of course, maybe the MMTers are saying call your simpler subset something else, but that’s a different commentary.

  146. Is JG essential to a theory (say, something called MMT)?

    If employment can be directly influenced by “discretionary” social policies, i.e. immigration policies, work rules, etc., then I would argue that any macro theory that requires it necessarily becomes something more than a macro theory, and implicitly has social policy elements.

  147. Do we want a macro policy that simplistically targets employment and prices?

    I think there is a version of Gresham’s law that applies here … over time the measured/targeted variable drives out the unmeasured variables. Many of these unmeasured variables, like the value of intellectual property, technological invention, productivity, entrepreneurism/experimentation etc. will migrate somewhere else. You only have to look at the last 25 years under Greenspan/BB; compare trends in capital equipment ex.-aircraft, science and technology graduates, financial sector profits, residential investment.

  148. For me, (looking at this discussion from another angle) the creative process is depicted clearly: Ideal >> Ideas >> Icon.

    For an ‘Ideal’ to exist, it must reflect some aspect of our better nature: Peace, Justice, Equity, Generosity, Inclusiveness, a genuine love of Humanity etc. Hitler’s vision of a super-race was not an ideal ….

    Ideals must then clothe themselves in ‘Ideas’ and that’s the first test. Whoever dares to envision something beyond the understanding of the world has to hold the vision clearly, and clothe it only with those concepts and thought structures that both protect and reveal the vision. It is not a democratic effort nor question of attracting numbers. It is not a fishing expedition. It is the power to concentrate, contemplate and create (itself). It may attract or become radiant through the power of its own integrity. Many visions are lost to sight in the ‘raincloud of knowable things’. MLK ‘had a dream …’

    Descending further the Ideal and carefully constructed Ideation is then clothed in desire (to be born) and must navigate skillfully the myriad desires of people in the world. All of this is no small feat! However, it is the creative process as humans enact it … (and as taught to Tibetan monks).

    Only then can the Icon appear and resonate in the world. Cullen’s ideal of entrepreneurship is one such valid Ideal; MMT’s ideal of price stability and full employment another. There are never ever any conflicts between Ideals if they arise from our better nature! Human beings hold their ideals for as long as they are useful to them!

    Cullen, hope you don’t mind obtuse comments now and again?

  149. Sweden and Denmark and famous for their generous welfare. I have a friend over in Denmark, he was in the equivalent of a high school and not only did he not pay anything, as the Danish Government also paid him I think he said 400€/month – which is a generous amount.

  150. Your comparison shows your lack of basic understanding of the nature of the problem.
    I’ll assume that you’re talking about weather forecast for couple of days. If you’re talking about global warming models in next 100years, then the comparison is good, both economic and long term climate prediction models are not scientific, and their predictive power is zero (and it has nothing to do with computing power we have available, but with our lack of knowledge about the system).
    When giving a short timed weather forecasts data you have is almost exact, the physical processes governing those systems is exact. So when modelling the short timed forecasts, you’re solving physical equations, based on scientific method, measurements, fundamental knowledge about the world, where the parameters that you don’t know don’t know are less important on short time scale. And even then, since you can’t measure every parameter exactly nor can you measure them all, your long term prediction powers are close to zero.
    When you solve economic models, you assume that your parameters represent the real knowledge of the world. And that assumption is very problematic. Imagine for example if you would tried to predict weather and your temperature measurement are off by 10°C. The predictive power of such nonlinear model would be zero. That’s what you get when you associate your parameters to humans. I bet that Gadafi and Mubarak also have supercomputers but they couldn’t predict when people would take them down.
    Something it’s not science only because it has cool equations. One needs to know when it is valid to use an equation.

    I would give you an example of a more simple system then economics one, but still out of the reach of calculation. All the data, from all the games, from NBA is available online, and when I say all the data… I mean, the coordinates from where which player shoot the ball to the basket, the usual statistics etc… much, much more then you’ll ever have then for economics. Why don’t you make a model that would predict who will be the champion? The best you can do is get the following result:
    Miami Heat 24%,
    Oklahoma Thunder 15%
    NY Knicks 14%
    Dallas Mavericks 10%…
    Based on what do you think that your prediction is better then if one fan who follows the game for years gives his prediction (no mathematics at all)?
    Is that science? How do you know what are the real probabilities? Maybe the real probability is that Chicago will win the championship with 92%.
    You could still make a model that would give better predictions then betting houses, but that only means that your prediction on average is better then their prediction on average for the games you bet, it has nothing to do with predicting the results of individual games and the data available is by far much superior then it is for US or World economics.

    In any case, Austrians may not know the reasons why equations don’t work, but they are right about them not working.

  151. OK, let’s simplify this discussion of the JG. It’s essentially about targeting inflation using a buffer stock of unemployed as a tool (in violation of the Fed’s mandate) through monetary policy or aiming to achieve full employment (less frictional) using fiscal policy and a buffer stock of employed.

    The former position is the current standard operating procedure of the Fed, based on the Phillips curve, NAIRU a Taylor rule and other aspects of mainstream monetarist economics. The MMT response is that full employment along with price stability can be achieved through fiscal policy and a buffer stock of employed (JG).

    Present Fed monetarist policy reduces full employment by redefining it through positing a supposed natural rate of 4-6%. Now there is talk that the “new normal” may be more like 6-8%. Conversely, MMT claims that actual full employment (less frictional) can be achieved through fiscal policy and a JG, and that this this will actually promote price stability.

    Those that reject the MMT solution are choosing the monetarist position over it, and the resultant chronic idle resources and economic underperformance — unless they offer a macro theory theory that resolves the issue differently. Takers?

  152. Cullen, thanks for this wonderful post which gets straight to the heart of things, and in so doing transcends the left-right political debate. I would just like to point out to you the name of a French philosopher I think you would appreciate–Constant-Francois Volney wrote in his 1791 book Ruins of Empires a simple Natural Law precept that defines the rise and fall of empires—Empires Rise if Government allows Enlightened Self Interest to flourish. This book, which was anonymously translated by Thomas Jefferson, refutes Jean-Jacques Rousseau’s Social Contract and, as bonus, provides a solution to the world’s enduring religious disputes. And yes, Volney was a friend of the famous French economist, J.B. Say. Both men were among a group of French parliamentarian-academics called The Ideologues–they championed democracy, free markets, free trade and an end to slavery. Their opposition to Bonaparte’s despotic designs caused the First Consul to start using the word Ideologue as a pejorative. And that negative meaning was later adopted and spread around the world by none other than Karl Marx. I point this out because, like the MMT you promote, Ruins of Empires describes the world as it is, not how someone wants it to be. And it’s a measure of how far we as a species have yet to go, if the works of people like Rousseau and Marx are still being taught in schools and debated in legislatures, while Ruins of Empires—once read by the likes of George Washington, Abraham Lincoln and Walt Whitman—is ignored.

  153. The JG is really just an extension of, and potential improvement upon, the automatic stabilisers that are already well established in most western countries (with the apparent exception of the US). The UK already has a counter-cyclical program to shore up aggregate demand, i.e. the Jobseekers Allowance (and other unemployment benefits). However the main problem with this program is that it does nothing to encourage or maintain the positive habits associated with continuous employment, and runs the risk of allowing people to languish indefinitely in subsidised unemployment. People on JSA are supposed to spend their time looking for work, but many seem to remain unemployed for very long periods of time nonetheless. Both Warren Mosler and Bill Mitchell point to the very real psychological, social, and subsequently economic costs of persistent employment and argue that at the very least people should be given the opportunity to develop the habits, skills and experience that come with paid work, even when ‘the market’ is unwilling to provide them with it. On top of this, those employed by the JG can also contribute to the overall ‘wealth’ of society. The JG is a response to the hypocritical neoliberal tyranny of the NAIRU, under which it is implied that the unemployed are either lazy or inflexible, whilst at the same time the argument is made that a certain proportion of the population must always, necessarily, be unemployed. Both Mosler and Mitchell argue that the JG should only be ‘transitional’, and Mitchell states somewhere on his blog that the JG should also be relatively unattractive, so as to minimise the potential disincentives it might create to seeking non-JG employment. Bear in mind that under the other MMT proposals of lower taxes and/or increased government spending (etc), periods of recession and unemployment should at the very least be less lengthy or severe, meaning that the need for a JG program would also be reduced.

  154. Cullen, if this is your considered position, why not work up a paper on it setting it forth and defending it preemptively from objections you expect to be raised. Otherwise, it remains just a suggestion.

    The reason that science was developed in the first place and then went viral even though it is difficult to do in most field and requires a solid background not only in the field itself but also math is because what people considered evident turned out not only not to be evident but also wrong under rigorous scrutiny. For anything to be taken seriously in a field like macro, one has to go through the steps of setting it forth, establishing it as empirically as possible, and defending it in terms of the prevailing universe of discourse and accepted practice.

    Warren is not an academic economist, but he presented his ideas in a solidly written paper, “Soft Currency Economics,” which launched MMT, showing that it is doable.

  155. As for the right-wing American conservatives, didn’t Friedman and Hayek both advocate a basic income (or negative income tax)? The JG is basically this + the opportunity to work for some additional money and then get on with your life.

  156. To be honest Tom, this is something I’ve only recently begun to think about. Your suggestion is an excellent one. I’d love insights if you have them….

  157. Several suggestions come to mind. First, be very familiar with the position set forth by the MMT economists. Secondly, be familiar with the comments on relevant MMT blogs. I am collecting and posting some of these over at Mike’s as you may have seen today. Thirdly, MMT distinguishes between the general and specific cases. It would be useful to frame this issues in terms of the general case and also as it applies to US economic policy, where there is great resistance to the notion of JG for political reasons, perhaps rendering it impractical as a policy option. Then another MMT-compliant policy option would be necessary for practical reasons. I would also work with at least of the MMT economists on this, in particular the US ones, if you decide to work on putting together a US policy option that is not a full-on JG, which would be very difficult to pass in the current political environment.

  158. Does employment need to be a target for macro policy?

    Pre-Euro, Germany did pretty well without full employment being part of the CB mandate. And, Germany did not have, and still does not have half the natural endowments of the U.S. Could focusing our energies on something else be more useful? Say, better labor-industrial relations, focus on high skill trades and manufacturing, developing great autos (instead of the Gremlin, Pinto, …, and just market those dogs with big ad spending), better high school education … ?

  159. Yes, I need to be much more precise before writing comments here. I have not formulated and condensed my thoughts well enough to be writing about them as of yet….Thanks Tom.

  160. My point is it use to be *much* more generous, but those countries found they were too generous and rolled them back during the 90s. Of course, by US standards they seem outlandish, but even Sweden doesn’t offer a job guarantee. F

    For some odd reason the JG hits me in a left-ish way, in a similar way the typical right-wing refrain to the unemployed is “get off your ass and get a job”, except from the left it sounds like “you have nothing better to do [like upgrade your skills, job hunt] so we’ll make you pick up garbage at the park”. It’s like unemployed people don’t already have a job .. it’s called looking for work.

  161. John Carney says ” It’s entirely possible to do MMT without the jobs guarantee.”

    Wow he’s already an expert, Bill, Warren, Randy you can retire now.

  162. As a believer in Austrian economics my response to the above criticisms are this:
    Austrian economist’s see economics; at least in the macro sense, as inherently political. They would prefer to use the term “political economy” for macro-economics. All economic theories could conceivably work including: Keynesian, Monetary and even Marxism if it weren’t for politics. Austrian economist prefer a classic free market system because it involves the least amount of politics. However a free market does not mean a free for-all. Every economic system has to have a legal and even political framework to operate in. A free market capitalist system still needs laws for: breach of contract, fraud, misrepresentation, false advertising and so forth, otherwise you would have total anarchy.

    The reason for backing currency with gold is primarily to keep everyone honest. While backing currency with gold does have it’s problems, if someone could devise a monetary system which prevents governments from printing excessive amounts of fiat money, I’m sure Austrians would be all for it.

    Austrians are often criticized for not being scientific in their methodology, however Austrians view human behavior not as a science but more of a study and thus prefer the term social studies to describe the field of human behavior. Austrians draw their conclusions based on logical deduction rather than statistical data. The reason being is that humans have a broad range of responses to different situations. I for one believe that projections can be drawn from statistical data so long as you have large error bars. In the natural sciences (physics, chemistry and engineering), if your error bars are too large no-one will take you seriously.

    While not fluent in MMT, it seems to be a counter-intuitive way of viewing the economy. If one follows the logic, it seems to inevitably lead to inflation and debt which then leads to low growth and chronic unemployment.

    Austrian economics can best be summed up as “no pain, no gain”. Everyone else would like to sell the public and politicians on some magic potion or formula that can eliminate the pain but in reality it only stretches out the pain and inevitably makes it worse.

  163. If you’re truly interested, Cullen, be sure to get a copy published in the USA after 1802. That way you are certain to get a copy of the Jefferson translation. You can also download it for free at

  164. Warren Mosler muses over the early days of MMT and mentions –

    ‘how price stability is always via some form of buffer stock or another, and how the most stable and the deepest, most liquid ‘commodity’ gives the best results, with unskilled labor being the most stable, deepest and most liquid, etc. concluding that price stability is maximized with a jg policy. And (jesting) that you just have to accept full employment as a side effect’.

    over at billyblog:

  165. A citizens dividend would provide just as effective a buffer stock as a JG but without drawing the state into trying to govern what people do. With a citizens dividend, people would get a minimal living allowance (like the UK job seekers allowance) but would not forgo that if they earned ontop.
    IMO the orthodox MMT prescription would lead inexorabily to all real economy functions being conducted ineptly by the JG system and the private sector being purely the FIRE sector.

  166. Only academics who have never made a payroll, never struggled with worker classification issues, the FLSA, ERISA, payroll tax, UI, collective bargaining, the dizzying variety of labor laws laws and related litigation risk, and the oppressive weight and cost of government bureaucracy would believe that a jobs guarantee would be a simple program that would not inevitably lead to yet more bureaucracy, litigation, due process, entitlements and an eventual expansion of public sector unions and the taxation burden that follows them, all to the severe detriment of the private sector.

    Subsidizing idleness to the extent we do in the USA is a social disaster, but it is less expensive and less intrusive to personal freedom, and thus a lesser disaster, than a massive bureaucracy administering make work projects for the resentful and unwilling millions who would be forced to engage in the charade. America 2012 is much different from America 1932; the CCC is never coming back, and I am telling you that as an admirer of FDR, who believed in the importance of industrial production and the dignity of labor.

    MMT takes a cold, hard look at fiscal, monetary and banking operations and lays it bare; it is the objective truth. By contrast, the naivete surrounding the jobs guarantee fantasy has realists (like me) rolling their eyes. Win the descriptive argument first, and then indulge in prescriptive fantasies to your hearts’ content. Accurately predicting the risks of the Euro in great detail is MMT’s eureka moment; don’t waste it by allowing the realists to laugh MMT off on things like the JG.

  167. The descriptive aspect of MMT “feels” counterintuitive, and free lunch-ish, especially if you are conservative, but if you look at it carefully, read the summaries on this site and elsewhere, and dig below the surface into the theory, facts and law, it is the truth in our fiat system. I admire the Austrians for their fervent belief in the old virtues of hard money, discipline, savings, capital formation and the gold standard, but all of that died in 1913 and it isn’t coming back unless our leaders are insane enough to take us into a true hyperinflationary storm. That is the ultimate low probability-high value contingency, which is why we still have 8000+ tons of gold in Fort Knox as an insurance policy against the dollar’s death.

  168. There is little demand for unskilled labor in industry these days; mechanization and automation have seen to that. Unskilled labor fails as a buffer stock. Shall we force the unemployed and unemployable into agricultural labor? Or perhaps force them to be the personal servants of the employed? Or have them take maintenance jobs from public sector employees and compete with them? The JG is an idea frozen in the realities of 1932; 80 years have passed since then. Those days are over.

  169. JWG, you are repulsed by workers when they don’t have a job. And you are repulsed when they do have a job. Especially when it comes with vacation and insurance. As the conservative you so often brag about being, what exactly are YOUR solutions for the ten of millions that are currently unemployed, sans your repulsion for workers in general?

  170. Cullen,

    As repulsive as you find the JG is as repulsive as I find your hyper-patriotism, flag-waving, and American “exceptionalism” mentality. We can’t even get a g-damn bridge repaired in this country because of it. You should be proud. But don’t include me in your “most Americans” category. Ever. Until then, GFY.

  171. The people employed within JG are the ones otherwise unemployed. Just to be clear – you prefer 30 millions unemployed before full employment and better price stability?

  172. MMT accurately describes unemployment as a substantial economic cost to society. It accurately describes unemployment as an inevitable consequence of current approaches to monetary and fiscal policy. It accurately describes automatic stabilisers (such as unemployment benefits) as being central to the maintainance of aggregate demand during economic downturns. It accurately describes those who are already working as being more employable than those who are not. It accurately describes enforced and subsidised unemployment as an unnecessary waste of resources and an impediment to growth.

  173. Mass unemployment results in huge permanent losses every day in foregone output and income. Add to that the depreciation of human capital, increasing family breakdowns, child abuse, crime, medical costs, skill loss, psychological harm, ill health, reduced life expectancy, loss of motivation, racial and gender inequality and loss of social values and responsibility. The personal, family and community losses are enormous and persist across generations.

    This is what Americans prefer? 30 millions in unemployment (to use your example figure above) before full employment and better price stability?

    Of course, introducing a JG program may have unknown consequences – agreed. No theory can be perfect. Is that why you prefer the current system, using mass unemployment to stabilize prices? The consequences may be far worse, but at least they are known?

    Yes, to say that “I understand the theory behind JG – how it can achieve full employment and price stability – but I prefer mass unemployment” can be consistent with MMT. But I suspect the theory is in fact improperly understood.

    And in any case, it’s unfair to say that proposing JG amounts to a political argument, while preferring mass unemployment somehow be politically neutral.

  174. The reason it’s no longer as generous as it used to be is because those Governments fell prey of the “budgetary constraints” (we need to save money, we this, we that), which is what we all should be fighting! They didn’t reduce it because they don’t like it or because they think it doesn’t work. They reduced it because they think they don’t have the money for it (oh, and Denmark operates on a peg to the euro, so they are probably right in the fact that they have constraints – even if political ones.

  175. Sounds like you’re saying that offering a theory that allows for full employment is “politizising”, while those who prefer mass employment are politically neutral?

    Look, MMT offers a theory that allows for full employment. How? Well, that’s a core part of MMT. Those who don’t understand the mechanisms, or disagrees with the theory, are probably not MMTers all the way through? But if you do understand and agree with the theory, you can be an MMTer – even if you prefer mass unemployment. That’s how I see it.

  176. Ah, but that is not a compromise – it’s rather exactly what MMT suggests, isn’t it?

    Look at 7DIF. Warren writes that most western economies are grossly over-taxed. Unemployment is the evidence.

    So, increase deficits, cut some taxes, whatever. We demand – aggregate demand!

    This way, it should be possible to reduce unemployment to a few millions.

    But at some point, the economy won’t be able to expand more. We’ve reached what mainstream calls NAIRU. Inflationary pressure builds up.

    Now, a fundamental MMT insight is that we can indeed achieve full employment with price stability. But to use general demand stimulus to trickle down all the way up to full employment won’t work. Inflation.

    However, these last few millions can be hired at the wage-floor, constituting a bufferstock of employed. MMT holds that this is not inflationary.

    Ok, blah blah. In any case, I don’t think any MMTer would suggest JG is the *only* policy option.

  177. In fact, Mitchell argues that “NAIBER” should be even less than NAIRU.

    Where is it suggested that the JG workers should be 10ths of millions? Has Mitchell said that?


    – attempt to summarize the theory – why is JG not inflationary etc?

  179. LVG, you wrote about two groups being formed within MMT – proponents and opponents of JG.

    Ok, but I’d like to differentiate as well between

    1 – opponents that don’t agree with (or don’t understand) the theory.

    2 – opponents that do understand and agree with the theory but still prefer mass unemployment.

    For group 1 it’s a matter of economic theory. Not sure these people are MMTers all the way through?

    Group 2 can be totally in sync with the MMT academia, agreeing on how full employment can be achieved with price stability, but prefer unemployment still – as a matter of politics.

  180. Perhaps. I have a good friend living in Sweden and a relative that lived in the Netherlands (both for >5 years). The public was very supportive of the change. Perhaps the public is wrong and has been mislead by the right-wing Neoclassical elite, but Swedes and the Dutch are very pragmatic and well-educated living a liberal democracy.

  181. I would agree with MMTers that free market capitalism with a free(er) banking system ended in 1913 and will probably never come back. We do live in a much more complex world than the world of the late 19th and early 20th century Austrian philosophers. However, Austrian economics provides a good reference point to judge other economic systems by. Economic systems like Marxism which stray too far away from the classic liberal economic model championed by the Austrians will obviously not work very well.

  182. The JG would offer a govt job to ANYONE willing to work….That might not amount to 13MM jobs, but it would certainly add millions. Do we really think that doubling, tripling or quadrupling the size of the federal work force will have no negative impacts? The problem is not the JG per se, but its implementation, size, scope, duration, etc. I am not sure that we’re all thinking about this correctly….

  183. Right and the most efficient fiscal policy tool, adjusting the payroll tax rate, is already federal policy! Its much more practical to argue for converting the existing payroll tax holiday into an automatic counter-cyclical tool than to argue (and wait) for a new federal jobs program that will be killed on “anti-big government” grounds before anyone even gets to the merits of of buffer employment stock arguments.

    The way to back into it is by calling it workfare and point out that it would replace welfare. But even that would take a while to enact (ironically, just by reframing it as welfare reform, much of the conservative opposition would dissipate but would be replaced by pushback from liberals who think “workfare” is a form of slavery). In the meantime, adjusting payroll taxes quarterly– automatically cutting taxes when U3 goes up and raising them again when U3 goes down– could be enacted almost immediately within the existing tax infrastructure simply by revising the existing payroll tax holiday law.

  184. I have directly stated otherwise. I am simply not in favor of the govt hiring people to perform unproductive forms of work for the sake of improving macroeconomic statistics like the UE rate. This says nothing about the true success of the economy. For instance, Japan’s UE rate has been low by any standards over the last 20 years yet their economy is still cited as having suffered two lost decades. How come this is never cited in all the discussions on Japan by MMTers?

  185. Mass unemployment results in huge permanent losses every day in foregone output and income. Add to that the depreciation of human capital, increasing family breakdowns, child abuse, crime, medical costs, skill loss, psychological harm, ill health, reduced life expectancy, loss of motivation, racial and gender inequality and loss of social values and responsibility. The personal, family and community losses are enormous and persist across generations.

    What are these consequences of the JG program that you fear so much, causing you to prefer mass unemployment? There must be something concrete that you can spell out?

  186. Iluvatar, I don’t disagree with your view of that of many others in the thread and elsewhere on this, but I emphasize that a central issue for professional macroeconomists is employment v. price stability. MMT is a macro theory with a voluminous literature already, considering the inputs its builds on. These economists are speaking in terms of a universe of discourse that defines terminology, major issues, and so forth. MMT enters that debate in a very specific way, addressing one of the chief theoretical problems in macro that has enormous policy implications, too, that of employment in relation to price stability. It shows that the mainstream ideas about this are in error in thinking that full employment contributes to price stability. MMT, including the boffer stock of employed, shows how full actual employment (less friction) contributes to price stability. That is what is really going on in their eyes.

    Of course, anyone can make any use of bits and pieces of the contributions of MMT economists, but they regard the resolution of the above conundrum affecting mainstream economics as one of their greatest contributions. Attempts to say that the JG is an add-on to an otherwise stand-alone economic theory totally misses the point of MMT and misrepresents the work of the MMT economists and their astounding achievement, which is yet to be recognized.

    So sure, have-at using ideas gleaned from MMT (with attribution, of course). But in doing so, we have to careful not to misrepresent what the MMT economists have done in constructing a tightly knit macro theory and claims to complete the quest for the holy grail of macro, actual full employment along with price stability. Professional economists will immediately recognize this claim and its significance. Others may not.

  187. Beo, I agree with taxing economic rent and have often advanced it as a necessity, but it would hit more political resistance in the US than any form of a JG. :o

  188. Good link and article … nice historic perspective. But I don’t think it settles the perspective differences, which I would say is …
    … he believes
    (a) macro policy necessarily includes full employment (even if there is no mention about the inextricable links with discretionary political policies)
    (b) labour is treated “in the aggregate” (as if skills etc. was a interchangeable pool of labour”; and all other issues with labour flexibility are frictionless)
    (c) labour does not have any behavioural/psychological aspects
    Many of the comments here just disagree, …
    (a) employment (amount, type, quality etc.) is a political and social policy, and perhaps may even more uncontrolled under a free, liberal democracy.
    (b) people aren’t intercheagable widgets (e.g. I can’t be a 747 pilot for a few weeks whan AA is on strike, and I’m between jobs)
    (c) individual laborers have a huge dispersion of incentives and motivations, and are influenced by others as well (e.g. tragedy of the commons)

  189. I don’t know about Sweden, I haven’t spoken with anyone from there, but from my talks with a Dutch, I could sense he adheres to the neoclassical doctrine (aka, the budget first). You just reminded me of when I read on the newspaper before the holidays that the Netherlands were going into a recession, and their Prime-minister didn’t took long to announce that they were going to take measures to keep the budget balanced (oh wait, they’re in the euro, so they are restrained by budgets – damn euro, always messing things up!

    The myth of budget constraints runs rampant, it’s everywhere, in college, in the press, the TV, the political establishment… And that should be the MMT work, to let everyone see the truth :)

  190. Until ’08 those things are precisely what Mexicans were doing here, flocking to fill an unmet demand for unskilled labor. (It started here in the 90’s, with 10 young men to a rundown trailer; then married couples – half the time, Yolande Madrigal seemed on the verge of tears because her young children were a thousand miles away – then 3 families to the trailer; and finally a family acquiring the neglected property down the road to restore and call their own). Now that shrubbery/landscaping of vacation/retirement homes has gone bust, they still form half of the crews working on the four-lane that is finally going through the county (last in NC to get one).

    Now, Americans can demonize these people, while making use of their often sub-minimum wage labor, or address the economic realities, eg by implementing policies to provide maximum employment at a living wage here in the US, which would very likely also act to create the job in Michoacan, Yolande would have killed for.

    Morever, prior to 1929, 1932 would have seemed even more distant than it does now. If ‘muddle through’ fails (Euro, China,?), the political realities here could change very rapidly – as they did then.

    Politically I am all for the job guarantee of MMT theory, but theory needs to get tested by/implemented in the real world, which is why an incremental approach, such as Cullen outlined with a boost from Tom, makes sense to me. (Even in Sweden, a full blown government JG might not work exactly as predicted by theory, and in the US, politics is part of the reality.)

    And Trixie – off the wall or not, your comment is like the ‘automatic stabilizer’ to let Cullen know when he’s gotten pushed too far off-center.

  191. But he states full employment as a goal (p4):
    “A truly efficient level of unemployment would be one where anyone not too finicky about the job he or she is willing to perform would be able to find a job at a living wage almost immediately, with unemployment of one percent or two percent”
    Now you can argue that you can make the private sector employ everyone, but that would be harder then JG.
    Either way the article is for full employment, not against.
    Could you explain why you are with Cullen on this?
    Always looking forward to your contribution.

  192. My solution is the reindustrialization of America along the German model; trades based education and a strong middle market industrial culture (the Germans call it the Mittelstand). I would free education from the tyranny of the teachers unions to facilitate this process. I would repeal the payroll tax so as to make labor in the US competitive, and go for full products liability tort reform. I would also go full FDR in terms of stimulus based infrastructure spending to support the reindustrialization process, rather than go full Obama, which was to make sure the public employee unions remained fat and sassy with stimulus spending.

    I would also fast track the new Canadian-US pipeline and frack the daylights out of the USA with the intention to make the US energy independent in the next decade, and use stimulus to convert the transport fleet to natgas and to clean up whatever damage got done during the rush to energy independence.

    I am an old school FDR style conservative that favors industry and production, and full employment the old fashioned way, with stimulus as a platform for real growth in the private sector, rather than a public sector union acolyte who fantasizes about a giant federal work force doing her laundry for her while pretending that she actually cares about the working class.

  193. ” I would also go full FDR in terms of stimulus based infrastructure spending to support the reindustrialization process, rather than go full Obama, which was to make sure the public employee unions remained fat and sassy with stimulus spending.”

    Turn off Fox News! What public employee unions are fat and sassy right now? States all across the union are busting them up with the help of democrats and the feds have not stepped in at all. How you can regurgitate this bu!!shit is unbelievable!

    Teachers are NOT overpaid, cops are not overpaid, EMS and fire are not over paid. BANKERS are overpaid

  194. JWG, re: your response to Trixie. I personally believe Climate Change is the longer term ‘elephant in the living room’, although this is not the forum to debate it (however, Exxon Mobil, the Russian, and other big oil/gas companies are planning on committing big bucks to take advantage of shrinking polar ice).

    Other than that, I’m sympathetic to your call for a ‘middle market’ industrial revival. However, the Germans did not do away with the need for basic labor – they imported ‘guest workers’ on a less than ideal social and ethical basis.

    I don’t believe that the US ever will either (people are born, get sick, age, needing care, etc). Part of my point in bringing up immigrants is that they form a major part of the existing low end (employed/unemployed) ‘buffer stock’ and the issue at hand is how to address this necessary element in a way that meets their needs and provides an overall benefit to society.

    In my home area, we already have a ‘job guarantee’ for young people with something on the ball but lacking the wherewithal for college: it’s called enlisting in the Military. A ‘national service’ program to partially address such needs would avoid the stigma of ‘make work/welfare’, could generate political appeal to patriotic Americans, and would avoid the dangers you raise of a huge, permanent public work force.

  195. The Dutch did the same thing without the Euro so that has nothing to do with it. Of course, the Dutch could still be “crazy bad neoclasssical economists”.

  196. I fear a stagnating society that fails to increase the broad standards of living over many generations. The power of capitalism is in its ability to innovate. Not in its power to employ. We can create a society of robots working the same mundane jobs day in and day out. And that might be fine for some societies. But we should expect more than that. We should expect to live substantially better lives than those before us. When did we come to expect that govt can and should provide so much for us? You want to know why America is in such a rut? Because no one wants to get their hands dirty anymore. They want to make money the easy way so they can go home and watch the Kardashians all night. This is not how great societies are built. We are losing our sense of independence. And that might be fine for some, but it’s not fine for me. I expect more.

    We’re hell bent on trying to focus on the 10% of people who are out of work. Did economists ever consider that that’s the wrong target? What about the 90% who are working? Shouldn’t we really be implementing policy that focuses in maximizing their output? Isn’t that really the best way to achieve prosperity? It’s not dissimilar to a football coach who spends his time obsessing with how bad his bench players are. Economists are obsessed with figuring out ways to better the bench players. But maybe the best way to better the bench players is to better the starters. Only then can we motivate the bench players to improve. Now, I don’t question that currently, there are a huge number of jobs the govt could provide to help bring the economy out of the doldrums and improve overall living stds. But are there permanent jobs in this regard? I don’t think so. And I think this sort of program will simply mutate into a sort of spread the wealth plan where a small portion of the population receives a better living std at the expense of us all.

    I find it incredible how so many people have no objection to what appears like common sense. If the unemployed were a net positive ROI on society then they’d be earning an income. But they’re not. They’re a negative ROI on society. If prosperity were as easy as the govt hiring a few million people then America wouldn’t be the greatest economic miracle in the history of man. The problem in America is not that we don’t have enough govt or spending per se. The problem is that the quality of our output is on the decline. I have proposed programs like the innovation initiative and substantial financial reforms that would help stop our best minds from filing into Wall St firms. There are ways we can use govt to better the players on the field. This is where the real power of MMT should focus. I could really care less that our bench players suck. It’s my men on the field who are losing games day in and day out. And they need our help….

  197. Just noting FYI Scott Fullwiler expressed his opinion of the JG and engaged in some discussion on the same link.

  198. Very interesting! Deserves a post of its own? A shame to let it disappear in the tsunami of comments here.

    > I fear a stagnating society that fails to increase the broad standards of living. The power of capitalism is in its ability to innovate. Not in its power to employ.

    No, that’s right. Private sector on their own are unlikely to fix full employment (at least according to post-Keynesians, to which MMT’ers sometimes seem closely related). So, if you want full employment, there has to be a mixed economy. Government sector and private sector.

    But why would the power to innovate reduce if there is a Job Guarantee? Does mass employment stimulate innovation? I think it rather just creates misery. With proper skill improvement programs, a JG system could stimulate more innovation and creativity, not less.

    I think capitalism can actually work better, become more vibrant and thriving, in a soil where people are never out of work, and can always improve skills, find new things to learn and earn a decent income.

    > We can create a society of robots working the same mundane jobs day in and day out. And that might be fine for some societies.

    Sounds like a nightmare. Has absolutely nothing to do with JG though, in my opinion.

    > But we should expect more than that. We should expect to live substantially better lives than those before us.

    Sure. With a JG in place, that could go for 100% of the population.

    > We’re hell bent on trying to focus on the 10% of people who are out of work. But what about the 90% who are working? Shouldn’t we really be implementing policy that focuses in maximizing their output? Isn’t that really the best way to achieve prosperity?

    Or how about both? They are not mutually exclusive. To implement a JG is not even certain to constitute a net cost, if you take into account the social costs of mass unemployment.

    > It’s not dissimilar to a football coach who spends his time obsessing with how bad his bench players are. Economists are obsessed with figuring out ways to better the bench players. But maybe the best way to better the bench players is to better the starters. Only then can we motivate the bench players to improve.

    Neoclassical argumentation. The unemployed are unemployed due to lack of motivation? They could just make a better effort and jobs would show up? MMT rejects this, emphasizing that unemployment is about deficient aggregate demand. And in any case, I would definitely keep these bench players in training to maintain their form. That would achieve better liquidity — sometimes a bench player would become a proper first team player. Also, would be a waste to just leave them sitting in isolation, seeing them lose hope, start using alcohol and drugs and ultimately completely give up and go home and beat the crap out of their children. (Well, you started with the metaphor :-) )

    > Now, I don’t question that currently, there are a huge number of jobs the govt could provide to help bring the economy out of the doldrums and improve overall living stds. But are there permanent jobs in this regard? I don’t think so.

    Ok, mass unemployment is better then. I’ve seen plenty of suggestions though. Not a big worry of mine.

    > And I think this sort of program will simply mutate into a sort of spread the wealth plan where a small portion of the population receives a better living std at the expense of us all.

    Ok, so the rest of us are better of if the bench players are unemployed., But so far, none of the arguments I’ve seen for that are convincing. I just don’t see how the benefits of mass unemployment (if there are any) outweigh all those costs that result from it — even if we ignore the human tragedy for those actually unemployed.

    > I find it incredible how so many people have no objection to what appears like common sense. If the unemployed were a net positive ROI on society then they’d be earning an income. But they’re not. They’re a negative ROI on society.

    Right, this is pretty much the neo-classical argumentation. I’d reject this flat out. The private sector on its own is unlikely to be able to fix full employment — even skilled and productive workers can easily end up unemployed. It’s about deficient aggregate demand.

    Neoclassicals blame the intervening government for unemployment. MMT’ers says the government has to step in and offset the demand drag that results from net saving desires among private agents. Or else, unemployment results. This has nothing to do with people being unproductive — it’s about deficient aggregate demand.

    > If prosperity were as easy as the govt hiring a few million people then America wouldn’t be the greatest economic miracle in the history of man.

    Granted, there is a glorious history, though one could tribute much of that to government spending during the post-war period? The great miracle right now though is that America is fast becoming a nation pretty much in ruins.

    > The problem in America is not that we don’t have enough govt or spending per se. The problem is that the quality of our output is on the decline. I have proposed programs like the innovation initiative and substantial financial reforms that would help stop our best minds from filing into Wall St firms.


    > There are ways we can use govt to better the players on the field. This is where the real power of MMT should focus.

    Agreed, this sounds like it could be taken straight out of 7DIF.

    Basically, I still find your argumentation a bit weak. I think mass unemployment societies will stagnate rather than full employment ones. Detroit.. New Orleans. — places not exactly thriving from the streams of motivated skill-improving job-seekers standing at the doors of the closed down employment offices.

  199. > The point being (which I think you’re missing) is not that the JG is necessarily horrible, but that MMT proves that the monopoly supplier of currency has an unlimited ability to help the pvt sector.


    > The question is how best to do so? Do we pay people to sit on couches as we do now? Do we pay people to rake leaves on I-95? Or can we implement policy that stimulates innovation, reduces financialization and really gets to the endgame of increasing our living standards via increased innovation, efficiency, etc?

    Ok. Sounds like 7DIF.

    > I keep repeating that I am not anti-JG.

    Ok, it just really sounds as if you are. But point taken. (Probably have managed to miss many of the comments here..)

    > I just don’t think it’s the best way to implement MMT policies.

    But you’re making it sound a bit as if a JG would be mutually exclusive with the innovation/efficiency improvements (etc) suggested above?

    IMO, one should not think of JG as “either JG *or* innovation/efficiency improvements”. Why wouldn’t you be able to have both?

    Rather, I think you should think of JG as: “either JG OR not JG”.

    Or: “either a buffer stock of employed OR a buffer stock of unemployed”.

    Or: “either full employment OR mass unemployment”.

    (There may of course be other alternatives as well, as suggested by peterc recently, such as basic income guarantee schemes.)

    > And there’s nothing neoclassical in there. It’s all in MMT paradigm.

    Not the way I see it — see the specific instances pointed out in previous comment.

    > I just don’t buy BM’s argument that you need the price level theory to be attached to a JG. It could just as easily be attached to NFAs.

    Seems most of the heavy weight MMT’ers emphasize the bufferstock thinking though — not just Mitchell. Either you have a bufferstock of employed or of unemployed. The price setter sets a nominal price to which the value of the currency is anchored, and lets the quantity float. Ok, I don’t fully understand this myself (how does this apply to the bufferstock of unemployed?) — just saying that this is not just Mitchell but pretty much all of them?

    > So the JG is not essential to MMT at all. It might be essential in Bill Mitchell’s theory of socialized employment.

    The bufferstock thinking is essential though (how a bufferstock is used as a nominal price anchor) — or so I believe the heavy-weighters would argue. No? See Keltons comment above, or Fullwiler or Mosler.

    Honestly, I think JG is pretty central there too. It’s about the bufferstock of employed (JG) versus unemployed (current system) versus unemployed/gold (previous system). I think it’s “core MMT theory” to say that a “bufferstock of employed has better inflation fighting effects than one of unemployed” or something like that. Would you agree with such a statement?

    > But it’s not at all essential to the state theory of money or understanding modern money….

    Granted, MMT has a lot to offer in addition the bufferstock ideas.

    > Better?

    Yes, thanks.

  200. We’re missing the point by getting bogged down in wonk talk. Economists have a rigid explanation for macro. Bill justifies his position by claiming to have a broad macro approach based on his focus on UE and price stability. Did it ever occur to anyone that these targets were wrong? Could it be that the failing profession of economics has been obsessed with some of the wrong targets? Maybe productivity is the real focus? If we create an ultra productive economy doesn’t UE and price stability pretty much take care of itself? So why not focus on productivity and efficiency of output rather than UE rates and price stability?

    The obsession with price stability and UE is leading to two misleading conclusions. One being that the govt should eliminate the UE problem by hiring everyone. And the second being that the govt should create price stability via the buffer stock of employed. But what if these targets are the wrong target? What if solving these two problems doesn’t actually increase our overall living standards in the way that other policy measures could? That’s where I am coming from. And the conclusions I reach are dramatically different than conclusions that involve filling in UE rates and price levels so as to make economist’s equations lead to more satisfying outputs in their models. I know the govt can hire everyone and set prices. I’m just pointing out that that might be the wrong way to increase the living stds of the society mentioned….

    I need to lay out these arguments in far more detail though….

  201. Iluvatar, Bill Mitchell began working on the macro employment problem as a grad student and very quickly hit on the buffer stock approach base on the way that the Australian government dealt with wool. Since then he has published extensive research on the buffer stock of employed and advised government about it. It has been adopted in several emerging countries, successfully Bill reports. This is not a pie in the sky idea. It’s been around for several decades and there have been actually tests reported in the MMT literature. Of course, there are also similar programs in the US, such as the WPA and the CCC during the Great Depression. The claim of the MMT economists is that it’s either create a buffer stock of employment or accept employment elevated above what is necessary with a BSE with the resulting inefficiency of resources use, amounting to huge amount of wastefulness that cannot be recaptured. As I said above, if anyone has another alternative, write it up and put it out there as a macro proposal. But without a professional presentation it will not be considered. MMT has made a professional presentation and still the mainstream refuses to consider it seriously, even though there is empirical evidence that it actually works.

  202. dimm, I only meant to say that I was in agreement with Beowulf on taxing economic rent, not that I agree with those that think the JG is peripheral to MMT and that MMT can deal with the problem in other ways. If so, they should present a professional macro presentation showing this.. So far suggestions have been advanced about this rather than a worked up proposal. If someone can come up with a macro plan showing how to achieve full employment with price stability without a buffer stock of employed that passes professional muster with economists then I would, of course, consider it — especially if it would be more politically feasible than the JG, which as we see runs into political resistance and even economic doubts that it would work (although so far no one has seriously attacked the MMT version of the JG based on references to the professional literature. The response so far is mostly just dismissive as far as I can see.

  203. > Maybe productivity is the real focus? If we create an ultra productive economy doesn’t UE and price stability pretty much take care of itself?

    Not according to the Keynesian inheritance baked into MMT. If you want full employment, you can’t rely on the private sector alone. It is likely to fail.

    Not sure about an ultra-productive economy. Perhaps in a few hundred years, you will be proven right. Or a few decennia? Or millenia?

    Would be a shame to keep in letting the unemployed rot in the mean time though.

    > So why not focus on productivity rather than UE rates and price stability? The obsession with price stability and UE is leading to two misleading conclusions.

    Why not focus on both? Why leave people in unemployment, given the enormous human costs? A bit harsh to call it “obsession”. It’s not like it’s only a game or something. Today’s policies leads to humongous amounts of unnecessary human misery. The situation could be considerably improved with MMT policies in place. Unemployment is a killer.

    > But what if these targets are the wrong target? That’s where I am coming from.

    Right. MMT as it currently stands focuses mostly on full employment and price stability though? But there is probably room for more than that. Sounds like the “Roche fork” of MMT will be different? :-)

    > I need to lay out these arguments in far more detail though….

    Will be interesting!

  204. I’m all for your suggestions!

    (And I think it’ll work better in a full-employment economy with appropriate possibilities for skill improvement etc, than in a mass-unemployment economy where 10% of the population are not able to take part. So — I’m still pro-JG, against mass unemployment and the resulting unnecessary human misery and costs. Haven’t seen convincing arguments otherwise. Not that you’re anti-JG — you seem to have ended up somewhat indifferent to the idea. To me, though, even that is almost incomprehensible.)

    Looking forward to your future thoughts!

  205. IF MMT is correct (which the MMT economists have made clear includes the government as employer of last resort creating a buffer stock of employed), then choosing a course of action that doesn’t result in full employment and price stability is just choosing inefficiency and waste for political reasons rather than economic efficiency and effectiveness. Of course, one can attempt to show that MMT is faulty as a macro theory, but that must be shown rather than merely asserted. And everyone remains free to make political choices, but choices have consequences.

  206. It’s not about choosing policy that doesn’t result in full employment and price stability. It’s about choosing policy that focuses on pvt sector output, innovation and efficiency in ways that leads to FE and PS. The focus on FE and PS, is in my opinion, secondary to fixing the output problem. Fix the output problem and FE and PS will follow….

  207. My distaste for Wall Street bankers and my admiration for Glass Steagall and the old school restraints on Wall Street that kept it in its cage until 1999 very likely exceed yours. Wall Street is a grossly overpaid and overrated sector of the economy. That does not change the fact that public sector unions in the blue states are absorbing far too much social spending with the result that programs suffer while public employees grow fat and sassy. Traditional trade and industrial unions do not have the tax and police powers of government behind them.

  208. I should add that the other way out of the horns of this dilemma of either a buffer stock of employed or a buffer stock of unemployed is though an alternative that is I am not married to the JG by any means if another alternative can be found. For example, it seem that using the sectoral balance approach and functional finance there could conceivably be a way to achieve full employment and price stability by maintaing effective demand at the level of full employment so that a buffer stock is never required. That would be quite a balancing act, however, It would have to take shocks to the system into account, for example. The case for such an alternative would have to made convincingly, and that has not yet been done wrt a modern capitalistic system, at least to my knowledge.

  209. Cullen, Beowulf agrees with you on this, I believe. You are both very astute, so maybe you can come up with an MMT alternative that does not require the JG to achieve the aim of macro theory as well as the policy goal of full employment and price stability. It is clear that if the economy is permanently maintained at full output, then there will always be full employment. The issue then becomes controlling inflation. If a path can be shown to an economic policy that keeps the government and non-government sectoral balances summing to zero, there should be no problem, since unemployment and inflation never arise, since everything the economy produces gets bought. So it is doable in principle. The problem, of course, is that the money supply is endogenous, and inflation generally arises from private credit extension increasing buying power beyond the ability of the economy to expand to meet it. So is is a challenge. There is also the issue of dealing with shocks.

    Anyway, this has been a productive thread, and I expect that we will be taking this up again in a subsequent post when you work up a proposal.

  210. I dont think any of the MMTists, the founding fathers so to speak, disagree that full employment at the private sector level is the most desirable. Ive never seen any indication that Bill Mitchell, arguably the most leftish of the *founders*, does not think that full private sector employment is the most desirable outcome BUT he also argues that ANY involuntary unemployment is unacceptable……… 1) for macroeconomic stability reasons and 2) for human rights reasons.

    So really I dont think they disagree with you much Cullen other than saying it needs to be explicit that a JG job will be available to anyone who cant/shouldnt/doesnt want to be employed in the private sector.

    I would love to see everyone pursuing their dream in the private sector. But the fact remains that there will always be places where the private sector cant justify hiring someone to do a certain job because of lack of profit opportunities and there are no monetary reasons why this person then has to go without income and be unable to participate in our markets.

    Part of the problem is that we are talking about this program in the midst of our worst unemployment in 75 years. Sure it looks big now because the private sectors balance sheets are so damaged. I think if all the MMists remedies were instituted yesterday (payroll tax holiday and other tax breaks being a huge part) we would see that JG roll shrink very quickly as businesses start to increase output and pull from the pool of people used to showing up everyday and being part of a work environment instead of sitting at home eating cheetos and dreading phone calls form their creditors

  211. ” Wall Street is a grossly overpaid and overrated sector of the economy. That does not change the fact that public sector unions in the blue states are absorbing far too much social spending with the result that programs suffer while public employees grow fat and sassy. Traditional trade and industrial unions do not have the tax and police powers of government behind them.”

    Absorbing far too much social spending?? Again, turn off Fox News and simply demonstrate that these people are being paid to much commensurate with their skills and education. What is your scale of comparison? Wal Mart greeters?
    Just exactly what percentage of our output should be spent on education? Police? Fire?

    This is a discussion worth having but making blanket statements that sos and so has too much power or makes too much money……. compared to whom?

    I think it can be better argued that private sector workers have been systematically raped by their bosses over the last 30 years. It used to be that a public sector job paid less but had a little more stability. Well thanks to many things, most private sector workers have sacrificed everything to *shareholders* and have lost much if any advantage pay wise over their public sector counterparts. YOU choose to attack the public sector workers trying to bring them down to the level that the private sector now has to tolerate. I SAY…. screw that, lets build the private sector back up. Take the considerations for shareholders over workers away. Dont play the “tear down my neighbor so he can suffer like me” game…… lets attack the real source of the inequality, the share that the bosses insist on keeping and denying their workers.

  212. Hugo/Cullen

    Real great exchange here. Really enjoyed following it. Very illuminating.

    I see in Cullens comments and reservations something which I frequently see but which I need to do more to try to understand and that is a sense that this JG (or any type of govt income guarantee program) will just end up making more people completely dependent, lazy and worthless. In addtion, it seems to be posited that these people will be living the good life off of our sweat!

    Now, Ive never longed to be in a minimum wage job nor have I longed to be on the basic minimum of welfare (I know we technically do not have welfare anymore). I cannot for the life of me understand why anyone thinks those people have it good, or better than you who have 20$/hr jobs? If you want that meager lifestyle….. YOU TOO CAN HAVE IT!!!! Go for it!

    Yes, there are people whom are capable of doing more and to see them languishing in min wage govt jobs or just sitting home collecting a govt transfer is a shame. I too wish to see every human reach their maximum capacity but I certainly do not think these people are living the high life at my expense. I have no desire to switch places with them. Some people make it sound as if these people are in enviable positions when in fact we should be pitying them.

    I also think that our American system (not as its practiced TODAY so much) has been the best at providing opportunity for advancement, preserving broad choices and retaining some dignity when things go bad. But this hasnt come about because private sector owners wished it to be that way. Our system evolved with a mix of entrepeneurship and heavy handed govt intervention that forced businesses to provide defined work weeks with extra pay for extra work, paid time off, sick leave considerations, retirement benefits. Does anyone here think that all those aforementioned things would have occured without a govt body playing a large role decades ago?

    My point is the reason so many of us got it so good (although it is eroding of late) is due to our govt sector too. Not just our private sector. Our govt is bad but its the best there is.

    There will likely always be people more or less dependent on the govt sector (us) for whatever semblence of wlefare they have. We can afford it and we dont need to envy them. They are not getting away with anything they are just getting by!

    I hope that everyone can get by. If they can get by for long enough maybe we can get more out of them. The potential is there

  213. From the late 40s to the seventies the US and western Europe achieved a situation of full employment (for all practical purposes) with no JG. This certainly shows that buffer stock employment guaranteed by the state is not the one and only way to have everybody busy at work in an economically developed society.

    The point is that the operatuinal realities of fiat monetary systems, the sectoral balances approach etc. are Facts, hard facts – we may try to argue with them but you’ll make a fool of yourself in the process. This is prescisely what happens when neoclassical economists write their textbook chapters or opinion pieces on money and banking – it’s a laughable fantasy story, with no connection to reality as people who come from a scientific training quickly recognize once they dedicate a couple of hours of attention to these subjects.

    So I’d say that there is one part of MMT that really should be called, quite simply, Modern Monetary Facts.

    Then there is another part, very dear to the founders, that relies on yet unproven macro theories concerning the price level, unemployment and the necessity of a JG to get the “right” amounts of low inflation and low unemployment.

    On this, let us call it “challengeable” part of MMT, one might make the following comments:
    1 – who knows what the “right” levels of inflation and unemployment are? It’s certainly a defendable position that a society might opt for a modestly high level of inflation as a price to pay for full employment, for example.
    2 – the JG once implemented could prove to be a failure under its own terms. Let’s say the USA applies it only to find out after a couple of years that it has got a fully employed labor force – a part of which btw is dissatisfied (for being forced to work at a very low wage) – and yet this coexists with a stubborn, persistent level of inflation?

    I think it’s important that we don’t mix things up, putting water and oil inside the same cup. The sectoral balances are true by way of accounting. The budget deficit puts a downward pressure on interest rates. Banks are not resrve constrained, etc. But no one can tell for sure how a JG will or will not work, because this a theoretical, unsettled question of macroeconomics.

  214. Seems to me we use buffer stocks everywhere but labor supply. We have a national oil reserve so we can keep our consumption of energy smoothes in the face of out side shocks or whatever. All of us keep a buffer stock of potential income in the form of savings so our consumption doesnt have to fall off a cliff if we suffer income changes at work.

    In addition with every valuable commodity like housing, gold, or stocks if we find that 10-15% of the exisitng market is now unsellable, that constitutes a panic. Markets crash and central bankers pull out all stops to restorestability to those affected markets. How is it we can sit so blithely by while 10-15% of our labor market is basically un sellable/unbuyable.? In one instance we are talking about inanimate objects in the other we are talking about humans.

  215. Part of the value of this discussion is that from it have emerged outlines of the approaches which will be necessary (but none alone sufficient) to turn this economy around: Cullen’s focus on innovation and productivity; JWG’s ‘middle market’ re-industrialization; Greg’s fairly paid public sector of police, teachers, firemen, and orivate sector workers who have recovered the autonomy they have lost to the FIRE sector.

    However, I will also maintain that the actual base employment ‘buffer stock’ will oonsist not of charity cases, but of people doing essential hands-on work, and I agree with MMT thinking that this will be the anchor for wages and prices in the economy. During her last months, my mother received cheerful and affectionate care from a young woman legally ineligible to work, and willing to provide it for the pittance Oakland county provided. When you or a close family member or a disabled war vet needs and receives that kind of care, you will accept it gratefully and without condescension.

    Ideally this and other basic societal needs will be met by people treated fairly and with dignity, and for the majority, it will be only a stage in a progression to work commanding better pay and higher status. We as a society can choose to have this esssential work done by people able to live only in conditions that the mainstream considers substandard. But if we do, it will be to the detriment of our entire society.

  216. It seems there is a mini-crisis of terms and definitions. It is called Modern Monetary THEORY, so maybe we all should accept that MMT does indeed include the Job Guarantee (JG). Meaning, the JG is the “theoretical” aspect of MMT. The founders of MMT are THEORIZING that a JG would lead to full employment and price stability.

    There is nothing theoretical about the operational realities of the system. Simply by definition “operational realities” are not “theoretical” …consequently, maybe those who understand the operational realities of the system, but oppose the JG put forth by the founders, should no longer be considered MMTers.

    Cullen, you have noted that if this is the case then maybe you are not MMT. The only unfortunate aspect of this realization is you’ve spent so much time claiming to be MMT. So you’ve got a lot of previous work to revise!

    Any thoughts on what I’ve suggested?

    Unfortunately labels are very useful. I don’t know if there is an appropriate label for those that understand the operational realities, but don’t support the JG put forth by the founders of MMT. Maybe KNAPPERS? :)

  217. I suggest we keep MMT as a label for the non prescriptive parts: operative description of monetary systems, sectoral balances approach, money endogeneity, etc. That’s the way to maximize the universe of followers.

    The JG would fall under a separate label – MMP, which would stand for Modern Monetary Possibilities, meaning objectives that might (or might not) be achievable under a fiat currency system but whose implementation would depend on the free choice of the electorate and whose success has yet to be tested in the real world (as opposed to the world of macroeconomic models).

  218. i.e. the generally held view that full employment and price stability are mutually exclusive (in the absence of a JG program).

  219. It makes sense to keep MMT for the descriptive part because it’s the most widely used and recognized acronym for what we’re all talking about. And probably the most important thing all MMTers have in common is that we believe that the descriptive part is essential to understanding economics.

    The downside is MMT has “Theory” in the term. If MMT only refers to the descriptive part, then MMT is certainly a misnomer.

    I don’t expect people that oppose the JG put forth by the founders of MMT to stop referring to themselves as MMT, I’m just suggesting that this debate over what is MMT and what isn’t MMT could be easily resolved if we accepted that the JG is the “theoretical” aspect of MMT, and therefore probably an essential component of what “is” MMT.

    It definitely wouldn’t help us spread the word about the operational realities of our system if people like Cullen decided to stop referring to themselves as MMT, but again, it would resolve the issue over what MMT is and what MMT isn’t.

  220. An alternative then would be to call the “operative” part MMF (for modern monetary facts), call the “prescriptive” part MMP (for possibilities) and then have,

    MMT = MMF + MMP

    That would ensure that people like Cullen stay deep inside – at the very least, within the “factual” core of – the MMT camp, allow the founders to preserve their beloved JG within the MMT label and keep everybody happily engaged in their work for a more rational policy approach towards the BS recession :)

  221. I’m not so sure about MMP (Modern Money Possibilities). It’s too vague. There are plenty of other possibilities that could be MMP, but they wouldn’t be included because we narrowly defined “possibilities” as the JG.

    It’s probably bad for the short term, but probably good for the long term, to allow the founders of MMT to keep the term MMT and us all accept that the JG is an integral aspect of it.

    Cullen (not maliciously!) has in a sense hijacked the term MMT and dropped the part of it that he feels is unessential. Cullen seems to believe only the operational realities are MMT. But the more I think about it, the operational realities are just that… they are the operational realities of our monetary system. Whereas MMT, being a “theory” …includes the JG as the theoretical aspect to achieve the macroeconomic goal of full employment and price stability.

    The more I read Cullen’s comments, the more he seems in line with Rodger Malcolm Mitchell and Monetary Sovereignty …and less in line with Mosler, Wray, Kelton, Fullwiler, Mitchell etc and Modern Monetary Theory.

    But Rodger Malcolm Mitchell is a monetarist, and Cullen doesn’t seem to be. So this is why we might need a new term that encompasses RMM and Monetary Sovereignty, the whole MMT gang, as well as people like Cullen…

    …because all of them agree on the operational realities, but the break off into different camps based on their preferred prescriptions. So if Rodger Malcolm Mitchell isn’t MMT, then neither is Cullen.

    Any thoughts Cullen?

  222. Surely the whole point of gaining a better understanding of economics is so as to be able to make economic systems function as well as they possibly can. What is the point of understanding an economy if you don’t also aim to make it function as well as it can? It’s like knowing how a car engine works, but for some reason choosing not to put enough oil into it (with the inevitable negative consequences).

    MMT’ists state that the mainstream view – that full employment and price stability are incompatibile in the long term – is simply wrong. It’s based upon an incorrect understanding of economics and a flawed ideology. The MMT position, in contrast, that full employment and price stability can be achieved simultaneously – but (crucially) only with a buffer stock employment program.

    If you are of the view that the mainstream position is incorrect, and instead believe that full employment and price stability can be achieved – but (crucially) without the need for buffer stock employment – then you are disagreeing directly with established MMT analysis. The onus is then upon you to provide some alternative theory of how full employment and price stability might be achieved simultaneously.

    Alternatively, you might think that simultaneous full employment and price stability is not a goal that should even be actively aimed for, regardless of whether the mainstream view or MMT view is correct. But from the point of view of MMT’ists, this is just like choosing to not to put enough oil into an car engine. MMT is based on the idea of recognising real constraints, and ignoring imaginary ones.

  223. Cullen,

    You’re post-MMT.

    It’s obvious, and I actually had no idea until I read this thread today.

    You just don’t quite know it yet.

    Could hit you like a ton of bricks by 2012.


    And you don’t need to write up a paper to validate it; you’ve already written enough, old boy.

    Best and truest words from the comments (STF):

    “By putting MMT out into the blog world and getting our wish of having a following, the consequence is that we don’t have control over the path it takes. We can do research and hope it influences that path, but it’s no longer ours exclusively. We could have kept tighter control if we had chosen to continue to work on the fringes and remain almost completely unknown.”

    Great discussion

  224. “MMT’ists state that the mainstream view – that full employment and price stability are incompatibile in the long term – is simply wrong”.

    Well, this an interesting critique of mainstream economics but I’m sorry to say it is in a different category, compared to the other critiques that MMT has presented against neoclassical economics.

    Even if we remain within the prescriptive part of MMT, it is certainly debatable that the proposed Job Guarantee policy can produce the promised result – no unemployment and no inflation.

    The idea may seem sound at a theoretical level (a buffer stock keeping prices down) but for the moment it is just that – an interesting idea derived from a macroeconomic model, not yet submitted to the test of practice.

    Whereas other prescriptive parts of MMT may be debatable as a value judgment – but no one doubts they could be implemented tomorrow if TPTB wanted it so. For instance, the cherished (by some within the MMT camp, including Mosler) ZIRP would certainly prevail if the government stopped issuing T-bonds or notes and simply started crediting accounts in order to spend. (Personally, I don’t like it and yet I have to admit it is 100% feasible…).

    I believe that including the JG in the “core” of MMT will only weaken it. Why insist on a proposal that is both logistically difficult to implement and a mere derivation from an untested model (buffer stock for preventing price increases)when all the other descriptive and prescriptive parts of MMT are so much stronger – and so much more robust and capable to withstand a possible mainstream counterattack?

  225. Cullen

    Thanks for the reply.

    I think I would posit that the potential size of a JG program, if instituted now, is due to the fact that our labor market (thanks to our financial system and political morass) is so terribly wrecked at the moment. I think it might be possible to argue that if we had been doing what MMTists had been advocating all along we would never need the size JG that might be necessary today. The state of our labor market is terrible, and its not because we dont have any skilled workers.

    Where do you think our unemployment rate would be if tomorrow we had a moment of sanity in our govt and told all states to rehire every fired worker from the last three years ( the feds would assure the states had the money) and removed payroll taxes. The potential JG pool would be a lot smaller in that case.

    It looks daunting now because our labor market is just decimated. This should never have been allowed to occur. There was no “real” reason for this recession. It was all a figment of our imagination thanks to our mismangement of our monetary system

  226. P.S.


    What you’ve written in your comments here is in a way consistent with my own interpretation of the situation, which is that MMT has essentially become too large an idea to survive and prevail, intact and whole, in its current form. And this is not entirely inconsistent with Scott’s comment cited above, although I’ll guess Scott would prefer robust evolution rather than some sort of splitting.

    I noted this more benignly, here:

    The problem in my view lies in the nature of the forced juxtaposition of a sort of promotional analytical neutrality together with an ambitious, politically extreme policy agenda. Such a combination of neutrality and extremeness is inherently fragile, and at risk in my view, as a consolidated idea. It doesn’t fit. And that MMT wishes the political component might become more neutral in the future (i.e. generally accepted) doesn’t make it any less extreme today. And by no means does MMT’s desire to see it become neutral in the future guarantee that it ever will be neutral. And this is all considerable risk to what is currently known as MMT.

  227. It’s hitting me like a ton of bricks right now. This conversation has me reaching some pretty interesting conclusions which I’ll be sharing in the coming months….

    Just out of curiosity JKH – where do you stand on all of this?

  228. It’s becoming very clear now that Bill Mitchell and the others have drawn a line in the sand. And I am very clearly standing on the opposite side of the founders. I don’t know what I am now, but as JKH said, I guess I am post-MMT. Whatever that evolves into should be pretty interesting….

  229. Just before you responded, I submitted something further, (twice) with a link, but it disappeared. Do you see it somewhere?

  230. JKH, I completely agree. Is it possible to email me? I’d love to be able to talk to you in private at times. You have, in my opinion, some of the most important comments and insights on current macro out of all the people I read. If you prefer to remain anonymous then I totally understand….

    tpc at

  231. On Mitchell’s blog JKH wrote that “…MMT leaders don’t all insist on a zero interest rate policy or no bonds as required policy objectives, but I believe they do adhere to JG or some variation of it. This difference in policy optionality, although based on the same type of monetary analysis, may make the JG further stand out as a potential “distraction” for those who focus more on the correct and basic understanding of monetary operations as per MMT.”

    The key point here, IMO, is that the ZIRP, the no T- bond policy etc. are a part of prescriptive MMT that no one doubts could be immediately implemented while the JG is also a part of prescriptive MMT but one that has not yet been tested and whose theoretical foundation rests on a much shakier basis than the rest of MMT.

    Even if we demonstrate on paper that a buffer stock-like JG is the magical solution that would gives us price stability plus full employment the test of experience could prove us totally wrong, in the end.

  232. Cullen,

    If the founders of MMT want to draw a line in the sand on the JG, this doesn’t have to be a bad thing. This is potentially a good thing, and it’s probably inevitable in the evolution of this information permeating mainstream consciousness. If we’re to be successful in spreading the knowledge of the operational realities of our monetary system, although in the short run it ruffles feathers and bruises some egos, in the long run it’s essential that we have precise definitions of what we are talking about.

    What we need is a new phrase that encompasses all the groups that understand the operational realities of our monetary system. RMM might have already staked claim on the best phrase: Monetary Sovereignty.

    Maybe you should do a new post, or a poll among the followers of your site, taking submissions for what this new phrase will be. Let’s create it out of thin air! Let’s demonstrate our “Semantic Sovereignty” as human beings through a democratic process of selection.

    If we can have one phrase that encompasses Monetary Sovereignty, Modern Monetary Theory, and whatever it is you’d like to call your version of it… a phrase that only, and very specifically, refers to the operational realities… then THAT, this new phrase, is what we want to collectively spread. Then as it spreads, people can evaluate the various prescriptive camps. (MMT vs. Monetary Sovereignty vs. __________ vs. ____________, etc)

  233. Post-MMT. I think that’s a perfect description. The key differentiating factor is that you’re against the JG. Cullen’s the perfect front man for the new theory.

  234. Maybe Cullen’s position could be called Post-MMT, since he seems to agree with pretty much all of the MMT position except the JG.

    As for the term that strings through all of this, the term or phrase that refers to the operational realities of our monetary system…

    Maybe we should go to the source: The State Theory of Money (STM). We can all be STM’ers? :) or some variation of it.

  235. The basic MMT insight: that the government can create the currency at will, that it faces no ‘financial’ constraints, and that the only real constraint is inflation, can also be restated in relation to employment.

    That is to say: the government faces no ‘financial’ constraints in its ability to create jobs, but it does nonetheless face other real constraints, namely (a) inflation, and (b) productivity.

    The basic MMT prescription: that the government should create money in the manner and quantity required to ensure the optimum functioning of the economy (but no more than is necessary so as to keep inflation at an optimum level), can similarly be restated in relation to employment.

    That is to say: that the government should create employment in the manner and quantity required to ensure the optimum functioning of the economy (but no more than is necessary so as to keep inflation and productivity at an optimum level).

    The first prescription is based on the understanding that only the government can create net financial assets – but that it can also create inflation if not correctly managed.

    The second prescription is based on the understanding that, beyond a certain level of employment, only the government can create further non-inflationary employment (but that this can also lead to diminished productivity if not properly managed).

  236. Comes back to the fact that MMT is being presented by MMT economists as macro theory. As Bill Mitchell says, a macro theory to be credible has to deal credibly with the big three — output, employment and prices. As a macro theory, MMT uses a buffer stock of employed and a floor wage/benefit package as a price anchor. That is central to MMT as a macro theory competing with other macro theories in the academy.

    If one wants to present a macro theory within the MMT paradigm of monetary economics without the buffer stock of employed, then there has to be another way to balance output, employment and price that is as efficient and effective theoretically. Such a theoretical variation has not yet been advanced in a coherent and comprehensive form in an academic forum.

    If one simply wishes to use various MMT insights such as its description of the monetary system for purposes other than to create a competing macro theory, what’s the problem? From what I can see, most of the people blogging about MMT are not interested in formulating macro theories but addressing issues important to them. Nothing worth getting excited about regarding this. Assessing the consequences of Fed policy like QE from a market perspective would be an example of this. MMT’ers showed by the hyperinflationists were wrong about QE and also called Bil Gross’s mistake, for instance. This is no mean feat.

    At the same time, people putting forth policy proposals have to work through their implications and that generally requires a good understanding of a macro framework, or else one is just hitting willy nilly without understanding consequences. With respect to output, employment and prices, everything fits together. A macro theory is an explanation of this fit, and competing theories (explanations) are compared on the basis of how they accord with data. Intuitive policy proposals are fine to advance in a naive fashion, but to be taken seriously by policy makers they have to fit into an overall rationale that data makes credible.

    It seems to me that a lot of confusion stems from the terms MMT, that is Modern Monetary Theory. The MMT economists understand this to signify a macro theory that is unique in handling production, employment and prices. Many on the blogs take MMT to be a theory of modern money, that is, the description that MMT provides about the monetary system. This results in the use of the same label for different although related concepts. I would say that the way to avoid this confusion is to separate the names so that the names fit the different forms.

  237. I don’t think that this is quite the case, Cullen. As a macro theory, the buffer stock of employed is essential to MMT. But as a theory of modern money based on historical analysis, an understanding of the existing monetary system generally and specifically, and a description of monetary operations in terms of accounting principles, also make unique contributions. As long as the distinction is kept straight, I don’t see any problems arising. But I think it does require making this distinction clearly.

    I agree that the distinction has not been completely clear in the minds of many people, and perhaps this is a consequence of blogging. The MMT academic economists present MMT more as a comprehensive macro theory, whereas Warren as a financial type places more emphasis on the aspect of monetary economics in his blogging, and “Soft Currency Economics” and 7DIF emphasize monetary economics wrt policy making instead of presenting MMT as a macro theory addressing the academic debate over harmonizing output, employment and prices. However, from the beginning the thrust of MMT has been on both monetary economics and macro, which includes the JG, as Randy’s Understanding Modern Money (1998) makes clear.

    While there is no daylight between any of the developers, Warren, Randy and Bill, their differences of focus could lead people to emphasize one aspect of MMT over others. I think that this has happened, especially since people chiefly interested in monetary economics as it applies to markets have gotten involved.

    I don’t see that as a problem as long as one isn’t proposing that MMT works as macro theory in the absence of a buffer stock of employed with out presenting a detailed rationale for how that would work, i.e., entering the academic macro debate. Non-academicians are unlikely to want to do there.

    That leaves a whole lot of space to use the MMT version of monetary economics without having to deal with the macro issues that the JG addresses.

    Just don’t say that the JG is peripheral to MMT without qualifying it in this regard, or else call what you are doing something else and credit the MMT’ers for their contributions to what you use from their work.

  238. I’m just pointing out that one can use the state theory of money without the JG and/or working the employed buffer stock position. Its still largely predicated modern state money theory, but clearly isn’t MMT.

  239. And that MMT wishes the political component might become more neutral in the future (i.e. generally accepted) doesn’t make it any less extreme today.
    BillM often qualifies this with a long-term approach – eg:

    But when it comes to defining a paradigm (school of thought, whatever expression you like to use to describe a body of theory) the way in which it builds theoretical structures to explain these aggregates, their interrelationships and their resolution forms an essential aspect of that approach.

    Whether the defining elements are politically palatable, attainable, or culturally pleasing is irrelevant in theoretical terms. Ideas are not intrinsically popular – which is where the political domain operates. To be elected you have to be popular. Ideas are also not intrinsically time-bound. Some ideas are developed before anyone will accept them as knowledge (in the sense that the theoretical notions are not inconsistent with reality).

  240. There are reasons why govt labor programs are not popular. The reasons are not solely political, but based on substantial historical evidence…..The JG has no “Copernican moment” element to it as other elements of modern state money theory do….

  241. > “The problem in my view lies in the nature of the forced juxtaposition of a sort of promotional analytical neutrality together with an ambitious, politically extreme policy agenda. Such a combination of neutrality and extremeness is inherently fragile, and at risk in my view, as a consolidated idea. It doesn’t fit. And that MMT wishes the political component might become more neutral in the future (i.e. generally accepted) doesn’t make it any less extreme today. And by no means does MMT’s desire to see it become neutral in the future guarantee that it ever will be neutral. And this is all considerable risk to what is currently known as MMT.”

    I sort of agree that there may need to be a clearer distinction between MMT as in operational factualities and MMT as in economic theory.

    (Disagree that there is some misfit there though, The bufferstock ideas are tightly connected to the theory of the monetary system.)

    But you just used the words “extreme” three times for proponents of full employment? That is politically “extreme”?

    Are you using the word “extreme” as in “sensible but slightly before their time”? Or is there a negative connotation in there?

    I still fail to understand how proponents of mass unemployment are “neutral”, and proponents of full employment are “extreme”. Is that how you mean it?

    Disturbing if so. I would probably use the words the other way around.

    Or how is MMT “extreme” really?

  242. I think, as I said above, Cullen has somewhat hijacked the term MMT. I’m certain it was not on purpose or done maliciously. He’s such a great resource and advocate here at pragcap. It is this website more than any on the internet that has kept me interested in MMT. Specifically, his participation in the discussions is so unique and I think that’s what keeps people active here Nevertheless, for a newbie like myself, it seems as if the JG is an INTEGRAL part of what “is” Modern Monetary THEORY.

    Has the ship already sailed already? Is “MMT” as an acronym so ingrained that we can’t have a new name for what connects us all here… what connects us all being the recognition that mainstream economics has failed to understand the operational realities of our monetary system?

    There must be a way to have an umbrella-like term for the camps that agree on the operational realities of our monetary system, but disagree on the prescriptive aspects for public policy. Can we not collectively use our “semantic sovereignty” here to come up with such a phrase?

    This information is so important… so very important. And the in-fighting in this comments section is beginning to seem unnecessary to me. We need a term that connects the camps that understand the operational realities, MMT, Monetary Sovereignty, etc …under which there can be distinctions for the camps that offer different prescriptive public policy options.

    THINK ABOUT IT: when “MMT” goes mainstream, there is going to be different camps of what we “should” do as per public policy. Maybe this debate, right here right now, is a sign that MMT is on the verge of going mainstream. Carney, Krugman, etc have begun to acknowledge MMT.

    Cullen, no offense, but I think you’re being stubborn in wanting to hold on to MMT. It’s completely understandable. But if/when you decide to let go of “MMT” …when you come to grips with the fact that the “operational realities” alone are not MMT as a whole, then we can progress toward a more clear an accurate picture. The onus seems to be on your to be creative and find a way to make the appropriate distinctions. I wish well. Please keep up the great work you are doing here at pragcap. You are probably a lot more important to the spread of MMT than most people realize.

  243. I realize I am not MMT and it was never my intention to hijack the term. Personally,I look forward to working with the founders and others on the evolution….this is NOT an intellectual battle among Mmters. Its a battle for a better world and I hope to contribute positively. Happy NY to all!

  244. What we have developing is a split between the Modern Monetary Realists and the Modern Monetary Theorists. Both embrace the descriptive reality of modern banking operations and governmental monetary and fiscal operations under MMT, but the Theorists view the JG as essential to their theory of everything macro, and a strain of ideological purity is also present. The Realists see the JG as antithetical to a free market and a government boondoggle. The Theorists are the Vatican and the Realists are the Heretics. The Theorists are academic in their orientation and skew heavily left. The Realists skew right and live in the business world. No wonder this site is so interesting–heresy and orthodoxy make for intense debate.

  245. Cullen,

    Thanks for your kind words.

    “Is it possible …?”

    Thanks. Yes.

    I’ve tended to hang back for privacy reasons in most cases, but I may take you up on that…

    Hey. It’s 2012.

  246. The generic MMT approach seems to be the idea that a proper understanding of monetary operations opens up a bunch of policy options.

    Bill’s own spin on that seems to be that yes, there are a bunch of policy options, but guess what – one of these isn’t an option at all, according to Bill’s MMT. Bill insists on JG as a policy requirement.

    Mosler’s spin seems to be that yes, there are a bunch of policy options, and here are the options he’d like to implement. Here is his specific set of proposals. JG (or its variation) is one element in that set.

    Furthermore, Mosler tends to type the descriptive part of MMT (or at least he used to) as mere or mostly accounting (perhaps a bit of an exaggeration, although understanding the relevant accounting is a big thing in itself).

    Mosler’s horse is the descriptive part of MMT, and his cart is full of his policy proposals. If he’s selling JG, he’s also selling a bunch of other specific wares along with it. It’s a complete package.

    Bill’s horse is the descriptive part of MMT, but his cart holds a gigantic JG proposal. Given its lack of optionality, it may be the biggest thing in the cart, if not the only thing. You must buy this one. And until you do, it’s a heavy cart. The horse is straining under its weight.

    But these are things I don’t first think of when I think of the politicization of MMT. I think more of a near blanket condemnation of capitalism, from what I see going on lately. And I see that as the horse some other MMT notables are riding in on now, at an increasing gallop.

    So right there I see three different approaches to what MMT “is” in essence, at least.

    My impression is that Mosler has the most balanced approach of those three.

  247. “I still fail to understand how proponents of mass unemployment are “neutral”, and proponents of full employment are “extreme”. Is that how you mean it?”

    No. I’d regard those two alternatives as the two extremes, assuming they are sponsored by competing “proponents” as you put it, relative to some middle ground in which some level of unemployment is actually permissible and expected, whether from a JG policy perspective or any other perspective.

    Because maybe I’ve got this wrong, but my assumption is that JG does not permit unemployment as a JG policy expectation. However, if JG expects any unemployment at all as a policy outcome, then I’d like to know what level of unemployment it considers to be a reasonable and moral expectation (by comparison to the JG employment cohort), and why. And I’ll admit I’m just asking that question here, without having looked very hard for the answer to it. But now that it comes up, I’d be interested in the answer.

    I used “neutral” in the sense of a conceivable future and desirable status quo. So to the degree that MMT would like to see JG implemented, and MMT ends up being successful in doing that, MMT will have evolved its position on JG toward one of neutrality in terms of what is generally accepted as being the right status quo for society. I’m not saying that today’s status quo is itself neutral or desirable, and I’m certainly not saying mass unemployment is neutral or desirable.

    Again, my more general point is that of the notion of a sense of balance between JG and the optionality of other MMT proposals, in addition to the balance of that set of considerations against the idea of the “kernel” of MMT being the descriptive understanding of monetary operations. (For example, descriptive balance would include precisely the point that unemployment buffers can serve as points of monopolistic price control just as can employment buffers, so I’m not sure I see that particular technocratic monopolist pricing aspect as being the pivotal driving force of the JG proposal.)

    From there, moral considerations are required. And the moral considerations themselves are by no means straightforward. If JG expects zero unemployment as a policy outcome, that must imply coerced JG employment. If it doesn’t expect zero unemployment, then I’d like to know how it plans the calculus that strikes the policy balance between expected unemployment and expected JG employment. And I’d like to understand that in the context of a massive economy like the U.S.

  248. Agreed, although:

    Permanent ZIRP and no bonds are no doubt easier to implement operationally than JG.

    But all three potentially have very significant policy consequences and challenges.

    Permanent ZIRP exports monetary policy to fiscal policy. That is no trivial burden, if, as and when inflation rears its head at some point in the future.

    “No bonds” does rely on yet untested theories of inflation in such an operational environment. It may well be a benign issue, as predicted by MMT. But the future is never certain. Combine that with potential ZIRP challenges in an inflation environment, and this too may be non-trivial.

  249. Cullen

    “this is NOT an intellectual battle among Mmters. Its a battle for a better world and I hope to contribute positively. Happy NY to all!”

    First off its MMT-ists! Remember!!?

    The rest of your statement is all we can ask of anyone. There IS however that sticky little issue of what “better” looks like……. we cant all agree on that yet. From what Ive seen however, I like what I think is your idea of better which is why I continue to follow your site. You are doing great work IMO.


  250. The fact that govt labor programs are not popular really has nothing to do with the veracity of the claim that some level of “JG type” labor market management is necessary to prevent wide swings in macroeconomic stability. Vaccinations arent popular, dental exams arent popular, but we have learned that if we want to have solid teeth as long as possible or avoid outbreaks of communicable diseases we must do these things.

    I remain persuadable that something other than direct management of the labor pool can add the stability to our macroeconomy that I think WE ALL desire. No one is happy when the economy is underperforming like now. If I am not directly threatened with job loss I still miss certain stores that have closed, have friends that have fallen on hard times and wonder where my newly married son (who is soon to be a new father as well) will be able to find the work he has been hoping to do for five years. I simply cannot get past the idea that some sort of DIRECT labor management will be necessary in order to achieve the stability in the metrics we use.

    Now Cullen has intimated that he wonders if those metrics are even relevant any more. I dont disagree that we might need to learn a new language, so to speak, when talking about our economic performance as a country. Maybe GDP and”employment” are passe. I’m all ears on that topic and while I have no strong feelings about a new direction to go on this I do feel there is some very fertile ground here for pursuit.

    This would be a great topic for a further post Cullen. Not that you dont have enough already

  251. Cullen, perhaps you’re a Postmodern Monetary Theorist, or PMT’er (!).

    I think this debate might be a lot simpler than people think. The idea that MMT as a macro theory must necessarily include a version of the JG is based on the assumption that employment is a more efficient use of resources than unemployment. That is, an economy can attain optimum efficiency (the aim of macro theory) only if genuinely full employment is attained – and that this can only be achieved sustainably, with price stability, through a version of the JG.

    Cullen, you seem to believe that genuine (and sustainable) full employment (with price stability) can be achieved without a version of the JG. In this sense you agree with the assumption that optimum effciency equals full employment, but disagree on how this can be attained. If this is the case then you will have to provide an alternative theory (which would necessarily diverge from the established MMT analysis at least on this one point).

    Some others, clearly interested in the monetary side of MMT but not fans of the JG, might simply disagree with the basic assumption that optimum efficiency equals full employment. From this perspective, it might be argued that a (more or less significant) degree of (necessary) unemployment might be compatible with optimum macro efficiency. In this case the argument simply boils down to what is meant by ‘efficiency’.

    Either way, all can probably validly refer to themselves as MMT’ers or MMT’ists, who simply disagree on certain points, in the same way that some prefer lower taxes over higher spending, etc.

  252. Thanks JKH!

    > (For example, descriptive balance would include precisely the point that unemployment buffers can serve as points of monopolistic price control just as can employment buffers, so I’m not sure I see that particular technocratic monopolist pricing aspect as being the pivotal driving force of the JG proposal.)

    Right.. The JG proposal rests on the bufferstock idea. But the bufferstock idea also allows for a bufferstock of unemployed, or a bufferstock of gold, to serve as a nominal price anchor. So in order to be a proponent of JG, something more is needed.

    There could of course be all sorts of moral and ideological arguments for JG. Something like this comes to mind — “hey, we can achieve full employment pretty much for free — so why leave people in unemployment? Why accept mass unemployment? The costs in terms of human misery are enormous”.

    One could then argue about how costs should be measured, and conclude that unemployment is indeed acceptable and even preferable.

    I think you’re suggesting, however, that such arguments is not core MMT. It is not *monetary* theory, but rather social theory, theory of effects of unemployment etc. If you are, then I would agree.

    I think the main argument from within an MMT framework is that a bufferstock of employed has better inflation fighting effects than a bufferstock of unemployed. It works better as a nominal price anchor.

    Warren wrote: “problem is, in a boom, business doesn’t like to hire the unemployed, so labor shortages and wage hike develop even as unemployment remains high [...] the formal way to say this is the jg is a more liquid buffer stock than unemployment, and therefore a better price anchor in a boom”

    When using a bufferstock for price control, quality matters. Condition and liquidity is key. Tried to lay out this argument in the MMT wiki — Full_Employment_along_with_Price_Stability#Inflation_Fighting_Effect

    At least, I would argue, this is some kind of *monetary* theory resulting in the JG proposal.

    > From there, moral considerations are required. And the moral considerations themselves are by no means straightforward. If JG expects zero unemployment as a policy outcome, that must imply coerced JG employment. If it doesn’t expect zero unemployment, then I’d like to know how it plans the calculus that strikes the policy balance between expected unemployment and expected JG employment. And I’d like to understand that in the context of a massive economy like the U.S.

    Absolutely no coercion. What is talked about is zero involuntary unemployment.

  253. Why this obsession with price stability? There are many studies pointing towards a positive correlation between economic gowth and moderate inflation since the start of the industrial revolution. Capitalism being a dynamic system where everything is subject to disruption why should one special item – the price level- get permanently stuck at close to zero percent yoy?

    The perpetual motion idea inherent in capitalism may prove incompatible with a fixation on controlling the price level.Inflation targetting by central banks since the 80s does not seem to have provided us with a better environment for growth in the developed world – to put it mildly.

    And once we abandon this “price stability at all costs” meme we can just as well drop the whole “holy grail” JG idea. Let governments manage aggregate demand in order to get us near to full employment while at the same time relaxing inflation targetting and allowing for a moderate rate of inflation as a natural condition for a growth oriented society.

  254. I’d go even further. I think the most illuminating takeaway from this superb discussion is questioning the goals of PS & FE. Are we perhaps approaching all of this from the wrong end? As you cite, inflation is going to occur in a capitalist economy using a fiat currency. But if we maximize pvt output and increase stds of living over time then price stability is a secondary concern. Additionally, FE becomes a secondary concern. It goes back to the same analogy I’ve been using. Why are we focusing on the bench players (FE) and problems that aren’t really a problem (PS) if the men on the field are winning the game???

    I am traveling today, but much more to come on this.

  255. Hugo,

    “I think the main argument from within an MMT framework is that a bufferstock of employed has better inflation fighting effects than a bufferstock of unemployed. It works better as a nominal price anchor. Warren wrote: “problem is, in a boom, business doesn’t like to hire the unemployed, so labor shortages and wage hike develop even as unemployment remains high [...] the formal way to say this is the jg is a more liquid buffer stock than unemployment, and therefore a better price anchor in a boom”



    “Absolutely no coercion. What is talked about is zero involuntary unemployment.”

    Zero involuntary unemployment implies non-zero voluntary employment, where voluntary is defined as turning down a JG job or not applying for a JG job.

    And that suggests that the employment buffer stock will actually turn out to be a 2 tiered JG/unemployment buffer stock, where the existing single unemployed tier is replaced by the two tier structure, hopefully with most in the JG tier, but without any guarantee of such an outcome.

    Which begs the question:

    If JG is not coercive, there should be continuing income support for the (“voluntary”) unemployed, just as there is now. So what would be the relationship between the price anchor for JG, and the pricing of the voluntary unemployed?

    I.e. if JG’ers are paid a “living wage”, what are the unemployed paid? It might be a challenge to handle pricing incentives properly for those two groups, although I expect there’s a reasonable answer.

    Then, I note from the Wiki entry (which looks very promising);

    “Public unemployment benefits schemes could be abandoned. A JG wage could be paid to anyone who turned up at a designated JG office even if the office had not organized work for that person yet[3].”

    But that contradicts what I just inferred, because it amounts to effective coercion.

    It says unemployment benefits will be denied to anybody who isn’t willing to work in JG or apply for a job in JG.

    That’s coercive relative to today’s compensated unemployment buffer.

    Turning up but not getting a JG job while still getting paid is very different from not turning up and not getting paid.

  256. P.S.

    e.g. it seems to suggest that a highly skilled worker who in today’s environment may want to search for comparable work while receiving unemployment benefits would be forced to go through JG in order to receive the JG wage instead of zero unemployment insurance – and if he goes through JG, he has to be prepared for a JG job offer possibly at a much lower skill level. He’s in a potentially worse position because the coercive element in the compensation structure forces him to go through the government, and be prepared to accept a JG job offer at a lower skill level, rather than spend the same time in approaching the private sector directly.

  257. Taking a hip shot here — this is beyond my knowledge. Would need the MMT heavy weighters to chime in.

    > It says unemployment benefits will be denied to anybody who isn’t willing to work in JG or apply for a job in JG.

    The Wiki entry (as quoted by you) says that “public unemployment benefits schemes could be abandoned” (with emphasis added by me).

    Not sure what would be appropriate.

    I presume that various kinds of job “transition insurance” (or something?) programs could still be viable — private or public. (“Transition insurance” is arguably one the functions of todays unemployment benefit schemes). Could be pretty well paid for a limited period of time.

    Also, perhaps “job search” could be a possible JG activity, under certain conditions? (I haven’t read that anywhere though.)

    I’m sure that 300 page CofFEE Job Guarantee Report that Neil Wilson mentioned recently has some good answers though?

    I wish you’d start a blog or something to post some of your comments, questions and criticisms — they sort of drown and disappear among all the other comments when posted in blog comment fields. is a good platform :-)

  258. As Bill Mitchell has pointed out the whole thrust of economics as a discipline is efficiency and effectiveness. Peter F. Drucker has extended this to management as whole. In the The Effective Executive, Drucker says in essence that efficiency is dong things right and effectiveness is doing the right thing. Doing the right thing presumes goals, and objectives for reaching these goals. Doing things right means getting the most from the resources available, i.e., achieving optimal performance.

    Now one can pass all this off as somehow outdated and obsolete, but then one has to come up with a whole theory of management to challenge Drucker and a whole new concept of economics as a discipline to alter the present thrust.

    Presuming that one doesn’t want to pick up this challenge, then one has to enter the fray in terms of the state of the art as the discipline presently exists with a view toward pushing out the envelope in some way if one wants to make a contribution to the field. The MMT economist are clear on this and they have pushed out the envelope in macroeconomics with a fresh way to look at optimizing the relationship of output, employment, and prices, potentially revolutionizing the field when their ideas are picked up.

    Similarly, Warren Mosler has made contributions to the understanding of financial management and showed that those contributions are actual by realizing above average gain and in some instances extraordinary gain using these principles. Warren has pushed out the envelope in his field, too, making it possible for him to fund the development of MMT as a macro theory in academia in order to broaden the application of this knowledge and fit it for policy.

    There are ways to apply this knowledge gainfully in a variety of ways without attaining the state of the art or pushing out the envelope. It is also possible to push out the envelope in just every field since human knowledge is never complete. ONe should just be clear about what is undertaking to do.

    The point is to understand the ground rules of the game one chooses to play, discover the state of the art, and figure out how to push out the envelope if one wants to be a pioneer, or less learn how to apply existing knowledge and skill in order to operate most gainfully. Managers generally take existing knowledge and apply it without attempting to extend it. But here, as Drucker points out, there are standards to be met that differentiate superior management from ordinary and substandard. Good management practice requires a lot more than knowing the ropes and going through the motions.

    If one wants to enter the game of macroeconomics with a view toward advancing, one should take into account the fact that there are hugely smart and accomplished players already out there on the field. Everything that one says and does will be scrutinized in great detail if it looks like one is making an impact. This is not bean bag.

    Similarly, if one wants to use MMT in financial management, the test is how well one does in the markets. Theory doesn’t go very far here. It may be unfair that people who haven’t a clue do very well somehow or other, and people who talk a convincing game, even MMT-based perhaps, don’t. But there’s a more to financial management than knowledge, as all traders know. This is an area that is as much psychological as knowledge-based. There are all kinds of cognitive-affective biases to avoid. See, for example, Behavioral Finance and Wealth Management by Michael M. Pompian. And even a highly experience person like George Soros says that it’s his gut that tells him what to do in the final analysis. The trick is bringing everything to bear on two points, the buy and sell. So simple and yet so difficult to get right a majority of the time and keep what you get instead of losing it back.

    The buffer stock of employed versus unemployed only becomes important when discussing macro theory and economic policy. There are many uses of knowledge components of MMT other than that. Let’s not get lost out in the weeds where we don’t need to be anyway, at least most of the time.

  259. Well, one huge reason that FE and PS are important is their political significance. Economics policy is concerned with FE and PS because these are high priorities for voters. Voters are aslo concerned with the other of the big three, production, because it relates directly to income and investment.

  260. The incandescent shine of MMT (and post MMT):

    John Cochrane demonstrates once again that he doesn’t know that Say’s Law is false in a fiat currency economy; Brad Delong demonstrates that he almost gets MMT (without realizing it), i.e. that loans create deposits and that government spending creates net private sector saving; and everybody under the sun, these guys and many more, demonstrate that nobody on earth knows how to present a clear example of what Ricardian equivalence means even in theory (as per the blogosphere war on same over the past week or so; quite something if you haven’t been following it).

  261. Experimentation Part 1. Why not just try MMT & JG? … in another country …

    In the same way corporations test market in Minneapolis, why doesn’t MMT economists just convince another country to try. With the current crisis, there can’t be a better time then now; perhaps in S. America or Africa. Seriously; not being sarcastic.

    Experimentation Part 2. Historically, haven’t other countries run extended periods of (peace time) deficits with increasing government programs and public sector, which simulates a JG? Why have they all backtracked?

    I’m thinking Sweden and Canada.

  262. According to Bill MItchell the JG concept has been tried and shown successful in several trials in emerging nations.

    I don’t think that the full-on MMT macro approach has been tested yet, but some aspects have been tested separately, including the JG.

    Mitchell, The best way to eradicate poverty is to create jobs

    Mitchell, Employment guarantees in developing countries

    Fulwiller, Confronting Poverty with Jobs and Job Training: A Northeast Iowa Case Study

    The WPA and CCC also were deployed in the US during the Great Depression to provided jobs and incomes, and at the macro level affected sectoral balance through fiscal policy.

  263. I think that ‘price stability’ is generally defined as low, steady inflation, rather than zero inflation (I sure any ‘Austrians’ will hate such a definition, but there you go). Price volatility is considered to be bad because it arbitrarily rewards or punishes different segments of society whilst sending out further erratic signals to the markets, leading to a negative feedback loop.

    The MMT concept of the JG is considered to engender greater price stabilty for three basic reasons (as far as I can tell):

    1. The basic guaranteed income serves to offset losses in aggregate/effective demand during a downturn (i.e. it is an ‘automatic stabiliser’ which comes into effect without the need for additional discretionary government spending).

    2.The guaranteed income makes it easier to shift people out of non-JG employment when the economy overheats, without sending the economy into a tailspin.

    3. The preservation of skills and habits associated with continuous employment makes the movement from JG to non-JG employment easier (less frictional), whereas an unemployed buffer stock can potentially become terminally unemployed and unemployable. Therefore, the balancing mechanism of an employed buffer stock is more flexible and fluid than an unemployed buffer stock, meaning that the market can respond more rapidly to changing situations – and thus that prices can easily stabilise without having to go through periods of high volatility.

    The alternatives to a JG buffer stock (in the absence of an alternative PS/FE non-JG theory) are: a) a buffer stock of unemployed (who receive a basic income but remain ‘idle’), or b) a buffer stock that receive no income and have to fend for themselves/seek charitable support/starve.

    The main problem with (a) is that the potential labour of the unemployed is wasted, whilst their skills and habits deteriorate, and that movement between unemployment and employment becomes more problematic. The main problems with (b) are that aggregate demand and prices fluctuate wildly, whilst individuals’ lives and productive capacity are potentially destroyed.

    Now, it may be argued that if all the other MMT prescriptions were implemented, then the level of unemployment would shrink significally. On top of this, further supply-side reforms could be introduced to maximise employment. However in his blog Bill Mitchell argues that supply-side reforms have done little to increase employment over the years that they have been tried, and that in any case the choice will always be between an employed buffer stock or an unemployed buffer stock, regardless. The only way to create genuinely full employment, he argues, is therefore to implement a version of the JG.

    Alternatively, the only other rational choice is to subsidise an inevitable degree of unemployment with a basic income. This could be linked with stringent demands so as to ensure that people do not become complacent and lazy.

    I agree with your view, Cullen, that self-reliance and an independence of spirit are what make individuals, countries and economies prosper in the long run. However, the current (dominant) non-MMT macro view is that a portion of the population will always have to be unemployed, so as to hold accelerating-inflation at bay. This view holds that increased employment beyond a supposed ‘natural’ rate will not only create increased inflation, but accelerating inflation which quickly becomes difficult to control. As such the dominant policy within OECD countries is to maintain a rate of unemployment roughly at this natural rate, if possible. Bill Mitchell’s riposte to this is that a) unemployment is in and of itself hugely wasteful and damaging, b) the ‘natural’ rate of unemployment is impossible to calculate with any degree of accuracy, and c) an unemployed buffer stock created with reference to this supposed ‘natural’ rate actually leads to greater price volatility in both the short and long term than an employed buffer stock alternative would.

    I’m sure there are many counter-arguments to this view, which I look forward to reading. (I may have misrepresented Bill’s views too, if so I apologise) .

  264. BTW, it’s not because the full-on MMT macro solution with JG hasn’t been pitched to emerging nations. It has. Bill reports that countries are reluctant to go out on a limb though because neoliberalism is endemic globally and well-entrenched among TPTB just about everywhere. It is going to take some softening up, like trying a limited JG in the boondocks, which is what S. Africa did, IIRC.

  265. Good summary, Phil. I think you hit the high points. I woud just add that the MMT economists are not concerned with moderate inflation. They claim that it has never resulted in any real problems, especially in comparison with the waste created by a policy of idling resources to contain inflation to some unobservable natural rate.

    A big issue MMT economists have with neoliberals is over unobservable like natural rates and inflationary expectations. Mighty thin data on which to base economic policy that affects the lives of millions and even billions of people, condemning many to lives of poverty and keeping economies in a state of chronic underperformance wrt to potential given the resources available. This is at the heart of their criticism of the IGBC, too.

  266. Having followed this discussion through its entirety and reviewed the 2 latest Billyblog posts that seem to lie close to its core, I feel that the areas of dispute can be resolved simply by maintaining the distinction between academic theory and real world policy.

    I hear Mitchell saying that given the MMT account of a true fiat monetary system, maintaining a ‘buffer stock of employment’ through direct government action can theoretically enable full employment and price stability, which have always been defined as core objectives, and validity criteria, for a ‘macro-theory’.

    I don’t hear Cullen and others objecting to that theoretical assertion. I hear them saying that implementing such a government-maintained buffer stock through a flat public jobs guarantee in the US socio-political-economic system as it currently exists would be problematic for a variety of reasons. (This is not just a matter of political ‘bias’ – by conventional standards, I would place on the far left fringe here, but I agree with this judgment.)

    Tom Hickey has expressed the academic view on this. However, given that for the most part, controlled experiments are not possible in economics and related fields, the only way that theory can be tested is by implementing policies designed to produce effects tightly linked to the theory, and then evaluate over time, whether these implemented policies have a) measurably produced the intended effects, and b) resulted in (or at least coincided with) the desired results – such as an unemployment rate low enough to be considered ‘voluntary/transitional’ along with price stability. (Tom mentioned real JG implementation in developing countries; I would want to know the duration and stability of these ‘tests’ and still would not consider this ‘proof’ that the policy would be transferable to the developed and uniquely complex US situation.)

    I do think that it may (soon?) be politically, socially, fiscally feasible to create an effective ‘buffer’ controlled by direct government spending large enough to do most or all of what the theory would require. (To use the ‘sink’ analogy, a syringe buffer would not need the capacity of the entire sink, but only enough to accommodate the fluctuations due to actual variations in in- and out-flow.)

    However, to design such a ‘syringe’ one would also need to examine the reality of the types of jobs that occupy the ‘buffer zone’. I am frustrated because I sense assumptions about this not based on such an examination. In particular, the suggestion that there is not much demand for what I prefer to call ‘hands on’ work (I have a lifetime of acquired skills but may no longer have the physical stamina and reflexes required for some of this work) and that such jobs would necessarily be in the vicinity of ‘make work’, or that well-designed short-term training could not have a huge effect (again, look at what the US military does).

    Yes, some of these jobs occupy a flexible/discretionary position (we can clean our own houses, mow our own lawns, or do without a manicured estate; and raise our own children; in response to changes in our own employability).

    Others are much more inelastic (but one of the reasons they are ‘under the radar screen’ of awareness is that many have been performed for less than minimum wage by ‘illegal’ workers: building our houses and roads; cleaning our workplaces after we leave; harvesting the food on our tables. The addiction here is on a par to that to all the ‘Made in ___’ consumer goods.)

    Looking at the reality here might reveal sector(s) suitable for direct government control and sizable enough to do the trick.

    But all of this is in the realm of real-world praxis – not academic theory. (Sorry for running so long – I tried to be brief. And Happy New Year).

  267. Colin, MMT economists have considered the types of job that would characterize an ELR program like the MMT JG to create a buffer stock of employed. First, consider that this is part and parcel of an MMT macro policy recommendation that relies chiefly on countercyclical fiscal policy since the government fiscal balance is used to offset fluctuations in the non-government balance, which is affected by demand leakage to saving. MMT economists point out that even with well-managed fiscal policy there would likely be a residual of unemployment at the bottom of the hiring scale as people with some skill get underemployed, but the low skill workers get laid off with no other possibility for employment. Thus the government ELR program is designed to hire off the bottom at a floor wage that establishes a price anchor. Since the workers are expected to be low-skilled, the work would be on that level and there is plenty of that which can be done locally and administered locally in communities. The basic idea is to keep people out of poverty and also give them something useful to do until the economy picks up and they get another hire on. But there is still an underclass in many countries, including the US, in which generational poverty is a problem. This kind of program could be targeted to them to give them training in some basic skills and an opportunity to get into the system. For example, organizations like Hospice could be used to train people for home health care at the floor wage. With the growing number of elderly expected as the boomers age, there will be a growing private market in home health care services over the next decade or two.

  268. Rodger Malcolm Mitchell is also critical of the MMT-proposed Job Guarantee (a.k.a. Employer of Last Resort – ELR): (

    His suggestions are much more in line with where Cullen seems to stand on the issue. Specifically, RMM says the following should be done immediately:

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

    “So my recommendation is to begin #1-#9 today, and if/when inflation starts to occur, institute the first inflation-fighting program the Fed always uses: Raise interest rates. If that doesn’t do enough, begin to cut deficit spending.

    By balancing interest rates and deficit spending, we can hold inflation at any level we choose, while accruing the benefits of increased money creation.” – RMM

    Any thoughts?

  269. Interesting ideas for increasing the government fiscal balance to offset the non-government balance to set in motion a return toward output potential and full employment but not a macro solution to output, employment and prices. In MMT terms it is a partial solution in the sense that the amount of the deficit required to offset the non-government surplus has to be figured first and then ways devised to allocate those funds so as to best manage the various parts of the economy that need stimulating. It includes a one time grant similar to a negative income tax instead of a JG that works out to around $100 a week. That’s barely subsistence for those unemployed with no income. Pretty much equal to a JG offering $2.50 p/hr for a 40 hr work week, plus medical and education. Considering that the JG is both a mop up operation for hiring off the bottom and also establishes a price anchor by setting a floor price for unskilled labor that is unwanted by the private sector, I’m not sure that this fills the entire bill.

    However, those are all programs that I think should be made permanent anyway, and something could be included under the purview of #9 that addresses the issues at the bottom that aren’t being dealt with at all satisfactorily in that they have become chronic and indeed poisonous.

  270. Tom,

    I think you’re too quick to eat the academic cooking here. You and other academic economists obsess over the UE and PS. But what if those are the wrong metrics by which we measure prosperity? I notice that Bill cited the Reserve Bank Board’s 3 pronged approach. The last involving “the economic welfare and prosperity of the people of Australia”. That’s a very vague definition. What if we can be more precise about that? And more importantly, what if the PS and UE targets are secondary to a larger goal of full production? What if everything the academics have been filling in their models with is flat out wrong? What then? Then the MMT obsession with the JG and PS are seen in a totally different perspective….

  271. Those NINE things sound great, and I would vociferously lobby for all of them in lieu of a JG…. but if you think the JG is politically untenable try getting all NINE of those things passed.

    Thing is those nine things must be done together to be effective. If you simply do the tax cut parts and dont do the healthcare and education parts your pretty much where we are today. The cost of living /surviving must decrease for the average American.

  272. We are nowhere near seeing any of them made into law. Can you imagine? Eliminate FICA? Then how will we fund Social Security? Medicare for all? Yea right. We couldn’t even get a public option. Send everyone a $5,000 check? HA! And so on…

    #1 priority has to be getting the “core” of MMT into mainstream discussion… the descriptive part. All of the prescriptive proposals have no chance until the descriptive part, at the very least, enters mainstream discussion.

  273. Thanks Tom.

    Contrary to Bill’s comment on the problems with developing nations implementing MMT, and thus as a MMT laboratory, with the increasing polarization of incomes and jobs in the US (low paid local jobs; high paying international jobs), it may more closely mirror the US economy in 20-30 years.

    Perhaps we could try on a small developed-world nation (Iceland, Greece (;-}), Croatia, Albania). With all the money spent on “geo-political” strategy, as well as economic intervention (via IMF), it seems like the world could afford to backstop an experiment and guarantee a “reversal” if things don’t work out perfectly. (MMT is not so radical that it would be a huge leap. It’ll still be cheaper than the blowback from Iraq etc.)

  274. “All of the prescriptive proposals have no chance until the descriptive part, at the very least, enters mainstream discussion.”

    That’s an interesting way of putting it.

    I’d say something similar, although not exactly the same:

    To the degree that MMT confuses its policy prescriptions with its monetary system descriptions, it runs the risk of diluting the power of those descriptions as an original force.

    (Notice I said “to the degree”)

    If the separation is clear, then the way in which MMT policy is using MMT description becomes clear.

    Moreover, the debate over policies that are possible based on MMT description becomes clear.

    Some of those policies may be the ones proposed by MMT. Some may not.

    The problem with the MMT descriptive-policy nexus right now, as I see it, is that it tends to obscure the full variety of options that might flow from the descriptive MMT contribution to economic thinking.

    MMT has already chosen its preferred options, pretty much. So any others are non-MMT by definition.

    If MMT considers it mandatory that the JG be a non-optional part of MMT, then I think post-MMT may be in the cards. This development might use the descriptive strength of MMT, but it also might transform that description into a successor model. After all, MMT doesn’t have a monopoly on accounting, which is the basis for the MMT descriptive component.

  275. Are governments successful in setting a price anchor for labour?

    Based on many friends experience in private education and the cleaning business ..
    – high paid public school teachers and professors do not set a benchmark for private education (which has much lower salary and benefits)
    – public unionization in lower paid sectors (cleaning, clerks etc.) significantly increases those salaries/benefits, while not “dragging up” the salaries in the private sector

    Of course, one could say that the public sector hasn’t targeted all (e.g. cleaner) jobs, i.e. it has only targeted a rationed quantity, but this seems to be a circular argument … how can you be a price anchor without essentially being willing to take all the quantity?

    Let’s continue. So the government decides to take all quantity and employ all private sector cleaners at the same rate, and force the private companies to pay. Costs go up. Now, supplied constrained google employees, say their relative costs have increased and they want a raise …

    Maybe I’m missing something …

  276. Good idea. Rather than setting labor price anchors, we need lifestyle anchors: everyone should live within 20 km of a beach, have shrimp on the barbie Friday-Sunday, and at least 15 hours/wk of beach/water sport time. Funny accent optional.

  277. One thing I haven’t heard or read from the founders of MMT is how/why they think full employment wouldn’t put constant upward pressure on wages. If persistant unemployment puts downward pressure on wages, why wouldn’t persistant full employment put upward pressure on them? (or is this just some of my neoclassical economics that I have yet to abandon?). I imagine some of them have discussed this in academic articles but I haven’t come accross it.

  278. “All of the prescriptive proposals have no chance until the descriptive part, at the very least, enters mainstream discussion.”

    JKH, all that I meant to say, in a nutshell, is that so long as the majority of people in the United States think we’re going broke and can’t afford this or that, the prescriptive policy proposals will constantly hit the brick wall of “we can’t afford it” …and that’s being generous in supposing the proposals even penetrate to the point of consideration. Many of the proposals coming from MMT and its relatives must sound like outright lunacy to someone who is thoroughly brainwashed with neoclassical economics.

    Hopefully everyone that has a firm understanding of the descriptive aspects of our monetary system are staying on Krugman, Carney, etc . It seems they are the most likely megaphones at this point. Mike Norman gets occasional face time on Fox News, too. But good luck with that crowd.

  279. Cullen, I am not an academic economist but an ex-trader who backed into this whole thinking trying to figure out the GFC since it was clear that no one in the mainstream media had clue. Serendipitously, I discovered MMT through a blog post of Ramanan somewhere. Initially, I passed it off as kooky, but I don’t mind kooky and he gave some references that I followed up on and eventually read Randy’s Understanding Modern Money. Then I wandered by Warren and Bill’s and got excited that finally here was not only an explanation but also a way to distributed prosperity and the material basis for ideal society.

    I have a terminal degree (pun intended) in philosophy, so my interest in economics is far wider than academic economics or any particular view of economics. For me, economics is about providing the material life-support system for a society, and it is the quality of the society that counts.

    As Peter F. Drucker said, doing things right is efficiency and doing the right thing is effectiveness. What is “right” for a society is a principally a philosophical question rather than chiefly an economic one. In my view, the economic approach is far too limited, on one hand, and bonkers, on the other. So I am totally open to redefining what “effectiveness” means wrt macroeconomics.

    I’ve just been presenting my views on what I have understood about MMT and heard from the MMT economists. In fact, one of my personal criticisms of MMT is that it fits itself into the prevailing academic universe of discourse whereas I would be a lot bolder about using the understanding MMT provides in creating ideal society.

    I think we have to begin philosophically by clarifying what “effectiveness” means wrt to society in general and specifically wrt with the fast emerging global society. This is the project of the 21st century in my view, so I am totally aboard with revisiting the whole project of economics as it fits into what Plato called “the good life” and living it with others. This has been a debate that has been abandoned of late, even though it began millennia ago in both East and West. According to the Vedic literature, “The world is my family” (Sanskrit Vasudhaiva kutumbakam, quoted in Mohandas K. Gandhi, “Young India,” March 21, 1929 ).

    So let’s have at it.

  280. Thanks, Tom. I think programs targeted to populations and tasks such as you describe, and presented not as a monolithic blanket ‘job guarantee’ but as designed to provide short-term training and employment to those who want but cannot find a job, to perform needed work, could establish an effective buffer. (They would also not replace short-term unemployment benefits.)

    A CCC-type component operating on the national/state level could provide eg: natural disaster prevention/preparation/relief (AneriCorps already inatituted a small, in my experience, effective, version of this, appealing mainly to younger people).

    However, programs working with local government and social service agencies, businesses and individuals would be most effective in moving people beyond marginal employability and meeting local needs. Under careful controls, providing needed services at less than cost through and to such entities could also eliminate the ‘leakage’ to substandard/sub-living wage employment practices.

  281. Tom, it was not my intention to insult your intelligence. Let me be very clear about that. I have a huge amount of respect for your understanding here. Perhaps I should have phrased that comment better. What do you think of targeting full production as opposed to FE and PS? This can, in my opinion, be completely in-line with the goals of FE and PS while also focusing on maximizing efficiency and output. It’s also in-line with functional finance and the ideals of MMT. My concern though, is that the current thinking has led people to conclude that we just need to fix PS and FE and then we’ll all be better off. But what if these are the wrong metrics to target?

  282. Must be MMT rutting season …. there’s a lot of snorting, rolling in the dust, displays and marking of territory going on here! Great entertainment ….!

    The ‘old bulls’ of MMt haven’t had a significant challenge to their theory since its inception; there’s been quite a few young guns circling for some time now. But what we need are facts.

    There will be a lot of very sharp minds watching Cullen, as you lay down your contribution – to prove “PS and UE targets are secondary to a larger goal of full production?”

    For me the context is as TomH mentioned: “economics is about providing the material life-support system for a society, and it is the quality of the society that counts.”

    Also think the descriptive and prescriptive aspects of MMT should be separated only for purposes of analysis: much like discussing the peripheral and central nervous systems that function in one body.

  283. I think this is a problem. We are not fighting over something like females in heat. We are simply discussing ideas. Anyone who thinks MMT has all the answers to the world’s problems is wrong. And unfortunately, the idea of the JG being central to MMT implies that the answer to economic prosperity is as easy as JG + more govt spending. I wish the world were so black and white.

    All I am doing here is expressing my opinion with regards to the potential that the JG is not the optimal approach. I see from Warren’s comments that he’s much more in-line with me than Randy’s story implied. I am not sure why some of the MMTers are trying to establish battlegrounds here. We are not fighting over ideas. We are establishing them so the world can become a better place. This isn’t personal. It’s about society. We shouldn’t forget that. The interjection of egos (“he clearly didn’t read any of MY work”) here is really poisonous to the goals of MMT.

  284. Sorry Cullen – not meaning to be disrespectful: just my ‘sense of humour’ at work there. If you do enjoy success with your ideas, I think it is fair to say that you will meet with personal sacrifice and even more responsibility; defending the integrity of your contribution. The original theorist have courageously carried MMT for a long time and people appreciate their efforts. In that I too, wish you well!

  285. Cullen, that’s a question to put to a macroeconomist. The big three of macro, both as theory and policy instrument, are GDP, FP, and PS. These are debated in great detail over the history of economics, often hotly. This is the debate that the MMT economists have joined after reaching the state of the art in their field through their grad studies. I assume that they must have considered this already in preparing their professional publications. I suggest contacting one or more of them and inquiring about it. I would be surprised if they have not thought about this deeply and discussed it together.

  286. I’m with you, beawulf. I’d actually go one step further and consolidate the payroll tax into the existing FICA structure (including removing its income level cutoff), as the payroll tax was formed on the basis of Greenspan’s regressive policy prescriptions in the first place. Do away with it, and THEN implement automatic counter-cyclical adjustments in income taxes across the board.

  287. Cullen, how would a government go about targeting full production, ie full capacity? The reason MMT likes the JG is that it DRASTICALLY reduces any uncertainty in the economy with regard to investment and production plans for corporations and businesses, partly because everyone will always have more money available if they always have a job available to them. In terms of prescriptive remedies MMT surely could come up with other ideas using its descriptive powers. If you have some other idea for how to ensure full capacity, put it out there.

  288. I do. In development. I think it’s innovative, but I’ve learned my lesson about unleashing ideas on the world without them being largely developed so it will have to wait a lot longer I am afraid….

  289. If Eugene V. Debs suddenly came back to life today, he would think that the Socialists must have won a few national elections because so much of their turn of the 20th century reform platform had been enacted. Social Security, Medicare, Medicaid, UE, subsidized housing, thousands of state programs etc. The JG is a bridge too far today, but another decade or two of economic rot and bankster thuggery financed by the Fed might produce a more receptive public. That way lies stagnation and decline, but unless we rein in the banks and the Fed, that is what we are going to get.

  290. On the contrary, I think we repair numerous bridges in this country. Regularly. The fact that one bridge was not repaired doesn’t condemn America or its hard-fought national identity. Cullen’s “flag waving” isn’t blind patriotism worthy of disgust, rather, it’s a quantitative observation as to the economic characteristics of this particular nation over an established time period with numerous comparable examples provided by the other nations of the world for cross-reference and comparison. Why all the ad hominem?

  291. Because unemployment in 2008 started out at 5%. In 2009 it reached 10%. Because these people turned “unproductive” all at once, right? And are deserving of being portrayed as negative ROIs on society and pot-smoking-basement-dwellers? I am tired of being told all we need to do is “create the right environment” to “unleash the potential of the private sector”. I can’t even say that without laughing these days. And I am tired of all the supply-side propaganda. Cut taxes for “job creators”, zero out taxes for big business, eliminate unions…to create “confidence and certainty” for businesses as they move their operations to China where there is ZERO of either (which just goes to show you how “afraid” they are)…and now, I am being told, just be more “productive”. Do I really look this dumb?

    Trickle-down didn’t work and neither did deregulation. The wealthy are doing better than ever with income disparity at levels not seen since 1929 during a period where unemployment has doubled. The GFC caused millions of people to lose their jobs and homes through no fault of their own, other than the fact the rich got richer and the average household went heavily into debt because their wages have either stagnated or declined over the last few decades. So yeah, I’m just a little more than pissed. Frankly, you should be too.

  292. You are, until you define what it means to be “productive” in our society. And why 30 million unemployed is nothing you can bother yourself with while you “explore” ideas. Otherwise, to me, it’s more of the same: “Stick your finger in the fan, it won’t hurt, just trust me on this”.

  293. Maybe I am misreading the MMT founders about demand for currency. I’ve always thought taxes drove the initial demand for a script and then became part of an array of different factors of demand for the script.

  294. Oh please. I am here proposing another trillion dollar in govt spending for the last 2 years directed at households and you’re complaining about my response? Some people just can’t be satisfied I guess. Maybe it would be better if I said that I am proposing permanent income guarantees for everyone for life, with a Ferrari guarantee and a pony to go with it. Better?

  295. Warren has told me that taxes are the equivalent of holding a gun to a man’s head. Ie, we have no choice but to use the currency. I don’t really agree there. I think if the people decide to say “fuck this currency” then that’s it. Game over. Govt guns don’t matter at all unless you have productivity. So, in a strict sense, productivity leads the tax regime because it makes taxes possible in the first place….You don’t create a fiat currency without productivity so the natural progression of things is for productivity to supercede taxes. After all, monkeys don’t use fiat, but they use debt. And if they started using fiat they’d have to then create a tax. But that doesn’t mean they weren’t already productive and using “money”….

  296. A big difference between Austrians and MMT’ers is that MMT’ers see all capital as being equal. Austrians look at history and see that all capital is not equal. Both Austrian and MMT’ers can agree that there are issuers of capital, such as individuals, equity funds, banks and governments. Then there are users of capital such as entrepreneurs, businesses and corporations. Inevitably the users of capital need to pay back the issuers of capital in the form of principal or taxes plus some profit in the form of intrest or more tax receipts. However, in a well functioning economic system that provides for full employment and a rising standard of living, there needs to be both efficient issuers of capital and efficient users of capital. In other words, for the issuer of capital to be repaid, requires that the issuer of capital make prudent choices as to whom capital is issued to. It also requires that the user of capital make efficient use of capital so that it can be repaid. The problem with the government being the primary issuer of capital is that governments are not very efficient operations and are certainly not very efficient at allocating capital. Governments tend to allocate capital based on political expediency and so you get a lot of capital flowing into ventures that amount to little more than digging holes and filling them back in; and bridges to nowhere. These ventures then have little economic value, do not result in increased economic activity; and thus the capital is not paid back in the form of taxe receipts. The result is a political economic system characterized by high debt, inflation and chronic unemployment.