THE POLITICS OF MONETARY REALISM

There have been some interesting discussions over at Heteconomist (an excellent MMT blog which I highly recommend reading) regarding the politics of MMT.  Peter, the blog’s author, has argued that MMT has two components – a descriptive component and a prescriptive component and that the descriptive component (the real core of MMT) is apolitical and not to be confused with the more political prescriptive component.  I very much agree here.   But some readers have highlighted the fact that the MMT “leaders” are often seen as having liberal prescriptions which gives the work a heavy liberal bias.

I wouldn’t refer to myself as one of the “leaders” of MMT, but I think it’s safe to say that I’ve played a relatively important role in helping to spread the word thru my big megaphone at Pragcap, Business Insider and Seeking Alpha.  One of the things I am most proud of at Pragcap is that I eliminate politics from most of the discussions and instead try to focus on real facts and good economics (yes, you can separate the two if you try hard enough).  And I think that one of the reasons why I’ve been fairly successful in teaching and spreading the MMT message is because I have attempted to eliminate the politics of MMT.  The readers here are enormously diverse.  Many conservatives and many liberals.

When I first confronted MMT I found it excessively liberal. It’s not unusual for a new reader of MMT to (incorrectly) describe it as “Keynes on steroids” or “socialist”.  This is because the founders place enormous emphasis on the prescriptive aspects of MMT. If you read Bill Mitchell’s work for instance, it’s hard to go more than a few paragraphs without getting redirected to the full employment program. But as Peter noted, this is very much a prescriptive aspect and not a descriptive aspect.  This is why I formed Modern Monetary Realism as an offshoot of MMT.  To try to reduce the focus on politics and create a truly apolitical perspective.

I am generally a fiscal conservative. I’m also generally a social liberal.  So I guess you can call me a centrist.  But these definitions are largely useless because, the devil is in the details.  The world, to me, is not as black and white as most people will have you believe so I find it useless to tow some party line just because some old rich white guy defined “conservatism” as this or that 100 years ago.  I very much approach each aspect of policy as its own independent variable in a very complex equation.  If you apply the same conclusion to each variable then you inevitably end up with a lot of wrong answers.  In other words, there’s a lot of gray area in politics despite our efforts to break it down into two easily distinguishable boxes.

When it comes to MMT  the difficult component for fiscal conservatives to overcome is the idea of the necessity of the currency issuer.  I’m not generally a fan of government allocating funds on behalf of the private sector. So, I haven’t adopted some of the more intense MMT policy prescriptions (such as the Job’s Guarantee, though there are elements I find attractive such as replacing unemployment benefits with real work and implementing a buffer JG program). But the kicker with MMT is that once you realize how the system works you realize that the whole idea of Crusoe island is a fairy tale. Separating a fiat currency, which is merely a social construct (as all money is) from its government is like trying to separate white from rice.  Once you understand this core component, your conclusions about policy and the way you think about our monetary system are forever changed and in my opinion, more likely to veer towards a centrist policy perspective.

The emphasis here is on the two parts of Modern Monetary Realism.  The descriptive aspect is merely an accurate portrayal of a modern sovereign fiat currency issuing nation.  In my opinion, arguing that this is “wrong” is like arguing that 1+1 does not = 2.  The prescriptive aspect, however, is entirely up for debate.  How we utilize our understanding of the descriptive aspects is entirely up to the body of voters.  This is not the say that the MMT “leaders” are wrong or that their policy prescriptions are incorrect, but I think they would all agree that policy, unlike MMT’s operational aspects, are largely up for debate.  Copernicus may have discovered that the Earth revolves around the Sun, but that doesn’t mean Copernicus was capable of building the space shuttle that would eventually put a man in space.  Not a perfect analogy, but the “leaders” of MMT have created a Copernican moment in the world of economics.  MMT forever changes the way we think about the monetary system.   But that doesn’t mean its leaders have found the holy grail of economic prosperity.

As ingenius as the core MMT descriptive aspect is, the application of this understanding is still far from perfect.  Like any economic model, it relies on its irrational and fallible users.  The “perfect monetary system” is an oxymoron.  The pursuit of consistent full employment and price stability is perhaps, as much a myth as Crusoe Island.  But one thing is for certain – without understanding the descriptive aspects of our monetary system (the core of MMT) there is no chance in the world we will even come close to achieving the prosperity that the MMT “leaders” envision.  And that’s the greatest strength in MMT.  If we can eliminate politics in trying to better understand how our monetary system works, only then can we begin to agree on how to work towards greater prosperity.  That’s where Modern Monetary Realism comes in.

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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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  • krb

    Excellent post Cullen! Thanks, krb

  • VII

    “And I think that one of the reasons why I’ve been fairly successful in teaching and spreading the MMT message is because I have attempted to eliminate the politics of MMT”

    CR- For me..that is exaclty why I felt comfortable with your site. I appreciate the respect you’ve given to MY personal views to help me understand MMT.

    Yep that sentence you wrote nails it for me.

  • LVG

    I personally find your flavor of MMT much more appealing. The job guarantee program is an excuse to jam government spending down people’s throats. I think the component missing in say, Warren’s work is that he thinks the state creates the value of the currency whereas your primer makes it clear that the value of the currency is dependent on three variables – taxes/regulation, currency management and productivity. Without productivity no currency is worth anything. So it’s clear that taxation doesn’t generate currency value. After all, you can’t tax that which isn’t productive. This is your greatest contribution to MMT and I think the founders would be wise to adopt it. If not, they will never garner mainstream acceptance since real work and productivity is how most conservatives relate to the economy.

  • Ben Wolf

    The political agnosticism is what initially appealed to me, because from cradle to grave we’re taught that one’s view of economics is based on one’s politics. If you’re liberal you adopt Keynes which supports active government, while conservatives embrace neo-liberal or austrian thinking because of its anti-government rhetoric.

    That there could be a school of economics where the facts are true regardless of political bias was really wild to me.

  • VII

    CR- and..your last two paragraphs were written as only a true “leader” could write.

    especially this line

    “If we can eliminate politics in trying to better understand how our monetary system works, only then can we begin to agree on how to work towards greater prosperity.”

    When you trully follow Mosler into public office..you’ll have my support and money.

  • Ross Thomas

    Nice piece! My question is: does the prescriptive portion of MMT *have* to be liberal/progressive? I’ve been concentrating so far on the descriptive side and haven’t really thought much about prescriptions (though it’s difficult to avoid thinking about ELR stuff when you read the usual suspects). I’m with you that one must formulate one’s political/social opinions piecemeal, as facts demand, rather than trying to view everything through the same narrow iris.

    A couple of observations:

    1) You don’t eat a lot of brown rice, do you?

    2) The Earth doesn’t orbit the Sun, it orbits the Solar System’s center of mass (as does the Sun). Copernicus was close enough that he gets a cigar though, I guess ;)

  • Ross Thomas

    “The job guarantee program is an excuse to jam government spending down people’s throats.”

    By the same logic, wouldn’t a tax cut be an excuse to jam private spending down people’s throats?

  • LVG

    Tax cuts appeal to conservatives because you’re letting people decide how to spend their money. Instead of allowing the state to assume the role of knowing what’s best for everyone else.

  • Ross Thomas

    If the govt served as employer of last resort the only claim it would be making is that paying someone to work is better than paying someone to do nothing. I’m not sure that’s something conservatives would disagree with.

  • Pierce Inverarity

    I’m whole-hog onboard with MMT’s descriptive veracity, and tend to tilt towards the Jobs Guarantee end of the spectrum on the prescriptive side, but if I have one qualm with MMT at the moment, it’s its seeming lack of quantifiable prescriptive guidance.

    For example: in order to facilitate economic growth in the U.S., with our current trade deficit status, the government has to deficit spend, correct? How does MMT guide us, quantitatively, in what type of spending would be best? Politics aside, do the best MMT thinkers have any empirically based ideas on how we optimize government spending? I’m definitely betraying my ignorance here, and I’m sure I could trawl the academic papers Wray, etc. have put out, but it seems to me that Mosler, et al, are more concerned with the mere fact that the government gets USD into the economy, rather than with what means it gets there. To wit: cut taxes, but keep current outlays the same.

    I would think that we could, by and large, quantify what kind of spending is best and avoid most of the politics. Has this been done? If so, would you mind sharing the assessments and links? I’ve thanked you before, but will do so again. Thanks for all you do here.

  • Pierce Inverarity

    Nice. Was thinking the same thing about the rice statement.

  • Wantingtoretire

    I read Pragmatic cap nearly everyday and have done now for around the last 6 months. Articles like this help me understand the larger picture and are so easy to read. So thanks for that. I also very much like the analysis of reality as it concurs with my reality, for example: “I am generally a fiscal conservative. I’m also generally a social liberal. So I guess you can call me a centrist. But these definitions are largely useless because, the devil is in the details. The world, to me, is not as black and white as most people will have you believe so I find it useless to tow some party line just because some old rich white guy defined “conservatism” as this or that 100 years ago. I very much approach each aspect of policy as its own independent variable in a very complex equation. If you apply the same conclusion to each variable then you inevitably end up with a lot of wrong answers. In other words, there’s a lot of gray area in politics despite our efforts to break it down into two easily distinguishable boxes.”

    However, I would argue that America likes to reduce almost everything to a binomial argument. Having gray areas does not seem tolerable. It is either black or white or not at all. I don’t understand where this comes from. Probably the education system. But as a European working in America it is one of many things that hits you hard because it is used in just about every walk of life.

  • http://www.pragcap.com Cullen Roche

    I don’t think the prescriptive aspect has to be liberal at all. In fact, I’d argue that my approach over the years has been more conservative by focusing on tax cuts and highlighting inefficient govt programs.

    Bad analogy for the rice, I guess. Sorry. I had “like white on rice” on the mind when writing. :-)

  • Deke

    Prescription should always depend on environmental circumstance. Politics largely cloud the picture by saying one prescription is always ones belief depending on party. It would seem to me that at any given time , given the state of the economy, MMTs prescription could either be viewed as one party or the others concrete bias. When in reality that’s just a distraction from evaluating and prescribing.

  • sfamc2

    We need to issue more currency now! What happens when the economy starts working. Will the government currency issuers decrease their issue of currency?
    History says governments never cut spending!

  • Erik V

    MMT’s political problem is that most conservatives are stuck with the view of how deficits and debt are evil, always cause inflation, and could lead to a US govt default; whereas most liberals have social goals they want to sqaunder resources on regardless of how much the private sector has deemed it unworthy of investment.

    I am generally a fiscal conservative because I support lower and more efficient taxes, and more efficient allocation of capital in general. But I am fully supportive of counter-cyclical fiscal policy measures. I think the Fed simply causes distortions and asset/commodity bubbles, and we should let the market determine interest rates.

  • http://investmentpropertycolorado.com dave

    Cullen, just as debt/savings are two sides of the same coin, so is economics/politics. As Lavoie’s paper points out, an agreement with MMT’s “operational realities” rests on a reading of the CB as public. (I agree with this interpretation, btw) However, a reading of the CB as a private institution, which is a political choice that is perhaps not-illegitimate, gives a very different interpretation of the “descriptive” elements of the monetary system, which is maybe not “wrong.” JKH makes (in my reading) a similar argument recently on Winterspeak.

  • MS9

    I’ve always found the conservative horror at the Job Guarantee baffling for the same reason–the basic premise is that, when people receive an income, it should in almost all cases be for work performed, with the job guarantee replacing most other forms of income support. If you want to earn, you have to work–seems to fit with most conservatives’ stated views of the world.

    But I’m still skeptical of the idea of MMT being ideology-free–every MMT thinker I’m aware seems to share the view that a) full employment is a desirable and attainable goal, but b) is not something the private sector can accomplish on its own the vast majority of the time. These aren’t viewpoints I’ve ever heard from any self-identified conservative–unemployment is almost always held up as the result of overpaid workers, lazy, unproductive workers, excessive regulation, etc, etc.

  • Dunce Cap Aficionado

    (slow, loud clapping)

  • http://investmentpropertycolorado.com dave

    Here is the blog post I’m referring to: http://www.winterspeak.com/2011/11/from-comments-technical-details-on-mmt.html. In particular JKH’s comment in 3 parts begins at 7:44 which is about 2/3 of the way through the comments.

  • LVG

    The concern that conservatives have is that if you create a society of zombies who do nothing but collect paychecks then you’re diminishing the quality of the output of the entire economy. Diluting the productivity of the economy increases the burden on those who are truly productive. A permanent job guarantee cannot result in productive output. I recognize there are lots of things the government can do to generate productive spending, but I don’t think a permanent job guarantee can do that. Income must be EARNED. A job is a not your natural right as a human being. You have to earn a job by giving something back to society. The concern is whether the government will actually generate jobs that are a positive ROI. I’m not saying it can’t be done, but call me skeptical.

  • SS

    Funny you mention that. This whole class warfare thing is growing from this. We are becoming a society that produces less and less of real value. I don’t know if anyone heard the Adam Corolla rant from last week, but I think he’s dead right. We’re creating a society of brats who think that everyone deserves a trophy and that they don’t have to earn it. And as the divide grows between the doers and the do-nothings, the do-nothings are beginning to throw rocks at the doers. You want to know why the 1% have so much more? Because the 99% are creating less and less stuff that anyone else wants. It’s that simple. It’s not a conspiracy to screw the little guy. It’s about busting your ass to get a bigger piece of the pie. Some people want it. Others don’t. Screw the bankers who do nothing, but this comment definitely applies to everyone else.

  • Dunce Cap Aficionado

    Right, it creates a ‘floor’ for employment, but that might be the floor to the elevator (productivity) on its way down.

    I’d consider myself one of the slightly more ‘conservative’ (not socially) posters here at TPC and I would echo LVG’s well crafted statements here.

    I think we can all agree that the best mix of policy prescription would concentrate on some level of all three of the factors LVG mentions above: taxes/regulation, currency management and productivity.

  • http://clearlyirrational.com Clearly_Irrational

    I’m a fiscal conservative and a libertarian (more utilitarian than rights based though) but lately I’ve been pondering deeply the following question: “What happens when the market no longer requires all laborers to reach full production” Trying to imagine a libertarian society that uses enough robotics that 50% of laborers can find no useful employment gives one something to think about. In that sort of scenario, it seems like a jobs guarantee or a guaranteed basic income would almost be required just to maintain some semblance of social order.

  • http://investmentpropertycolorado.com dave

    Sure they do. Just always at the wrong times!

  • Dunce Cap Aficionado

    Alright, I told myself I was gonna post less, guess I’ll just make it my New Years Resolution.

    I listen to Carolla’s podcast almost daily during my commute. I like his ability to stay on his toes comedically. He’s been saying the exact same thing for years, way before the occupy movement, and the only reason he’s gotten traction now was that (explative) Glenn Beck.

  • Ross Thomas

    “The concern that conservatives have is that if you create a society of zombies who do nothing but collect paychecks then you’re diminishing the quality of the output of the entire economy.”

    I don’t recall zombies being part of the plan, but if they are then that just appeals to me even more! ;) I’m curious, though, as to how “some output” (were the currently unemployed given govt jobs) is of a lower quality than “no output” (status quo).

    “Diluting the productivity of the economy increases the burden on those who are truly productive.”

    The employed are productive. The unemployed are not. Making the latter productive again would *decrease* the burden on the rest because many hands make light work, no?

    “A permanent job guarantee cannot result in productive output.”

    Why?

    “Income must be EARNED.”

    As in by working for a living, rather than being paid to do nothing?

    “The concern is whether the government will actually generate jobs that are a positive ROI.”

    What’s the ROI on unemployment benefits?

  • wh10

    Dave,

    I am going to take an issue with how you put that.

    As Fullwiler makes clear, as long as the Fed can set the interest rates on govt debt, then there is no funding issue. This, to me, is the core part of the MMT description of ‘operational realities.’ The description is just that, a description. It makes no claims that Congress may not one day decide to privatize the CB. If so, MMT can be used to understand how this can affect things. As with debt ceilings, and precluding overdrafts of Fed purchases in the primary mkt, etc etc, Congress can decide a lot of things, which MMT completely acknowledges. Nonetheless, MMT can still be used to decide which changes and what decisions are meaningful self-constraints or actual constraints on fiscal policy.

  • Ross Thomas

    “Trying to imagine a libertarian society that uses enough robotics that 50% of laborers can find no useful employment gives one something to think about.”

    Peak oil to the rescue! ;)

  • Ross Thomas

    To me the notion that an Act of Congress can set up a “private” institution is an oxymoron, but that does sound like an interesting paper. I’ll give it a read :)

  • Adam1

    “But I’m still skeptical of the idea of MMT being ideology-free–every MMT thinker I’m aware seems to share the view that a) full employment is a desirable and attainable goal, but b) is not something the private sector can accomplish on its own the vast majority of the time.”

    In a society that is pure barter there is ZERO involuntary unemployment. In a pure barter economy if there is a demand for something and there are resources available to supply it then the work gets done and the demand gets met. When you monetize an economy you create a situation where you can have available supply; available demand and not enough money to cause the employment and production to occur. This is not something the private sector can necessarily remedy if the private sector has a preference to net save in the monetary unit of account and historically people prefer to net save. As the monopoly issuer of the currency, the government has the power to ensure that the lack of demand for the lack of money/spending never occurs.

  • Dunce Cap Aficionado

    I don’t want to put words in LVG’s mouth, but I believe the crux of what we’re getting at here can be examplified Keynes idea of paying a man to dig a ditch and then fill it in.

    The man has done ‘real’ work, he as a ‘real job, and he has been paid real money. But what is the productivity of his actions? His actions net to 0.

  • Pierce Inverarity

    So, you suggest we go back to barter? J/k. Great analysis. :)

  • beowulf

    Bruce Bartlett wrote an interesting article in Forbes a couple years ago, “Keynes Was Really A Conservative”.

    “In Keynes’ view, it was sufficient for government intervention to be limited to the macroeconomy–that is, to use monetary and fiscal policy to maintain total spending (effective demand), which would both sustain growth and eliminate political pressure for radical actions to reduce unemployment. “It is not the ownership of the instruments of production which is important for the State to assume,” Keynes wrote. “If the State is able to determine the aggregate amount of resources devoted to augmenting the instruments and the basic rate of reward to those who own them, it will have accomplished all that is necessary… As Plumptre put it, Keynes “tried to devise the minimum government controls that would allow free enterprise to work.”
    http://www.forbes.com/2009/08/13/john-maynard-keynes-conservative-opinions-columnists-bruce-bartlett.html

    After national security, maintaining a full employment economy is Uncle Sam’s most important duty (and happily, the two duties rarely conflict). But our reality is worse than if the President and Congress simply ignored this duty; by hyperfocusing on the deficit, the President and Congress have actively sabotaged the US economy. North Korean sleeper agents would have done a better job in spite of themselves.

  • LVG

    The question is what level of inflation are the rest of us willing to accept in order to justify these new government programs? That’s hard, if not impossible to quantify since it’s subjective, but I would argue that paying people to dig ditches just so they can collect a paycheck and go bid up prices is not a productive use of government funds. If you can find a huge number of jobs that ensure the employment programs pays off then I am all ears. But don’t tell me that you’re going to hire a bunch of people to pick up garbage or something like that. Personally, I don’t want to pay higher prices for food just so some slacker can collect a paycheck picking up trash all day long on our highways.

  • Ross Thomas

    I think you’re right that MMT isn’t necessarily progressive, but I also think much more emphasis needs to be placed on describing MMT from a conservatives’ perspective — a failure to do so will likely scupper the chances of any MMT-savvy political candidates who manage through some miracle to make their way to electoral viability.

    As far as taxes go, I’ve stopped even thinking about them. Determining the correct level of taxation for the various income groups such that everyone pays the same effective rate and price stability is maintained shouldn’t be a particularly challenging problem in and of itself, in my opinion.

  • halconnoche

    Since he is paid with tax payer dollars I would argue that it is negative production and the worker would be better off training to improve his skill set or looking for work in the private sector.

  • Pierce Inverarity

    If by this you mean the federal government taxes us then turns around and use those taxed dollars to pay unemployment benefits, you have the mechanics wrong. You should definitely read Cullen’s primer on the monetary system.

  • Andrew

    Are you really so naive? Major private investment decisions are dictated by large banks and the boards of major corporations. In most countries the major decisions that determine the way you lead your life, are made by a few hundred unelected individuals.

    It’s not rammed down your throat…..it just insidiously surrounds you and impacts every non-choice you think you make: From overpriced land, mega merger bland supermarket chains, overpriced insurance, inefficient monopoly corporations, pathetic pay and work conditions, tragically overpriced healthcare, pollution…..etc etc etc.

    I’m not going to mince my words… People like you are being played like a fiddle for the fools you are. You neglect and reject the only democratic institution that stands between you and total subservience to your “betters”.

    MMT has like ONE progressive prescriptive element… The job guarantee!… And it’s not really prescriptive, it’s a very important element of automatic stabilization that prevent meltdown from economic shocks and provides a pool of healthy, trained, motivated labour.

    Even that is too much for the blinkered $&@&’s who’s only interest is to maximise corporation profits for their own selfish portfolios. just so they can gamble their way to early retirement, sit on their fat arses and live off the labour of others.

    Honestly, I sometimes hope the wonderful “free” market shafts the lot of you. Because there’s always some shiny, brainy, computer geek kids on the other side of your trades (gambles). Croupiers, recruited by banks spinning the roulette wheel against you in a system designed for losers to lose.

  • geerussell

    “Without productivity no currency is worth anything. So it’s clear that taxation doesn’t generate currency value. After all, you can’t tax that which isn’t productive.”

    Taxation and real productivity work together to give currency its value.

    In the absence of taxes, I have no specific need for dollars and might be perfectly happy exchanging my real productivity for euros, gold bricks, boxes of widgets or anything else I might find desirable or hope others might accept. I don’t NEED dollars. The state has no means by which it can command my real resources for whatever it deems to be public purpose.

    On the other hand, in the absence of real productivity, state currency is just meaningless paper and keystrokes. The state can have all the power of command but no real resources to direct.

  • Ross Thomas

    “The man has done ‘real’ work, he as a ‘real job, and he has been paid real money. But what is the productivity of his actions? His actions net to 0.”

    I don’t advocate ditch-digging, by any means. But I do think there is enough infrastructure to be repaired, enough graffiti to be scrubbed, enough windows to be fixed, enough trees to be planted, enough homeless to be fed, enough elderly and disabled people to be cared for, enough public transit to be hosed down, that the unemployed could be kept rather busy doing socially and environmentally beneficial things during their weekday. What are the incentives for the private sector to do those things, other than out of charitable sentiment? When you have a group of people doing nothing (the unemployed) and another group of people unable to properly take care of themselves (the elderly and disabled), I think it is a colossal dereliction of duty for a govt not to try to bring the two together in the obvious way.

    But even if truly unproductive work was the only thing left, the net real result would still not be zero, because those so employed would be spending paychecks into the economy, thereby supporting private businesses. It’s obviously not an ideal setup. But a govt job is, in my opinion, better than paying millions of people to sit on couches while their marketable skills — and hope — drain away.

  • Andrew

    It’s only really in the US where a large proportion of the population have a deep seated anti-government bias. It’s a cultural bias. I was really surprised when I did a work stint in the US and heard the small government talk as if it was a natural undisputed fact of life.

    I think you make your choices and accept the medicine. You choose a small government… You get ruled by a handful of selfish business and land owning elites. You take a large government and get ruled by useless elected officials.

    The outcome is determined by the standards of governance. Either from the officials or the elites. Corruption and self interest are the real concerns and issues….. Not whether it is a small or large government.

    In the US I believe you are heading like a runaway train to the worst of both worlds. Small useless elected government, totally corrupted by greedy corporate elites…Happy days indeed.

  • http://diaryofarepublicanhater.blogspot.com/ Mike Sax

    Thanks Cullen. I am new to MMT but am already intrigued. While am esseintally Keynesian-liberal I appreicate an apolitical approach. I don’t like it when anyone even other Keynesian-liberals are too pushy with their prescriptions.

    What seems clear to me is the virtue of MMT is enabling us to look at the monetary system in a whole new way.

    Pleawe see http://diaryofarepublicanhater.blogspot.com/2011/12/cullen-roche-us-to-muddle-through.html

  • Ross Thomas

    “I would argue that paying people to dig ditches just so they can collect a paycheck and go bid up prices is not a productive use of government funds”

    I would argue that paying people to work for a living so they can collect a paycheck and go buy things in the marketplace, thereby supporting their families and the economy in general, is a much more productive use of government funds than paying them to do nothing at all.

    “If you can find a huge number of jobs that ensure the employment programs pays off then I am all ears.”

    This smacks of a lack of imagination. I mentioned a few specific jobs in another comment on this thread, but the point is that employment is better than unemployment. If the govt needs to be the temporary employer while the non-govt sector recovers from its foolishness (which seems to be necessary rather more often than you’d think given that everyone is apparently a rational economic agent) then so be it: it’s the only agent which has the both money and the mandate to do what is best for society as a whole.

    “Personally, I don’t want to pay higher prices for food just so some slacker can collect a paycheck picking up trash all day long on our highways.”

    “Personally” is why enlightened self-interest is nothing more than feel-good mythology.

  • Tom Hickey

    Many contemporary conservatives and Libertarians disagree that full employment along with price stability is a valid economic criterion, and many also reject the very notion of macroeconomics, public purpose, employer of last resort, and similar concepts that underlie MMT as a macroeconomic theory as expressed by its chief developers, Warren Mosler (founder), Prof. L. Randall Wray, and Prof. William F. Mitchell. Bill MItchell has pointed out that the job guarantee is integral to MMT as an economic theory that takes as its objective advancing public purpose and private economic pursuits harmoniously, and achieving the holy grail of Keynesianism, full employment along with price stability.

    It is, of course, possible to separate off the description of the monetary system and monetary economics from MMT, but then it is no longer MMT. While MMT is built on the shoulders of others, it makes a unique contribution based on the integrity of its structure. Some people are going to view this as political owing the nature of the theory and the criteria it establishes. Rightly so. MMT is incompatible with the neoliberalism and Austrian economics that many conservatives and LIbertarians subscribe to, and trying to convine them otherwise is not going to be possible. I have had many of those arguments, which ended in agreeing to disagree over key fundamentals, like full employment along with price stability as an economic criterion.

    That said, Randy Wray and Bill Mitchell are way to the left of Warren Mosler, but they are in agreement over basic MMT theoretical positions, such as the goal of achieving full employment with price stability and using an ELR to establish a wage floor as a price anchor in controlling inflation. So, while there is room within MMT to argue over economic policy, e.g., with respect to the balance of tax and spending in fiscal policy, MMT is definitely toward the left side of the political spectrum when measured against neoliberalism and Austrian economics.

  • LVG

    It’s not true that giving people a job is always better than not having a job. And I am not in favor of paying people to do nothing so please stop implying that. Labor is earned in a society. It is not a right. We don’t reward people for doing nothing. For giving nothing back. You earn money when you give something back to society. Cullen likes to say that money is a social construct. I totally agree. When someone does something that the society sees as valuable then they’re rewarded by being able to purchase a certain amount of goods and services from the rest of society. But when you pay people to do things that are not productive then you’re diluting the money that the rest of the society uses. You’ve diminished the social value of money by lowering the standard which is required to obtain that money.

    This impacts all of us negatively. And worst of all, it impacts the person being paid by giving them the impression that they don’t have to do much to obtain money. If that person wants to obtain the trust of their fellow members of society then they should do something that the other members find valuable. The truth is, right now, if you don’t have a job then no one wants your crappy work. It’s really that simple. I don’t see why the government has the right to give those people money when no one else thinks their work is worth a penny.

    I am all for rebuilding infrastructure and jobs like that. Things that are good investments in the country. I am just not sure that there are enough permanent jobs like that to go around that justify a permanent government jobs program.

  • geerussell

    What emerges in those comment threads is that JKH is conflating implementation details about which MMT is basically neutral, with the hierarchy of authority which is how MMT distinguishes between currency using and currency issuing sovereigns.

    With regard to the central bank and MMT, the critical distinction is whether that CB rests within the authority of the sovereign or outside of it.

  • Dan Kervick

    I would count myself as very progressive, perhaps fairly described as a “democratic socialist” – although in the modern European sense in which socialism sees a role for a large and vibrant private sector. But I agree that MMT at its core is just a descriptive account of our actually existing monetary system, and not a set of political prescriptions.

    But I think the reason a lot of left-wingers like me are attracted to MMT is due to the fact that our more conservative opponents often arm themselves with a variety of arguments, based on theories about how our monetary and economic systems actually function, that are designed to show that the left-progressive solutions can’t work. Included among these are arguments about Ricardian equivalence, crowding out, the efficiency of markets, demand-pull inflation, the role of the “money supply” in the bank lending channel, etc. MMT’s descriptive elements provide the analytic tools to refute a lot of these arguments, or elements of them, and help us defend the plausibility of our solutions.

    There is then still a discussion to have about the best way of achieving various economic ends. And there will still be ultimate differences over fundamental values. But at least a lot of the “can’t work” arguments are out of the way.

  • Ross Thomas

    “Labor is earned in a society. It is not a right.”

    Seems to me that libertarians would be the first to claim everyone “has the right” to be productively employed. What is “a right”, and whence does it derive? If you’re going to get philosophical you need to be careful regarding your choice of words…

    “We don’t reward people for doing nothing.”

    Yes we do. They’re called unemployment benefits. I agree with almost all of what you say. We differ in that I think a jobs guarantee is consistent with your argument, whereas you don’t :)

  • halconnoche

    “It’s important, however, that the role of the government not infringe on the prosperity of the private sector to an undue extent. Remember, government is a tool that is to be utilized by the citizens to further the private sector’s prosperity.”

  • pebird

    It seems to me that there is a lot of work to be done that is valuable, but is difficult to monetize for private gain.

    Like infrastructure rebuilding, or assisting teachers, or cleaning parks, etc. This is all public value and by definition it will have a lower (or even negative) profit rate. If it were profitable, there would be private entities investing in these activities.

    Yes, there is the possibility for low/no value work in government jobs. The inflationary factor is that for the most part, the kind of government job programs post WWII have been hiring skilled, high demand workers (space program, aerospace, military). Instead, by hiring someone who can’t get a private sector job, the inflationary impact is very low – they may make a bit more than unemployment, but the social value of working for that income is huge.

    Note that the private sector pulled off a pretty good negative value jobs program with mortgage brokers, loan processors, appraisers and real estate agents. Government doesn’t have a monopoly on stupidity.

  • plain jane

    I think the JG idea is fabulous. It beats the alternatives: long-term unemployment (with or without UE benefits) or military spending, or driving wages sufficiently low that the whole thing starts automagically working again in a year or seven or so.

    What I do NOT get about it is… some people really *are* lazy and horrible and won’t work if they have a “guaranteed” job/paycheck. (certain gov’t employees of distant memory come to mind.)

    So, how does one apply enough “stick” to keep them working and to keep the JG program from generally getting a bad name? Could perhaps you be fired for repeated instances of incompetence? Dishonorable discharge for all your future employers to see?

    Seems like the program would have to be pretty authoritarian not to be a big mess.

  • pebird

    Or society could think up meaningless activities that people are required to do in order to “earn” that income – like waiting in line for airport security, waiting in traffic jams to get to/from work, wading through multiple forms and inconsistent process to get health care, jumping jacks in the morning, etc., etc.

  • Gordie

    LVG:

    “You’ve diminished the social value of money by lowering the standard which is required to obtain that money.”

    Would include drug dealing and prostituion and ponography?

    I find it interesting that Cullen and so many others say they are conservative fiscally but liberal/progressive socially. In a society these can not be seperated because as you say money is a social construct.

  • Scott Fullwiler

    Good point. MMT is politically “left” because it argues that the descriptive aspects of monetarism and austrianism are wrong, the latter being the primary descriptive frameworks used by the “right.”

  • Scott Fullwiler

    Yes, that’s an issue, but it’s one that the political system has to decide for itself. I don’t know that there’s an “optimal” out there unless you first specify what the desired results are (the latter being necessarily normative). Different countries will solve that issue differently.

  • pebird

    Seen Europe lately?

  • Scott Fullwiler

    “A permanent job guarantee cannot result in productive output.”

    Now THAT’s what ideology looks like.

  • Andrew

    What I do NOT get about it is… some people really *are* lazy and horrible and won’t work if they have a “guaranteed” job/paycheck. (certain gov’t employees of distant memory come to mind.)

    Please add guaranteed investment income, rental income and interest to the list. You will correctly identify the horrible 0.1% of people who actually rule The world. Some are inherited wealth and lazy too.

    Don’t be fooled by the demonization and mischaracterisation of poor people. They are not sinking your boat.

  • http://investmentpropertycolorado.com dave

    Wh10: I figured someone was going to just as soon as I posted. :) I’ll go back and re-read Fullwiler on that point.

  • http://diaryofarepublicanhater.blogspot.com/ Mike Sax

    Here’s my attempt to gloss a little about what the relationship is between MMT and NGDP-somewhat strained I know http://diaryofarepublicanhater.blogspot.com/2011/12/ngdp-mmt-and-other-new-fangled-economic.html

  • http://diaryofarepublicanhater.blogspot.com/ Mike Sax

    Appreicate that Cullen, I can see it requires some work, which is cool. My real goal is undertanding the monetary system in as deep and accurate a way as possible

  • BT

    @ Scott. Careful here. Republicans clearly embrance Keynes’ ideas when it comes to military spending and corporate welfare. Any cuts to these programs are clearly labelled ‘job killers’ by Republicans.

    Just because Keynes’ name has somehow been tarnished in the eyes of conservatives doesn’t mean that they don’t use his ideas when it suits them.

    MMT can be fully embraced by the right-wing, which could use it to argue for tax-cuts or increased military spending in recessions.

    MMT can just as easily be embraced by the left-wing, which could use it to argue for increased spending on education and health-care during recessions.

  • http://www.pragcap.com Cullen Roche

    I understand that the govt plays an important role in our society. But I also understand that our govt is not our society and should not seek to become our society.

  • Dunce Cap Aficionado

    Mike,

    Good stuff. I would say its hard to compare the two. MMT, at its core, describes the banking system of a monoplier supplier of currency in a floating exchange rate system. NGDP is in and of itself Monteary policy. As you can see from the comments here the policy prescriptions vary from the MMT crowd.

    My personal problem with NGDP level targeting is that even Sumner hasn’t described in detail how it is ‘performed’. I’ve always assumed its some form of QE based on Mr. Sumner’s background but cannot be sure. So until I can be given a ‘transmission mechanism’ for NGDP level targeting I don’t see how anyone can say ‘it will/could/shoul work’.

  • LVG

    I honestly didn’t mean to write that. My point is that a job guarantee cannot be implemented in a broad scale because there is never enough work to be done to provide productive output in a manner which increases the standard of living of all people in a society. The idea of permanent full employment is based on the myth that everyone in a society wants to work, needs to work or can be productive. The fact is, there are a lot of losers in this world and no one wants their output. Paying losers to do garbage jobs doesn’t benefit the rest of us. It waters us all down.

  • http://modernmoney.wordpress.com Senexx

    As far as modern politics goes, the USA is the most right wing democratic country in the world. Anything slightly to the left or even centrist in the rest of the democratic world would be seen as liberal or left wing.

    So if comments along these lines come from an American, it really holds no water globally speaking. Other countries I’m not so sure (thinking of the UK which is increasingly Right)

    Via Mosler, Laffer, Reagan, we do know the universally accepted Right get it but outside of authoritarianism and individualism, what would be a right wing MMT proposal? Or a centrist one.

    Mosler’s for a given size govt, get taxes at the right level for full employment is the closest proposal I know to a right wing one. (That is if we assume small govt). That said it is rather relative.

    The Job Guarantee is basically what we had from post-war to 70s. Sure we had stagflation but that was due to a misunderstanding of the economic system of the time. Time to bring it back isn’t it?

    If you object to it as government spending under MMT you may as well object to getting money, one way or another it all comes from the government today.

    If I had any other comments on this piece, I’d be wondering how Cullen is defining Fiscally Conservative as it seems to have numerous definitions – I used to take it as balance budget over cycle?

    When it comes to redistribution libertarians and conservatives are one and the same, the economics benefits those at the top and don’t care who they hurt underneath thus libertarians are really conservatives.

  • b_b

    Good Post Cullen.

    I read Billy Blog (Bill Mitchell) often and find he is brilliant when describing the monetary system, but the politics always seems to get in the way. I think this has not helped the MMT cause in Australia.

    I would still encourage people to read his blog – but use it for the “descriptive” elements of MMT only.

    Keep up the good work Cullen.

  • Ross Thomas

    “Like infrastructure rebuilding, or assisting teachers, or cleaning parks, etc. This is all public value and by definition it will havea lower (or even negative) profit rate. If it were profitable, there would be private entities investing in these activities.”

    Depends how you define “profit”. Not everything which returns less money than was invested is unprofitable from society’s perspective.

  • Greg

    “The concern that conservatives have is that if you create a society of zombies who do nothing but collect paychecks then you’re diminishing the quality of the output of the entire economy.”

    Riiiiight! Better that we turn everyone into WalMart greeters or minimum wage stockers and checkers who cant afford health care. Private sector zombie are sooo much prettier than govt zombies.

    ” Income must be EARNED. A job is a not your natural right as a human being. You have to earn a job by giving something back to society”

    Giving back to society is NOT what private employment does, it gives to an OWNER. Which is ok but there needs to be a permanent place for people to earn a minimum wage outside the private sector. Everyone does deserve some sort of income. They will end up spending that income into some owners pocket.

    ” The concern is whether the government will actually generate jobs that are a positive ROI.”

    Wrong! Any income earned becomes potential income for every private business owner out there. One does not need to look at govt work in the same manner as private sector work. The goals are different.

    I’m not saying it can’t be done, but call me skeptical.

    Reply

  • http://www.pragcap.com Cullen Roche

    I define fiscal conservative as someone who is generally against govt spending. No rational person would argue that all govt spending is bad, but when it comes to choosing whether we should cut taxes or let a bunch of lawyers in Washington choose how to allocate funds, I almost always fall on the side of tax cuts…..

    Strict political definitions are messy, vague and generally unhelpful. Which is why I don’t use them here at all. You want to know my political affiliation? How about “It depends”. :-)

  • Ross Thomas

    Apparently the reply button didn’t work so well. This was in response to pebird above.

  • Andrew

    Cullen,

    it’s the quality of government not the size that matters.

    Government is an integral part of society.

    I hope you guys start getting it soon.

  • Trixie

    “Personally, I don’t want to pay higher prices for food just so some slacker can collect a paycheck picking up trash all day long on our highways”

    So then I take it you’re okay with paying higher prices for food due to speculative trades in the commodity markets? You know, people who don’t actually take physical delivery but simply trade paper. Perhaps we should force the delivery of 16k bushels of corn on the “productive” speculator and make the “unproductive” slacker clean up the mess to EARN their keep. And let the trash accumulate on the highways. Everyone wins.

  • plain jane

    Hey, I understand. Every time I think about the JG program I remember all the people who went to basic training with me back when… (we were pretty much all a bunch of broke losers with nowhere else to go. Thank Heavens for Uncle Sam giving us something resembling a leg up! I shall be forever grateful.)

    So that is how I sort of envision a JG program, as a program one enters when it seems no one else can or will give you a chance. It’s just kind of hard to imagine a program that takes all comers, doesn’t kick anyone out for anything short of outright criminal behavior, and also accomplishes actual work?

    But perhaps that is just failure of imagination. ;)

  • http://www.pragcap.com Cullen Roche

    Yes, as a society, there’s great value in deciding to do things which might not be “profitable”, but are benefits to the society as a whole. War is the most extreme example. There are things a govt can do which have a certain negative ROI, but serve the society in intangible ways. This is part of what makes this debate so messy.

  • http://www.pragcap.com Cullen Roche

    Threads end after a certain number of response. Continue a new one below if needed. Otherwise, the convo would trail off into the edge of the abyss….

  • Trixie

    Similarly, remind the FIRE sector to not BECOME the economy.

    I am developing facial tics.

  • http://www.pragcap.com Cullen Roche

    I’ve never argued anything otherwise. What’s your point?

  • ermen

    Brilliant post Cullen. Like you, I myself was more “conservative” so to speak but reading and understanding the MMT work has made me more centrist.

  • http://www.pragcap.com Cullen Roche
  • beowulf

    A job guarantee is a real slog uphill politically. Once its passed by Congress, it’d be subject to annual appropriation bills and the money would be kicked out to states to actually spend (the US Dept of Labor works through state employment offices). There’s just a lot of moving parts and it’d take a while to get it started (especially since some state govts would likely opt-out, the DOL would have to figure out how to run it itself.

    On the other hand, if Congress allowed Tsy to adjust the payroll tax inversely to unemployment rate, it could start immediately and wouldn’t require any effort beyond the IRS adjusting its withholding tables quarterly. Tax law don’t require annual appropriations (or 60 Senate votes if its a budget reconciliation bill), so they typically stay on the books for years.

    If nothing else, Obama’s small ball Payroll Tax Holiday put the term in common usage, so people can quickly figure out what you’re talking about. I think a JG is a good idea, I just don’t think its a good opening act.

  • Erik V

    It’s easy for a conservative to be an MMTer if they simply stop worrying about the deficit. They should argue for huge tax cuts to get out of the balance sheet recession, and not worry about “paying” for them. Just increase the deficit and get the economy back to self-sustaining growth, then gradually raise taxes as to prevent inflation when full employment returns.

  • Trixie

    So what? You are still a douche canoe.

  • http://www.pragcap.com Cullen Roche

    Wow. I’m speechless. Did you just call me a douche canoe? I don’t even know what that is, but it sounds horrible.

  • Nils

    Prostitution, Drugs and Pornography sounds like my kind of country.

  • Pierce Inverarity

    Right. You get $8 an hour to do a job for 8 hours a day, 5 days a week. There are plenty of out-of-work construction workers who would happily start earning a paycheck if we gave them something meaningful to do, for example, and there’s plenty of meaningful work to be done. The private sector seems to have no interest in repairing our roads, bridges, electrical grid, etc. Why can’t we pay the un/underemployed to help on these necessary tasks instead of sitting on their butts?

    You don’t just get a job and get to keep it. You get fired if you fail to show up, you get convicted of a crime, you show up drunk, you aren’t actually achieving anything, etc…you know, all the things a regular employer would fire you for. Once the job is over, you have to reapply to contribute to the next project.

  • Trixie

    SHUT UP. Just g-damn ban me, I can’t even see straight right now as I repeat…inhale good air, exhale bad air.

    #&%$!!!

  • http://diaryofarepublicanhater.blogspot.com/ Mike Sax

    But what did you think of the Bush tax cuts-those I was not a fan of-they were too regressive for my taste. How does MMT look at them?

  • http://www.pragcap.com Cullen Roche

    Yes, there are a lot of things the govt could do right now to hire people and help the economy. As I’ve said, there are elements of the JG that I like, but I am not sold on the idea of a permanent govt employment program that maintains full employment. After all, what happens when all the infrastructure work is done? At some point we inevitably reach a point where most of the truly productive work has been accomplished, no? Then what? Do we just pay people to dig holes? Do we do what these maniacs in China are doing and hire workers from NYC to build a whole new city in the mountains (which will be uninhabited)? What is the greater societal impact of this program? Does it disincentivize people to work? To gain an education? To train for other employment? What are the other potential downsides? There’s almost too many moving parts in such a massive economic program to even be able to quantify the payoffs…..

  • Nils

    Well politicians like to shoot ideas down with the phrase “we can’t afford it”. It is a lot easier than arguing the merits of a proposal.

  • jt26

    I don’t think the problems with the prescriptive side of MMT is liberal or convervative bias, but rather:
    (a) as repeated on pragcap, it “works” when money is spent productively, but no one knows what that means, and no one trusts it to be done without corruption
    (b) it doesn’t address human psychology (e.g. free rider problem), when coupled with (a). Of course, “Keynesian” doesn’t either as employment (any kind, and at any cost) is supreme, so free-riding (for example) is just assumed.

    As an example, there is nothing inherently wrong with communist doctrine, but it has on a practical level failed because of (a) and (b). No complicated second derivatives required.

    MMT supporters do themselves no good by being overly religious, and focusing their arguments on religious wars with Neoclassicans. Tell me, why has the world worked when it was on a gold standard; proof by contradiction doesn’t work, so it weakens the appearance of objectivity of MMTers.

  • http://www.pragcap.com Cullen Roche

    No banning for you. Looks like you’re up douche creek without a paddle. At least I’m in a douche canoe. :-)

  • Pierce Inverarity

    Agree with you there. I was only thinking of this as a solution to our current predicament. Create a jobs program a la the Works Administration to help get us out of the balance sheet recession. If you keep the wages low enough, I think the majority would leave for private sector jobs once things turn around and then we could shut it down. Easier said than done.

  • Trixie

    I hate you so much. Never speak to me again.

  • Trixie

    For what it’s worth, I am still laughing. So I will let you off on a warning this time. I’ll return once I calm down. IF you’re lucky.

  • Tom Hickey

    What replaces setting the wage floor as a price anchor for controlling inflation? As I understand it, that’s an integral element in MMT as a macro theory whose objective is to achieve full employment with price stability.

  • beowulf

    Most infrastructure and education spending is handled at the state and local level.
    The federal govt could allow states (money divvied up highway aid formula) to borrow for capital projects from the Fed at 0% interest over the service life of the project). Dennis Kucinich and Republican Steve LaTourette sponsored a bill a few years ago that would do just that. It’d have funded at least $50 billion a year in new infrastructure spending (including school buildings) at no federal budgetary cost.
    http://www.house.gov/list/press/oh14_latourette/bank.html

    That should have been in Obama’s stimulus bill! Alas, unlike the President’s dead-in-the-water “infrastructure bank”, the Kucinich-LaTourette bill didn’t provide an income stream for Wall Street and even more outrageously, put project decision-making in the hands of each state govt instead of Washington.

  • plain jane

    That makes sense to me. (and the WPA thing is bound to get you at least a little traction with conservatives, especially when you call UE “paying people to do nothing” by contrast.)

    My impression from reading Mosler was that it’d be more of a permanent institution– since there are always people “between jobs” the number of people on the program would never get all the way to 0.

    Anyway, no perfect solution, and I guess there would have to be some tradeoffs between social stability and efficiency. You know… that guy who’s “doing something close to nothing, but different than the day before” ;) (I think I love him)

  • Tom Hickey

    jt26, the Great Depression occurred with the world was on a gold standard. The gold standard did not prevent 19th century economic issues from arising when it was in force either. The idea that a gold standard obviates severe economic imbalance is simply a myth.

  • http://investmentpropertycolorado.com dave

    beowulf, would you agree that at a certain point there are diminishing returns to large deficits without the JG? Or do you think you could get all the way to full employment..or even let’s say “near full employment”~ 1.5% or less without it?

  • Ross Thomas

    If you hadn’t had so many pseudonyms I might vote for you.

    ;)

  • Ross Thomas

    “Paying losers to do garbage jobs doesn’t benefit the rest of us.”

    If you had ever been in the situation of not having enough money to support your loved ones, you might be less hasty to dismiss low-paying jobs as “garbage”.

    And, frankly, by calling people “losers” you are not casting your fellow thoughtmates in a good light. Just so you know.

  • Ross Thomas

    Maybe I’ve just not thought about this enough, but could you expand on why more people productively employed in the labor force might be considered better than fewer people thus employed? By what magic shall the economy produce all that it can?

  • Ross Thomas

    Sorry, by “better” I meant “worse”! Got confused for a moment ;)

  • Pierce Inverarity

    C’mon, crickets? Really? I was honestly hoping someone could enlighten me on my questions above.

  • jt26

    Sorry, I probably wasn’t very clear. My argument was not FOR the gold standard as the ideal system, but rather that it had not been clearly bad. We still made incredible human progress during those times, just look at human longevity. I think the benefits of MMT are not clear and we could better focus on other things:
    – end the financial/political corruption nexus
    – foreign energy independence
    – end the monopoly power of public sector unions and the defense/homeland security/war on drugs complex
    All of the above are about freedom, free markets and free ideas. That has always been the killer app for human progress; no second derivatives required.

  • beowulf

    Tom,
    1. By inversely tying tax rate to unemployment rate, as the economy moves to full employment, the increasing tax rate drains more and more out of the system.
    2. Turn monetary policy into fiscal policy. Enact a securities transaction tax rat and peg its rate at, say, one-tenth the most recently published Fed Funds target rate (or the 3 month T-bill rate, depending on if you want to make the Fed or the bond market the bad guy). When the Fed thinks that inflation is increasing, they’ll hike interest rates. And when they do, they’ll be forced to hike the transaction tax rate at the same time. Draining both reserves and velocity from the banking system.
    Those two items could be easily added to our current tax system. Down the road, we should replace the corporate income tax with value added tax with penalty rates for large corporation with above-average gross margins for their industry sector (for all care, the Wal Marts of the world with below-average GMs wouldn’t have to pay anything).
    —-
    Dave, I think a tax policy could get us between 3% and 4%. Which is fine, the skilled unemployed (the low-lying fruit if you will) who are struggling at 8.8% will will easily find a job at 3.8% (which it last reached in the spring of 2000). This allows the govt to focus its efforts on providing decent guaranteed jobs for the unskilled and long-term unemployed (who’re likely have trouble backgrounds of one sort of another, and need counseling or supervision to find their sea legs).

  • Tom Hickey

    jt26, you say a goal should be to achieve “foreign energy independence” and add that it’s about “freedom, free markets and free ideas.” Energy is traded on the “free market.” Commodities are fungible. The US could only achieve “energy independence” by refusing to sell its energy on the free market, which is against US trade policy. The US objects to countries hoarding their resources off the market or entering into off the market contracts.

  • gf

    This is really simple, conservatives have been running the show now for about 25 years.

    We will not begin real recovery until that ends.

    MMT or no-MMT.

  • Gerald P

    Ross, the earth does circle the sun, the moon circles the earth, and whole shebang circles gravitational mass center of the galaxy.

  • Tom Hickey

    Conservatives were first to know about MMT. Warren Mosler surfaced his ideas to Donald Rumsfeld, who sent him to Art Laffer. Warren wrote “Soft Currency Economics,” the paper that launched MMT, while working at Laffer’s.

    The current GOP economic kerfuffle is between traditional fiscal conservatives and the “deficits don’t matter” people. Traditional fiscal conservatives, the deficit hawks, have the upper hand now. The deficits don’t matter” folks argue that tax cuts pay for themselves so they should be instituted even without offsetting spending cuts.

  • geerussell

    How about farm work? There’s always something in season somewhere in the country and paying a reasonable wage to harvest it would also relieve some of the demand side of illegal immigration.

  • jt26

    Good pt.
    Energy isn’t completely fungible (cf brent-wti, LNG vs. NA NG etc.).
    Energy independence is only “free” compared to and as a counterweight to dependence on an oil cartel. But, your point is well taken.
    There’s also an insurance policy side to it, as although one wants free markets, not everyone else does (ie times of war). Legally, the US is obligated to share energy under NAFTA only, I don’t think it violates trade policy to withhold energy. There are no free markets in US-designated military and technology exports for example.
    There’s also an intellectual property benefit which may accrue and is not diminished by the end product being a global commodity; microchips are just sand anyways.

  • Gerald P

    Lots of comment on the ways things should be. Nothing on how our political system could actually accomplish it. Historically if it gets bad enough, a revolution. An exercise in frustration, not a cure. So, here we are, with an understanding (MMT) but no way to move a broken and increasingly dishonest economic system; modern American Capitalism,

  • Ross Thomas

    “[T}he earth does circle the sun, the moon circles the earth, and whole shebang circles gravitational mass center of the galaxy.”

    You sound like a Christian. We should talk.

  • wh10

    win!

  • Tom Hickey

    “By what magic shall the economy produce all that it can?”

    MMT explains this “magic” on the basis of the sectoral balance approach to macro and functional finance approach to fiscal policy.

  • Gerald P

    What about an Qhio unemployed Chemical Engineer specializing in circuit boards, who just got a job offer paying $9 an hour!

  • Roger Ingalls

    Beowulf:

    Would you consider moderating the next presidential debate? I’d watch!

  • Wantingtoretire

    Well, the political myths are certainly flying in response to this post…….It is such a shame that apparent intelligent people can regurgitate complete garbage without even examining the stupidity of the comment. Of course, they do this because they learned it by rote and not as an enlightened conclusion they reached through lengthy evaluation……………………..

  • The Dork of Cork

    This budding MMT movement is a bit like the New Deal thingy back in the 30s – much better then the almost full credit money alternative which traditionally has been seen as sound (see Europes fiscally Calvinist approach – or at least the bankers use this northern German cultural meme because it suits them for the moment) which is very strange to me, but MMT it is in fact more enlightened bankers trying to save themselves.

    Irving Fishers nationalisation of the M1 can remain locked up in a little box as it is too dangerous to bank profits and control of the money supply & culture.
    Term deposits being loans to the banks with risk attached is lost in the Internet ether.
    All of this crap always goes back to the flaw in Peels bank act

  • Ro

    I find often people make ideological claims about government spending on the assuming that government spending is synonymous with non-market forces. There are a number of spending programs in the united states which are specifically designed to take advantage of market forces that would entirely fall under the category of “government spending” – the crucial distinction between them and “private market forces” is that the outcomes are determined democratically, not based on relative purchasing power of private actors. For example, the US has a number of community development block grant proposals that identify outcomes (such as a regional development plan), and then allows a self-selected combination of local governments, local businesses and non-profits to develop integrated proposals, which are then approved by the government if they meet particular criteria. Alternatively, Revolving Loan Funds provide an initial principle loan to local governments/business organizations/peak non-profit bodies, which allow them to then distribute those funds in the form of low or zero-interest loans to spur local development. Any profits are returned into the fund, which then can grow and provide further loans. As long as the money is actually being used and the loans are going towards proposals that are in the general spirit of the initial revolving loan grant, the principal does not need to be repayed.

    The most obvious example to me of why being in principle opposed to government spending is a situation in which a president (who understood MMT) made it a platform of their candidacy that they would offer $100 billion dollars to whoever invented and freely publicized cold fusion or a cure for cancer. Given that a nation would have collectively decided that such technology, if publicly available, would be worth far more than $100 billion, how can anyone possibly really claim that such “government spending” is not a good idea?

  • Ro

    Sorry i missed this when posting above – while Obama didn’t do this, he did give a lot of money to the small business adminstration which implements similar things, as well as for other similar block grants in other departments

  • Roger Ingalls

    Cullen:

    One of your best posts this year! Pretty informative and amusing comments too!

    I read the full article and comments, and nowhere is there a definition of full employment.

    I imagine the Pharoahs of Egypt had full employment. Pretty sure Nazi Germany did too. Not sure what it would look like here, but certainly MORE employment makes sense. Far too many capable folks not able to find good works to put their talents to.

  • http://www.pragcap.com Cullen Roche
  • Tom Hickey

    “I read the full article and comments, and nowhere is there a definition of full employment.”

    According to MMT, an economy can be considered at full employment when everyone willing and able to work has a job offer. The employer of last resort offers a job guarantee to everyone willing and able to work, so those able to work who are not working are voluntarily unemployed. Obviously, this does not resolve the issue of underemployment, but generally speaking, when employment is difficult to obtain, then there is a scaling down based on ability to perform that leaves those less able without a job offer. The JG resolves that issue.

    There is a large body of MMT literature on employment. See, for example, CofFEE and CFEPS, and well as Full employment abandoned: shifting sands and policy failures by Mitchell and Muysken.

  • Ro

    Nice! Must have missed that one.

    So to clarify, when you say that you are “generally against government spending” are you referring only to spending which is centrally planned down to the last detail? Or would you theoretically be opposed to something like a $100b prize for cold fusion since it is still “central planning” in the sense of determining outcomes (whereas your sovereign fund would let the market do it)

    Also, on that idea: http://www.bepress.com/bis/vol6/iss1/art4/

  • Roger Ingalls

    Thanks for the def and the links!

  • Ro

    sorry – i hadn’t read your post clearly, that article is about a different type of system, although it’s still relevant in that it highlights the political problems faced by SWFs in terms of allocating its profits in the manner most befitting public purpose , which could arguably be analogized if you had a large government private equity fund – for example, should it invest in charter schools or traditional school models? allowing the fund itself to determine the desired investment outcomes for government money sounds like it might face some democratic legitimacy issues…

  • chewitup

    Tom and Cullen,
    In the year and a half or so I’ve been following MMT, I’ve surmised that both sides of the aisle have people who are fully aware of our monetary system. Descriptive MMT is stipulated by our blog community, but it is NOT in the “real” community. Do the .01% have that much of a hold on politicians that monetary reality cannot be discussed in a public debates. What gives? I get the feeling that we are in this special club that is in on a secret that can only be revealed to those that have the ability to open their minds. Soft Currency Economics was written in 1992. Is MMT that hetero? (I am a complete layman in the economic, financial and political world)
    My point is, the politics could be debated much more honestly if Congress actually argued from reality. Now it is just Bernanke, Geithner and Congressman playing nothing more than a game of Obfuscation.

  • Ro

    Thanks for the clarification. I agree with your description of fiscal conservatism and often find when people claim they believe in it, all they are really saying is that they believe in government spending that is careful, diligent and efficiently meets the outcomes it was assigned to achieve – under that definition, i would hope we are all fiscal conservatives!

    But yes, i did not intend to (and hope i didn’t) mean to insinuate that you are against either a system requiring net injection of financial assets by the government, or the delegation of some degree of discretion in allocating those assets to the government (although i have heard variants of both by people who claim to be “generally against government spending”)

    I suppose my question was more trying to get at the theoretical/principled reason that you are generally against government spending – is it that you think there are coordination issues in centrally planned systems that reduce productive efficiency vis-a-vis a well regulated market, that the democratic process is a less effective or legitimate way of determining the economic priorities of the public than market forces, or that uncompetitive institutions are likely to be less motivated than competitive ones? (or a combination of these plus others)

    The reason i ask is that it seems to me that systems of devolved spending (i.e. revenue sharing) and competitive government grants/investment models like Revolving Loan Funds are ways to reduce or even sidestep entirely the majority of these concerns, and hence suggest that such problems are not intrinsic to the government itself, but rather only particular models of the government.

    The real issue at the heart of being pro or anti government spending seems more to be about the second idea – whether unequal market purchasing power or equal democratic voting power is ideal way to determine the economic priorities of society. Those who see the government as a ‘necessary evil’ or as a ‘enabling force for the private sector’ seem to me to basing their claims on the belief that those who have (ideally) fairly produced more in the past for whatever reason deserve to have a greater influence in shaping future investment decisions, not only a right to a relatively larger share of the economic pie. On the other hand, those who believe that the economic priorities should be determined collectively believe that regardless of one’s own relative economic purchasing power, the right to set priorities and allocate productive resources is fundamentally a social decision, and hence should be left to democratic processes that (ideally) allow everyone to have an equal degree of input. Of course, society may collectively wish to delegate some portion of that allocation/prioritization to individuals through private innovation and investment, but the question still remains about whether the causality stems from public –> private or vice-versa.

    To me that’s a far more effective definition of the difference between being fiscally conservative and not-fiscally conservative (i don’t know if i’ve ever personally heard someone describe themselves as “fiscally liberal”) – that is, whether you believe that we have a collective right to use fiscal policy to steer investment through whatever means (some of which are undoubtedly more effective than others), or whether the role of fiscal policy is fundamentally to help adjust for failings of the market and step-in when the market fails.

  • http://neweconomicperspectives.blogspot.com Scott Fullwiler

    “The question is what level of inflation are the rest of us willing to accept in order to justify these new government programs?”

    I doubt there would be any at all aside from the initial effects from implementation if done as MMT’ers have proposed. We’ve simulated the program in large macro models and it’s had a countercyclical effect on inflatoin–cutting inflation a bit during expansions and raising it a bit during recessions–which is exactly what you want if price stability is what you’re after.

  • http://neweconomicperspectives.blogspot.com Scott Fullwiler

    You are thinking far too narrowly about the program. There is 20+ years of literature on this, and you are forming an opinion after reading probably close to none of this literature closely. Again, that’s what ideology does.

    One example—when I was on the United Way board in my community and we’d have our annual meetings with the various organizations we funded (about 35), they would all say without exception that they could get so many more things done if they could just find more volunteers or more money to pay workers. It would be probably less difficult to run a job guarantee to deal with this problem than to use the govt to directly hire. Let local non-profits apply to receive funding for the number of workers they can demonstrate they will find work for at the minimum wage. This has many additional benefits, but I’ll just mention 2–first, the needs of non-profits are countercyclical, just like you’d want a job guarantee to be, and second, this also deals with the issue of what to do with workers that aren’t doing a good job or are lazy, since the non-profit can use their own policies on that and simply fire people that don’t meet their standards.

  • http://neweconomicperspectives.blogspot.com Scott Fullwiler

    Another example is to replicate these sorts of programs http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1838648

  • http://neweconomicperspectives.blogspot.com Scott Fullwiler

    I completely agree with all of that. I was making a different point which is that a theory of how things “work” as MMT is would very likely come from the “left” if the purpose is to challenge the views of Austrians, monetarists, and centrist New Keynesians. Such a theory wouldn’t come from the “right” even if it is ultimately not necessarily counter the values of the “right” it its most descriptive form.

  • http://neweconomicperspectives.blogspot.com Scott Fullwiler

    As I was explaining above, the JG is much broader than you are currently considering it to be. There’s 20+ years of literature there.

  • Andrew P

    I don’t like the idea of a “job guarantee” (it is too Soviet), but if you are going to spend x dollars on unemployment benefits anyway, doesn’t it make more sense to spend the same amount of dollars on some kind of useful menial (and highly unpleasant) work, like picking up trash, killing city rats, digging drainage ditches, cleaning toilets, or scrubbing graffiti off of subways instead? At least the public will get some benefit for the money spent instead of just paying people to sit on their butts. People always have the option of refusing to apply for the public jobs if they don’t like the miniscule pay offered (with no benefits), or the dirtiness of the drudgery required.

  • http://www.pragcap.com Cullen Roche

    Yes, I’ve read the literature. The research is largely based on 2 points which I don’t think are facts. 1) It is a right to have a job in this world. 2) Demand pull inflation would not ensue. The arguments on both points are not well established and largely based on the highly productive American economy (which is misleading for many reasons). I don’t entirely reject the JG. I think the idea of an employment program as an automatic stabilizer is a fabulous idea. But I am not convinced that a permanent JG program would not have many tangible and intangible negative impacts over the long-term. Unfortunately, an economic model only goes so far in quantifying the real impacts, many of which are entirely intangible.

  • http://www.pragcap.com Cullen Roche

    Yes, the unemployment benefits program should already be a JG program. I am fully onboard with that. Pay people to earn a living rather than paying them to sit around doing nothing.

  • Andrew P

    Unfortunately, the vast majority of Government Spending is directed specifically to the supporters of the political party that is in control. “To The Victor Belong The Spoils” is the law of the land. For example, the Obama/Pelosi/Reid 2009 Stimulus (The Porkulus) was directed almost entirely to the State and Local employee unions that make up the core of the Democratic Party. ObamaCare is designed to specifically benefit the healthcare unions, and to some of the specific voter groups that strongly support Obama (and gave him big bucks). Obama has been very very good to Wall Street banksters and hedge fund guys, because they have been very very good to him with their campaign contributions. Not a single bankster has gone to jail over the housing bubble and subsequent crash. All the TBTF banks got bailed out and the banksters got to keep record bonuses. The return on investment for giving campaign contributions to the eventual winner, giving early, and giving exclusively to the eventual winners is truly enormous. The ability to spot the winner and make a total commitment is an incredibly valuable skill and is the best investment a businessman can make.

  • Ro

    Yes, political corruption is a big problem, but not intrinsic to the question of whether it’s better to be fiscally conservative or not. If being pro-government spending means promoting “genuinely democratically determined investment” over “faux democratically determined investment”, then i would hope under that definition no matter what size of government you advocate, everyone is pro-government spending!

    That said, I highly doubt you’re going to stop oligarchy/plutocracy from emerging by allowing even more allocative/prioritization power to be devolved to private institutions away from a democratic system, so if anything that’s an even greater argument in favor of being “pro-good government investment”, which is to say, being not-fiscally-conservative under the definition i provided (public vs private responsibility for economic steering)

  • Andy

    I’m not sure you can split the descriptive element from the politics.

    If MMT applies to the real world then it has to be directed to some end(otherwise why does it need to be described?) and perhaps that end should be inclusion of every citizen in the benefits of the monetary system and the economy rather than, say…. making traders money.
    Just a thought

  • Ted

    I would love it if some of this jobs guarantee was directed at training and providing more high quality child care in this country, which would have some positive follow-on effects. If child care was cheaper, my wife could go back to work sooner – now you’ve created 2 jobs!

  • http://neweconomicperspectives.blogspot.com Scott Fullwiler

    We’ve proposed that.

  • http://neweconomicperspectives.blogspot.com Scott Fullwiler

    OK.

    I don’t think you need #1. It’s a philosophical point. A better point is to recognize that virtually every social problem has a statistically significant relationship to involuntary unemployment. On a basic cost-benefit analysis that incorporates all these costs, a JG is a winner, easily. The “JG workers aren’t productive” argument is only made by people who don’t understand what we’re talking about–the opportunity cost of a JG is involuntary unemployment, not private sector jobs. Thus the appropriate comparison to a JG is all the costs of involuntary unemployment, not private sector productivity.

    Regarding #2, if designed as MMT suggests, it can’t possibly create demand-pull inflation because (a) as soon as everyone who wants a job has one, the spending on the program stops and so does AD, (b) as the pvt sector grows, the govt spending on the program falls–in other words, the points at which you would get demand-pull inflation in the economy are when the JG spending is FALLING and the point at which the program is biggest is when demand-pull inflation pressures in the pvt sector are SMALLEST, and (c) the JG wage would be fixed and not increase with AD. Again, I’ve simulated this in large macroeconometric models. I’ve yet to see anyone provide any (i) evidence to the contrary from a simulation using anyone’s preferred model or (ii) well-argued rebuttal accounting for my points a,b and c above (many have tried, but they’ve never appropriately accounted for those points).

    In my view, the best argument against the JG would be how difficult it would be to implement, implement correctly, and sustain in the real world. That’s not an argument against proposing it or even trying, but it is a reason for a healthy dose of skepticism.

  • JWG

    What benefits will the jobs guarantee work force have? Medicaid? How much vacation? Due proces rights on termination? Collective bargaining rights? Their deal will be so good that the JG program will drain workers from the private sector and in a few years be a fiscal disaster of mammoth proportions. The USA has already written too many blank checks. Good intentions do not always make good policy.

  • Hangemhi

    Being left leaning I get annoyed with the comments about “losers”and “deadbeats”. You do realize that rich deadbeats abound, right? They did nothing to earn their good fortune, so while youre happy to assign poor deadbeats to miserable lives why dont you go the full monte and force rich deadbeats to be poor – make it a crime for their kin to coddle them. Ridiculous you say? But then isnt it ridiculous to allow unlucky (those not born into wealth) deadbeats to suffer?

    Meanwhile deadbeats and losers end up doing one of four things – becoming criminals, living as homeless, dying young (drug overdose or crime death) or they grow up, pull themselves up by their boot straps, and become productive members of society.

    Think about that – the first 3 options are what 90% of poor, no/low education deadbeats do. Richer deadbeats – known as hippies in the 60’s and 70’s end up growing up because they have that as a waiting and viable option. And those first 3 options are FAR worse for our society than a non-productive job (as if a non productive job is what anyone is proposing in the first place).

    Right now there is a JG for the poor – it’s called the military. Get your face shot off in service of our country, or on the streets selling drugs. Not a great choice.

    If someone is willing to pick up garbage, or dig ditches, for minimum wage, I don’t see how anyone could call that person a slacker or a loser. And given the crap nature of the job and the pay, you’d think no slacker would apply. But if they did, they’d probably be on a path of picking themselves up by their boot straps.

    Lastly, isn’t the ENTIRE point of a jobs guarantee to keep us out of economies where JG’s are needed?

  • I’llHaveADouble

    I have a hell of a time figuring out where I am. The Republicans are clearly mad and are not to be trusted with sharp objects. But aside from the big ticket issues where the right wing has lost it, I don’t care for much of what the state has to offer or tell me, especially from what passes for local government. A new dog park? Let’s not and say we did. I can’t have a forty-foot glow in the dark statue of Lucille Ball in my front yard? Who says, some !£$%ingn commission? Bah.

  • I’llHaveADouble

    Medicaid? We should all have that anyway.

    #politicalthreadisawesome

  • I’llHaveADouble

    The Krugman thing bothers me. Sumner not getting it I understand because he’s so idiosyncratic, but Krugman’s intensely smart and almost always right about things. MMT’s not far from the kind of Keynensian Krugman is when it comes to financially driven business cycles. Galbraith’s on board, and they know and respect each other. He should basically be on board by now. DeLong should too, although he was always more neoliberal than Krugman.

  • I’llHaveADouble

    How does MMT guide us, quantitatively, in what type of spending would be best? Politics aside, do the best MMT thinkers have any empirically based ideas on how we optimize government spending?

    Nooope. As far as I’ve seen, there’s nothing unique that MMT has to say about this – there aren’t behavioural equations.

    Not that that’s bad, mind you. But there aren’t conclusions that the operational facts obviously and unambiguously lead you to. So we have to rely on the analysis offered by other economic literature on the subject.

    We could just do it like congress: let monied interests make all the important decisions, and decide on the rest while playing the Mad Men drinking game (you have one every time Roger or Don Draper does – basically, everyone blacks out).

  • I’llHaveADouble

    I meant to write “there aren’t behavioural equations to describe what happens to the spendinng, and there aren’t unique empirical techniques.”

  • http://www.pragcap.com Cullen Roche

    Your analysis must be loaded with assumptions. It can be no other way. There’s simply no way you can know how the public would respond to such a program. You don’t know if this would disincentivize people to work. You don’t know if it would simply work as one redistributional program that would disincentivize the rich and middle class. You don’t know how employers would respond. You don’t know how workers in the pvt sector will respond. This is always the flaw in economic models. You can’t account for the human response. I don’t have the answers to this either. But common sense tells me that if it was this easy to create a healthy functioning, sustainable, prosperous society, then someone would be doing it right now. Where are all the job guarantees? Where are all the societies where govts just hand out cash for various public works? They don’t exist. And the few that resemble an ELR have shown little evidence of actually providing any real net benefits. The simple point of logic is as clear to me as the flaw in Crusoe Island. I have no doubt that the USA can implement a program like this. But we’re walking a slippery slope when we begin to believe that govt is the economy and not simply an entity that helps oversee our society.

    I’d be interested in seeing a jobs guarantee implemented in place of unemployment benefits or something similar on a smaller scale. Perhaps we scale it up if it proves workable. But there are too many moving parts here for anyone to definitively conclude that a JG is a good thing. And no economic model is going to prove otherwise. I’m open minded, but this is not the sort of program that I would advise leaders to dive into. The downside risks over the long-term are potentially enormous.

  • BT

    I think Krugman has come around. He just can’t bring himself to admit it in public yet. The MMT guys ask mainstream economics for too much: don’t just accept our ideas, accept our name ‘MMT’ and the implication that you have had it all wrong forever. People can’t do it.

    But the ideas of MMT have caught on. Krugman now talks about private sector deleveraging as the cause of the problem, Eurozone countries not being sovereign currency issuers with their own central banks, Eurozone current account deficits/sectoral balance stuff, Government deficit spending as essential to maintain demand while the private sector delevers. He has even said that QE doesn’t work because its just swapping bonds for money, which are close substitutes in the current environment.

    Similarly, the main problem with the JG is the name. Call it an improved jobs-based automatic stabiliser program and no-one will object.

    If MMT had hired Frank Luntz in 2007 it would be the only economics around today.

  • Kobayachi

    great post

  • beowulf

    The way to get a JG is to back into as welfare reform. Conservative think tanker Peter Ferrara (who’s co-written articles with Newt Gingrich) has endorsed something very much like the JG and he’s otherwise quite out of paradigm (his new book is called “America’s Ticking Bankruptcy Bomb”):

    Suppose all aid to the able bodied was in the form of an offer to work. Report to your local welfare office before 9 am and you are guaranteed a work assignment somewhere paying the minimum wage for a day’s work. A private job assignment would be the top priority. If you need more money come back tomorrow. If you have children with no one to care for them, bring them with you and they will receive free day care… If you work a minimum number of hours you get a Medicaid voucher that will purchase basic private health insurance. If you work for a continued period establishing a regular work history, you would be eligible for new housing assistance focused on help in purchasing your own home… These workers would continue to receive the EITC and child tax credits…
    “The government could even reduce administrative costs to a minimum under this system. There would be no need to maintain and investigate eligibility requirements. If Warren Buffett wants to show up for a work assignment before 9 am, no big deal. Most importantly, this new system would effectively eliminate real poverty in America. Everyone would have a place to go where they could get an assured job and an assured in- come of $25,000 to $30,000 per year.”
    (2008, p. 9)
    http://webcache.googleusercontent.com/search?q=cache:_u3bpvp8t5sJ:www.ipi.org/IPI%255CIPIPublications.nsf/PublicationLookupFullTextPDF

  • Andrew

    “But I also understand that our govt is not our society and should not seek to become our society.”

    It’s a nonsensical sentence as you can’t separate government from society. You would have to explain what you mean then. I assumed you were going all “small government” on us…..

  • Andrew

    What level of unemployment must we have to justify the current rate of inflation?

    Oh we know the answer to that…. Too much.

  • Andrew

    The private sector doesn’t want full employment. That would put upwards pressure on wages and reduce profit share.

    NAIRU is manipulated to keep an excessive buffer stock of unemployed. Business owners want it nice and easy to generate good profits.

  • Dan Kervick

    I just disagree with the idea that there is never enough productive work to be done to make a job guarantee work. There is in my view always far more work to be done than there are people to do it. The problem is rather that private sector entrepreneurship has proven to be an ineffective and inefficient mechanism for creating a sufficient number of useful jobs and matching people with them.

    Look around you, wherever you are, and notice all of the things that could be getting done, but are not. These opportunities for productive improvement in our world are everywhere. The world I see, at least, is a world in which a million useful and achievable ends are not happening. Why aren’t these things happening already? Because the private sector, private ownership model is not sufficient for accomplishing everything that needs to be accompolished.

    Everything a private sector entity does involves taking some privately owned property, making some improvement or transformation in it, and then exchanging some or all of the transformed property to others. Or in some cases, it involves providing the service of making such transformations to the property of another person or firm who purchases the service. But there are many important things, places and systems in this world which are owned by the public, or are owned in common or are not owned by anyone at all. Important improvements to such things and systems thus will not and cannot occur as a result of the entrepreneurial initiative of private firms and individuals alone. Instead some large body of public, at the local, state or national level, has to act as the economic agent of this change, whether as the producer of the change or the purchaser of the change.

    There are also improvements that are only sensible when they can be undertaken on a very large scale, to achieve economies of scale, and that require a uniform and systematic approach. These also will not occur unless all of the affected people organize the work effort necessary to make the change. That’s one of the things governments can do.

  • Andrew

    There are so many social services that are crying out for helping hands. Just needs a little imagination. Support services for childcare, aged care, disabled care, mental health. Free up skilled carers for more value add work.

    We all like a clean environment, tidy sidewalks, neat parks, Infrastructure needs constant maintenance….etc etc.

    There is no shortage of demand for government services, in fact there’s a supply shortage. If all else fails there’s the military. That’s considered productive work by many.

  • http://neweconomicperspectives.blogspot.com Scott Fullwiler

    Thanks for the ad hominem. That sort of question demonstrates a lack of understanding of the JG policy in the first place. If you want to honestly engage, ask an honest question.

  • Andrew

    Calling for tax cuts because the individual spends more wisely than the government is only half thought through. Also a conceit.

    For one there are many individuals, (many are disadvantaged and not big taxpayers) who are deprived of the so called inefficient spending.

    What is the evidence individuals spend wisely? Booze, drugs, more food, botox to make your arse fatter….

    Government is a cross section of society. Some smart, some wise, some idiots, some with integrity, some assholes. The results would be about the same either way if you ask me.

    Really fed up of those in the private sector whining about the public sector (visa versa). They are just opposite cheeks of the same butt.

  • http://neweconomicperspectives.blogspot.com Scott Fullwiler

    We’ve got decades of experience with public works programs. And we have Argentina, South Africa, and India just in the past decade. No demand pull inflation in any of those cases.

    “There’s simply no way you can know how the public would respond to such a program.”

    For demand pull inflation, what matters is how employers respond, and we’ve got a pretty good idea of that because all you’re doing is putting the economy to full employment, no further, with loose labor markets.

    “You don’t know if this would disincentivize people to work.”

    If they don’t want to work in the JG, then you’ve got the same thing as now. If they want to work in the JG and not in the pvt sector, businesses just offer more than the minimum wage to attract people out. That’s not inflationary because with a fixed JG wage the amount pvt business has to attract doesn’t continuously rise. If that’s a problem, then reduce the JG wage. Again, we know pretty well how businesses respond to the need to attract workers, and we know pretty well how workers respond to different choices of job opportunities. And there’s lots of historical experience with public works.

    “You don’t know if it would simply work as one redistributional program that would disincentivize the rich and middle class.”

    Not following. How does a job program that hires only at the minimum wage disincentivize people who would never work in the program anyway?

    “You don’t know how employers would respond.”

    Again, for the most part we do.

    “You don’t know how workers in the pvt sector will respond.”

    As above, we do for the most part.

    “But common sense tells me that if it was this easy to create a healthy functioning, sustainable, prosperous society, then someone would be doing it right now. Where are all the job guarantees?”

    Well, it’s pretty easy to institute MMT-consistent policies right now like a payroll tax holiday or have the ECB buy sovereign debt to keep rates down and it’s not happeneing. You’re raising a straw man here. YOu know as well as I do how much a role bad economic thinking and ideology play in keeping good policies from ever being tried.

    “Where are all the societies where govts just hand out cash for various public works? They don’t exist”

    Wrong. Lots of examples, not and historically.

    “And the few that resemble an ELR have shown little evidence of actually providing any real net benefits.”

    Wow. Absolutely false. 100% wrong. Not even in the ball park. 100% ideology.

  • http://neweconomicperspectives.blogspot.com Scott Fullwiler

    OK, I take back that last part since I didn’t at first see that you did in fact cite a paper. There’s lots of evidence to the contrary, and note that MMT’ers were saying from the start that the impact on poverty of the Jefes program would be minimal to nothing since it paid a well-below poverty wage. But to suggest there were “no realnet benefits” is ridiculous. For starters, how much “net benefit” do you need to do better than a depression?

  • Wantingtoretire

    I thought it was worth repeating my earlier post…

    Well, the political myths are certainly flying in response to this post…….It is such a shame that apparent intelligent people can regurgitate complete garbage without even examining the stupidity of the comment. Of course, they do this because they learned it by rote and not as an enlightened conclusion they reached through lengthy evaluation……………………..

  • Wantingtoretire

    Tell me, IIuvatar, because I really do not comprehend on any level, how you came to think the way that you do. Your belief’s do not appear to be grounded in anything of substance. Wanting to be “free” is relative to who you are and how you think. It is not an absolute (ignoring restrictions for breaking societies laws). I am only talking about America here.

  • Dunce Cap Aficionado

    “I think Krugman has come around. He just can’t bring himself to admit it in public yet”

    Agree. Much of his mainstream exposure comes from his political writing, but as an economist. He has blurred the lines very well over the years.

    For him to outright ‘accept’ or ‘adopt’ MMT would open himself up to attacks that by ‘straying’ form his economic background, which he has based all his political writing, on would disqaulify his political ideas.

    In reality, he could be using MMT to further them. Sad. I don’t even agree with the man 70% of the time, but his bias is really getting in the way of him doing good on a huge scale. Hope he comes around.

  • Adam1

    I want a front row seat!

  • http://diaryofarepublicanhater.blogspot.com/ Mike Sax

    I put a gloss on the question of politics in MMT. I agree it’s real virute is its descrpitve ability though this of cousre enables you to make better prescriptions regardless of yoru politics.

    http://diaryofarepublicanhater.blogspot.com/2011/12/mmt-and-political-neutrality.html

  • Scott Fullwiler

    Looking that paper over, which I think is very interesting, and given what I knew about the Jefes program going in, I would not have expected it to have had much effect on their particular measure of “multidimensional poverty.” I don’t think that’s a particularly strong argument against Jefes or against JG, as much as it is an argument that “there’s more to poverty than income,” which we knew already, while the very small amount of income provided in that program (3/4 minimum wage, which was already well below the poverty line, to only 1 household member and requiring that the household have children) probably didn’t help matters in terms of potential multiplier effects on the other dimensions. Various case studies did show numerous benefits not captured in their measure, though.

  • Scott Fullwiler

    Again, sorry about the “100% ideology” statement. Didn’t see your link, and was glad to see it when I went and looked more carefully because it didn’t seem like the sort of statement you would just make without some sort of back up.

  • Wantingtoretire

    Forgot to ask, has anyone posting in response to this posting been unemployed and had to look for another job…..?

  • Adam2

    About job guarantee… If you call it, replace welfare for workfare the majority of people are on board. There are plenty of jobs that all people can do. Most are public sector jobs though.

    People don’t like cheating. That is why conservatives think welfare is cheating. People getting an advantage without working for it.

  • http://www.pragcap.com Cullen Roche

    Scott,

    We’re not talking about a simple public works program. There are 13.5MM people unemployed today. The Federal govt employs 2MM people currently. WalMart employs 1.8MM people today and is the largest pvt sector employer. You’re not simply talking about a public works program. You’re talking about swallowing Wal-Mart by more than FIVE FOLD. A JG would involve the largest govt program ever instituted in the history of the world. It confounds me how you can speak about this so blithely without thinking of the innumerable intangible effects this will have on the way people think about our economy, our govt, etc etc.

    Employers make hiring decisions based on profits. You seem to think that hiring 10MM people or so and giving them a paycheck would not alter the costs that these corporations have. Granted, it won’t put upward pressure on wages, but that’s another problem. 10MM more people bidding on gasoline is going to have an impact. Or how about 10MM people raking leaves and paying for gasoline on their way home? What’s the true multiplier effect of someone raking leaves on I-95 and bidding up gas prices on their way home? Exxon hires a few more minimum wage people? GDP rises incrementally while the median std of living stagnates? Can you show that this would increase the overall std of living? Is this program a net benefit for society? The reason why the pvt sector won’t hire these people is because they’re a negative ROI. What makes you think it won’t be a negative ROI for society as a whole? What we’re not doing here is increasing the standard of living for the other hundred+ million that now have jobs. And as the paper I previously cited shows, there is no evidence that these programs substantially lift people out of poverty levels.

    What are the psychological impacts of a permanent JG? Has there ever been a praxeological analysis of the JG? This is, in my opinion, the single most crucial element. The academic work suffers from the same weaknesses that all economic models suffer from. A simple lack of reality based analysis. Black Scholes didn’t understand this and their model failed fantastically.

    Again, I’m not against trying it and scaling it up. I don’t know why you’re calling me an ideologue. I’m not against the idea of a JG. But I am skeptical that it can be sustained, maintained, and effective over many business cycles of the magnitude that would be required. The rationale behind this program appears thin to me. It’s nothing personal. Call me devils advocate if you want. But please don’t ever call me an ideologue. You and I both know that’s not true.

  • http://www.pragcap.com Cullen Roche

    Where is the evidence that govt spends wisely? End of story.

  • wh10

    This is a great exchange.

    With the disclaimer that I have not yet devoted time to reading the JG lit, can it not be roughly thought of as a replacement of unemployment insurance?

    If that’s roughly fair, then I am curious to hear Cullen’s thoughts on why he views it as an animal so entirely different and more destructive than unemployment insurance.

  • wh10

    In other words, unemployment insurance is permanent, too, and you don’t even have to work.

  • Tom Hickey

    Just a couple of thoughts related to the discussion of politics and economics that don’t relate to just MMT but indicate why economics is joined at the hip with politics. It’s through economic policy, and economic policy affects social policy. Macroeconomics involves the contribution of government to the economy. There is no way to approach macro without taking government fiscal and monetary behavior into consideration, and this automatically involves fiscal and monetary policy, since they determine this behavior.

    A basic difference between MMT and most mainstream economics boils down to advocating for the primacy of fiscal or monetary. Mainstream economists tend to favor monetary, whereas MMT is based on fiscal. Mainstream economists argue that monetary policy is non-political since it is set by the central bank (Fed in the US) and modern central banks are (supposedly) politically independent. However, fiscal policy is determined by the budgetary process and taxing authority that rest with elected representatives, therefore, is inherently political. So it would seem that monetary policy is superior in this regard. MMT has strong counterarguments that I won’t elaborate on here due to scope.

    However, even the central bank is created by the political authority of the country and receives its mandate from elected representatives. In the US, the mandate of the Fed is to maximize full employment along with price stability. Therefore, the cb sets monetary policy iaw some version of a Taylor rule.

    Moreover, voters generally hold elected government representatives accountable for the state of the economy. Rightly or wrongly, elected representatives have to be concerned with the political implications of economic policy. The Fed chairperson is the most powerful voice in setting monetary policy and his appointment is political, since he is appointed by the president and confirmed by the senate.

    So any attempt to approach macro independently of what it is used for, that is, policy setting, is doomed to failure. MMT is a macro theory that present various policy options and their consequences. It also shows what policy options are fundamentally unreasonable, e.g., attempting to run all sector in either surplus or deficit, and running a balanced budget with a CAD (usual for the US) when the domestic private sector desires to save (which is usually).

    Different MMT economists and professionals argue for different policy options within the context of an MMT understanding of macro. They generally attempt to distinguish between MMT as an economic theory and the politics of their choices regarding policy options within that framework. All of them are quite aware of this and acknowledge it publicly.

    I personally find more moralizing in economics outside of MMT than within it among professionals. I find that most economists do not consider the normative aspects of their assumptions and presumptions, but rather take them as being self-evident. MMT economists seem to be more aware of the danger of conflating positive and normative and seek to clarify potential confusion.

  • http://www.pragcap.com Cullen Roche

    I’m all for replacing unemployment insurance with a JG. But that’s what, a few million people? There are 13MM unemployed right now…..A full blown JG is a substantially larger undertaking….

  • Adam1

    You do realize that when you monetize and economy you create a situation where INVOLUNTARY unemployment exists. Involuntary employment is certainly a restriction to ones freedoms. Why isn’t it the governments responsibility to pretect me from involuntary unemployment?

  • Gordie

    Tom:

    Great post. This is exactly my view of MMT and you stated it clearly and persuavisely.

    Thanks

  • wh10

    In 2010, it hit 6M, and it’s now around 3M. That’s a lot, but it’s not permanent, as I falsely suggested.

  • http://www.pragcap.com Cullen Roche

    Okay. Either way, I’m not in favor of paying people to do nothing. The push back from Scott is harsh, but I don’t see what’s so unreasonable about starting a JG on a small scale? It seems like the logical way to go. Ease people into it. If it works then we can enlarge it over time.

  • F. Beard

    What’s the ROI on unemployment benefits? Ross Thomas

    What’s the ROI on justice?

    I could easily argue that the entire population deserves restitution for the damage done to them by the government backed/enforced counterfeiting cartel, the banking system. Or are only those who profited via the cartel entitled to a life of leisure or to do ONLY the work they prefer?

  • wh10

    I’d imagine that would be a reasonable implementation tactic to take…

    But let me be clear, I’m not picking sides here! Having not done my own research, I’m just enjoying the exchange, and good points are being made by both of you.

    On a whim, I was just trying to compare it to UI, but my comparison is not that strong since UI qualification is conditional on a bunch of things, and it is not permanent. On the part of my own ignorance, though, I didn’t realize how many people are on UI at all times. In the past 2 decades, continued claims has rarely gone below 2M people! http://workforcesecurity.doleta.gov/unemploy/claims.asp

    But let me step out of the debate now; I’m not adding much.

  • dgc

    Dan Kervick,

    “The problem is rather that private sector entrepreneurship has proven to be an ineffective and inefficient mechanism for creating a sufficient number of useful jobs and matching people with them.” … “Instead some large body of public, at the local, state or national level, has to act as the economic agent of this change, whether as the producer of the change or the purchaser of the change.”

    I would argue that private sector entrepreneurship what has driven the US to be the number one economy in the world.

    The current administration came to power as the “producer of change.” Hundreds of billions of dollars were targeted for “shovel-ready jobs,” yet the actual jobs turned out to be few and to be hugely expensive. Much more of the money went to government worker unions, “green” jobs, and federal, state, and local staffing, but not to infrastructure (or to productivity).

    Would a Republican administration have been much more efficient? Maybe not.

    Ever-expanding government replaces the requirement for profits with the lust for power. There is no government requirement for value or for efficiency. I would argue that what an effective government needs to do is to support productivity, protect the rights of the individual, and keep out of the way of private sector entrepreneurship.

    I understand that if the private sector is contracting then government spending can help to keep the economy moving, but part of the problem with our economy is that the federal government (and the Fed) always tries to prevent or limit any recession and to never let large businesses fail. This prevents correction of malinvestment. In fact, the federal backstop for TBTF banks and businesses encourages risky and non-productive activities and has helped to create our current financial problems.

  • Elvis

    Corporations only exist because they become incorporated under statutes enacted by legislatures. There is nothing at all strange about private entities being founded by government.

  • Ross Thomas

    Those statutes set the terms for others to establish private businesses; they don’t establish any themselves. I understand what you’re saying, but I still maintain an institution set up by Congress can never be truly “private”. In the case of the Fed this is undoubtedly so, since they distribute the vast majority of their profits to the Treasury. The clear implication of this (to my mind, anyway) is that the Fed is in fact publicly owned.

  • LVG

    Cullen,

    The whole liberal agenda is based around evening the playing field. Just listen to all these people casting stones at the rich. You want to be rich? Make something of yourself. The only person stopping you from being great is you. That’s how the world works. If we want to create a world of underachievers then let’s just hand everyone a rake and line them up on the highway wearing a government badge.

    Some people just don’t understand what it means to set the bar high and become the best. America didn’t achieve its status by promoting an even playing field. But we’re moving in that direction. Yeah, we can give everyone a job and make everyone even. There’s no doubt that MMT proves we can afford this. But that’s not how the world works. You academics don’t understand this because you live in neat little worlds where you build models and don’t ever have to worry about the real world, employing people, making payroll and on and on. This liberal utopia is a nightmare. If you want become France then just move there. But don’t drag the rest of us with you.

  • http://clearlyirrational.com Clearly_Irrational

    The ability for something to have a negative ROI but also be in the public’s best interest is one of the things that makes it difficult for me to be a hard line libertarian. I’ve taken to describing myself as a utilitarian libertarian lately in order to differentiate my opinions from the main group who are essentially rights based and come to somewhat different conclusions than I do on some issues.

  • http://clearlyirrational.com Clearly_Irrational

    For me the turning point was Quantitative Easing. Based on my understanding at the time it should have been hugely inflationary. When it turned out not to be, my first instinct was to blame the CPI shadowstats style, but that turned out to be a red herring when the MIT billion prices project showed the CPI to be fairly accurate after all. At that point I was left without an explanation until I found pragcap and thus MMT which seems to explain all the holes pretty well.

  • Richard from Canada

    The term that describes you I believe is Social Credit. That is being socially left of center and fiscally right of center at the same time. A tough position to be in.

  • http://clearlyirrational.com Clearly_Irrational

    If you’re going to do something like the JG, that’s probably the way to go about it. FYI, 30k a year for everyone is a huge increase in the minimum wage and would have a massive distortionary effect on the economy. There are a huge number of unintended side effects that would need to be considered before proceeding.

  • Greg

    Hey jane

    I think worrying about the fact that a JG program might end up paying some worthless people an income is unnecessary. No program could be or will be fullproof. Obsessing over the outliers who will more than likely be a very small percentage is self defeating I think. You worry about it too much you end up spending more to stop it than just ignoring it. What should be remembered is that even if people are getting an income who you think arent deserving, they are still spending that income into someone elses pockets eventually.

  • Ro

    With all due respect, i don’t think it’s the end of the story. It’s the start of a crucial debate which needs to be had about the appropriate role of democratically based economic planning versus private economic planning. J.K. Galbraith, Veblen and others have made a number of quite compelling arguments in this regard including the very real harms of conspicuous consumption, as well as the anti-competitive role of planning by oligarchic firms that are able to to capture democratic processes/lawmaking. The first concern provides at least an basic justification for a discussion about whether or not high levels of wealth inequality, even if justly earned, are likely to lead to economic resources being invested in the most socially productive capacities (for example, allowing the rich to spend billions of dollars on diamonds and precious stones that might be better used in the development of industrial saws and lasers). The second idea (capture of government by private interests) suggests some real problems emerge when the government does take an explicitly backseat role in economic development. By saying “government is neutral, all we are doing is facilitating the market”, it’s wiping it’s hands of responsibility for any unequal/sub-optimal planning/investment decisions that are subsequently made. Obviously people can validly point out that capture of government undermines the free market, but that argument is at a different level – i.e. one of corruption/competence in process – rather than responsibility for ultimate outcomes. That is to say, it puts the positive burden on those complaining to “prove” that there has been some form of corruption/collusion between political and business elites. On the other hand, if the government says “it’s our job to make sure economic development is socially beneficial”, then it’s up to the government to take responsibility for the final outcome of the system, regardless of whatever level of control/planning has been delegated to private market forces.

  • Greg

    LVG

    “The whole liberal agenda is based around evening the playing field. Just listen to all these people casting stones at the rich. You want to be rich? Make something of yourself. The only person stopping you from being great is you.”

    Wow! SO everyone can get rich just by making something of themselves! How can I become a “something”?

    “Yeah, we can give everyone a job and make everyone even.There’s no doubt that MMT proves we can afford this.”

    It is NOT about making everyone “even”. Thats an absurd straw man argument. No one is talking about paying everyone exactly the same, nor heading in that direction. Its an alternative to forced unemployment when some “job creator” gets tired of paying you a salary (probably cuz his taxes are too high or his feelings are hurt when the president criticizes greed)

    ” But that’s not how the world works. You academics don’t understand this because you live in neat little worlds where you build models and don’t ever have to worry about the real world, employing people, making payroll and on and on. This liberal utopia is a nightmare. If you want become France then just move there. But don’t drag the rest of us with you.”

    Lets see; “Academics”, “France”, Liberal utopia” Yep. LVG can be dismissed as an ideologue who cant think past the end of his nose

  • Greg

    Thing is though, UI is payed into by workers and employers. Its not on the dole. Its like SS is it not. It is like any other insurance, those who arent using it are paying for those who are, just like my Nationwide policy. No body gets a pay raise by being unemployed.

  • Andrew

    See below…

    No Scott……A question is not an ad hominem. Ironically, your response was actually an ad hominem (personal attack). Maybe you didn’t understand the context in which the question was made.

    In the current economic framework. Most countries adopt a NAIRU policy. Basically pick a number for % of unemployment below which you suspect inflation will accelerate. Which you know of course.

    The job guarantee generally assumes a level of full employment far below the arbitrary NAIRU figure. Which you know.

    The point being, currently the minimum unemployment rate is set to achieve a certain minimum desired level of inflation. With a JG this link is broken. Sorry, I’m not smart enough to know if or how much a JG would contribute to problematic inflation. Not as bad as people fear I suspect.

  • Andrew

    Oh the post came out below… See above then.

  • Andrew

    It’s only the end of the story with that giant pair of blinkers and ear muffs you are wearing.

  • Ro

    Hi Cullen,

    I agree that many followers of MMT often vastly overstate their differences and have a tendency to get extremely defensive, and often find that it derails otherwise very productive conversations by forcing people to spend disproportionate amounts of time quibbling over often quite esoteric and/or linguistic distinctions, which while important are best left to academic papers and/or personal conversations between adherents rather than the online message boards which represent the public face of MMT.

    I hope you don’t think i was accusing you of being a blind ideologue! Your concern about praxeology is very valid in my opinion. My questions/points were really more aimed at working out what exactly the root cause of your personal objection to government spending in principle is. Is it concern for waste/centralization/lack of motivation/etc, all of which i find to be very or is it a more principled belief that determination of future investment decisions are generally best made by those who have already demonstrated their ability to be economically productive?

    For disclosure, I am also personally not ideologically committed to a job guarantee either, although my own concerns are mostly about the philosophical justifications behind a job guarantee vs. a basic income. I also don’t think my own positions are absolutely correct and any critiques are stupid or not worth discussing.

    Rather, just like Scott explains below how one might rationally argue for a “right to work” from a practical rather than rights/philosophical perspective, I am interested in whether it’s possible to rationally argue for a “right to democratically steered investment” from a practical perspective as well. The issue of democratic capture and ultimate accountability for economic outcomes that i mentioned above is one issue, but the second issue of the real inefficiencies of high inequality goes to the heart of your post below regarding the efficiency-cost of a JG (i.e. 13 players on the team) as well as the incentives created by unemployment (i.e. “the great depression battler”).

    Firstly, unless you’re advocating removing the social safety net (which i would obviously assume you aren’t), we are going to have to subsidize the unemployed to a basic standard of living no matter what. Under that logic, we are already “supporting” players number 12 and 13, they are just not doing anything. That is to say, there are plenty of unemployed people who drive cars, not to mention consume electricity, food, etc. There might definitely be a change/increase in resource utilization/economic purchasing power from a JG, and it’s definitely worth having a discussion about the likely impact it will have on those things, however I don’t think we can simply assume that the net effect is necessarily negative. To use the analogy of health insurance, it could arguably be far more beneficial to get those two players off the bench from the get go so that they can exercise benefit from the team’s healthcare program etc than letting them become fat and lazy, and eventually having to make the team shoulder the cost of their surgeries in the ER. This is partially why i raised the issue of conspicuous consumption – even if the net impact of a JG on “productivity” turned out to in fact be negative, it is still theoretically possible that the net impact of greater democratization of purchasing power (and hence, future investment) would turn out to be a net positive that far outweighs it (i.e. if more poor people had to drive, hence putting more pressure on the development of cheap green car technology).

    Moreover, to take the conspicuous consumption point to a second level, the impact of a Job Guarantee on incentives/laziness is also dependent on a basic assumption that what matters most is absolute standards not relative standards. While again, i wouldn’t presume to know definitively one way or another, my understanding is that there is significant research to suggest that people measure their worth/motivation based on success relative to others, so it could still be entirely possible for people to be equally (or almost equally) motivated to “pull themselves up” out of subsistence-level minimum wage living than they would with unemployment. Perhaps even more so, if the existence of employment made them feel like they actually had an ‘opportunity’ to do so rather than simply giving up because it’s too hard to even get your foot in the game.

  • jt26

    I’m just waiting for Newt to become President. He’ll immediately tell every welfare bum to get a job, cut them loose … and then this video will become very prescient again … http://www.youtube.com/watch?v=cJeNok-lTEw.

  • http://www.pragcap.com Cullen Roche

    Ro,

    I was not aiming my comment at you. I mostly agree with everything you’ve said. My objection to govt spending is generally for the reasons you mention. And I am most certainly not in favor of removing the social safety net. But a JG is more than a social safety net. It’s a bright fluffy padding that says “fall here, no one gets hurt ever!” I don’t know if that’s a good thing for an economy in the long-run. Now, bear in mind that this is all coming from a pure entrepreneur. I haven’t worked for someone else for a very long time so I live in a world where I eat what I kill and independence is highly valued. So I am probably biased to some degree.

  • J Kra

    @LVG

    Hasn’t it been demonstrated to you that increasing the money supply doesn’t necessarily lead to inflation? (http://www.forbes.com/sites/johntharvey/2011/05/14/money-growth-does-not-cause-inflation/)

  • DanH

    Interesting. It looks like there is a sharp division in the MMT thinkers. Those who want the JG and those who don’t.

  • jonf

    I think the JG is a great idea, but I have no earthly idea how one gets it started. Cullen pointed out the outsize number of people it may have to accommodate. I think he understates it. I could be north of 25 million if you count the underemployed and those who may decide to rejoin the ranks of the employed once it is implemented. It sounds almost impossible. I’ll go with Cullen’s lets start small approach.

  • jonf

    Tom, excellent post.

  • J Kra

    Cullen,

    Are you familiar with Rodger Malcolm Mitchell? (http://rodgermmitchell.wordpress.com/)

    Your disagreements with Fullwiler, and your general fiscal conservative-ness, makes me wonder if you are more on board with Mitchell than with Mosler or Fullwiler or Wray etc.

    Anyways, it’s rare to get to see two ‘prominent’ MMT supporters disagree in written-debate form! This is very useful for us newbies. Its a good reminder to newcomers enamored by MMT to remember that there are devils in the details.

    Thanks to both you and Scott.

  • Andrew

    Let’s be straight here Cullen, you don’t like my writing style. You have been making a few “not seasoned” comments yourself, so you shouldn’t act surprised or upset if you get a little pushback. Having said that I admit I have been trying to raise your emotions a bit. The motive is to have your true perspectives in the open. Conditioning against ideological bias on this site and in your writings. I will apologise if I hurt your feelings.

    I do understand and sympathise with your concerns about MMT not gaining acceptance. Although I doubt MMT is not gaining acceptance because of in-house bickering and my “childish” comments. Conventional economic theories would have been flushed down the pan years ago if that were the case. MMTers are saints and angels in comparison. To me it’s all a healthy discussion. personally I like to prod a little and make people think outside their comfort zone.

    MMT is not gaining popular ground for many reasons, well documented. Obviously, it contains elements of economic understanding clearly counter to the prevailing economic and political rhetoric. There is a great deal of self interest from powerful individuals at stake. The entire leadership of the Western World is intent on furthering business interests whilst ramming austerity down the throats of the population on a false economic premise. I think that trumps any unpopular writing styles.

    BTW. I’m not for the JG from a socialist ideological basis. But from 1) the logical positive outcomes for society. 2) it unifies MMT with regard to the objective of maintaining full employment and currency stability. Maybe you should put forward your own alternative hypothesis, how to achieve full employment, maintain a stable currency and a cohesive society. I’m all ears.

  • http://www.pragcap.com Cullen Roche

    You don’t hurt my feelings when you act childish. You diminish your own argument. I’ve dealt with hundreds if not thousands of childish people on the internet. It’s a waste of everyone’s time to say things like:

    “It’s only the end of the story with that giant pair of blinkers and ear muffs you are wearing.”

    or

    “Even that is too much for the blinkered $&@&’s who’s only interest is to maximise corporation profits for their own selfish portfolios. just so they can gamble their way to early retirement, sit on their fat arses and live off the labour of others.

    Honestly, I sometimes hope the wonderful “free” market shafts the lot of you.”

    Your writing style is crude and abrasive. I know you don’t talk to people in real life like this, but for some reason when a man gets behind a computer screen he feels emboldened to act like a schoolyard bully or brat. I don’t understand it. I treat people here with a great deal of respect and you won’t find a comment section on the internet where more people have productive and mature discussions. All I ask is that you respect the space here and the people who inhabit it. You’re not the only guilty party. I’ve warned LVG on past occasions and Scott’s ad hominems are disappointing to say the least. I don’t even know why I have to ask people to behave like grown-ups. It’s really ridiculous.

    And you see, this is the problem. Instead of discussing your valid points we’re talking about why you can’t hold a discussion with a stranger…..

  • Ro

    Cullen,

    Thanks for clarifying – entirely makes sense re: your background. Having spent the last three years living and in harlem, 1.5 of which involved teaching at a local school, I have seen and lived around many people who have simply given up on the current system based on the (perhaps quite justified) belief that it is fundamentally illegitimate/biased against people like them, and have resigned themselves either to a life in welfare or in crime. In such instances, I find that no amount of “pull yourself up” rhetoric will encourage them to start seeking jobs/careers, since they are convinced that 1) the system isn’t designed to actually give them a chance, and 2) even if it did, it would never actually reward them properly for their efforts.

    Additionally, having seen the impact that competition has on the morale of young children, i’m also quite skeptical that a system that makes your fundamental net worth based around how competitive you are against others is one that we should ultimately aim for. In such a system there are always losers, and eventually people get sick of trying to play ball with the other kids at lunchtime when they are constantly the last one picked and are judged for being the worst. By all means have we should competition between similarly competent actors in areas which require high levels of pressure tolerance and constant innovation . But there are many areas, such as nursing and teaching for example, where individual and industry-wide collaboration, support and teamwork are arguably more useful skills/mentalities than competition and cutthroat me vs. you-ism.

    I also agree MMT would benefit from more explicit separation of their political/descriptive elements (even simply splitting every blog post into two sections would just about do it i think), but not withstanding that fact i find the failure to give much airtime to this issue of who should ultimately bear responsibility for economic steering to be quite puzzling. Job Guarantee models are often described in terms of “look! we can hire people to do socially productive things!”, without explicitly providing the philosophical/practical justifications for why the government can even actually ever legitimately make decisions about what constitutes “socially productive” in the first place. This in my opinion stops them from ever winning over those perhaps more right-leaning people who may be open to the idea of democratically determined investment through a JG – provided it does not involve redistributive taxation of their own property – but have historically not even considered the arguments in favor of it before due to their longstanding concerns regarding funding/taxation, which the MMT effectively nullifies with its eye-opening understanding of real monetary operations.

    Moreover, we often hear about different models such as variable payroll tax cuts vs. job guarantees as being two alternative potential pathways to the same endgoal, however without discussing the different philosophical/political assumptions of each model it becomes hard to truly assess the long run implications, particularly in light of the concerns i’ve raised above. I’m sure the MMT vanguard are all aware of their own individual political philosophies/differences on these issues, but it would still be beneficial for the rest of us laypeople who follow this stuff largely on the public blogs if these differences could be fleshed out a little more – perhaps this reflects a general concern that it’s better to present a “united front” against skeptics, or perhaps a strategic decision that it’s far more important to focus first on the operational realities, and only really have such discussions in depth at a later point? I don’t know, but it’s a noticeable dearth in the blogosphere on MMT in my opinion.

    Finally, i find that while it absolutely makes sense for the descriptive element of MMT to be politically neutral, I think perhaps the more politically vocal MMTers would do themselves a favor in convincing more left-leaning individuals if they did devote some portion of their blogs/posts to explaining the alternative arguments that may in fact justify existing tax structures like progressive taxation. As has been discussed elsewhere on this blog, often left-wingers are equally if not more hostile to MMT than right-wingers due to their concern that acknowledging MMT leaves them with no ammo in their arsenal for arguing in favor of things like progressive income taxes, progressive land taxes, etc.

    For the relevance of MMT as a cohesive body of work to expand its lay-impact beyond simply it’s accurate portrayal of the monetary system, i think it needs spend time explicitly developing a cohesive broader-impact set of theories that discuss (from a politically neutral perspective) the relative pros and cons of different models of land/capital taxation, externality taxation, government investment, centralized vs decentralized spending etc, all within the macroeconomic analytical framework that MMT provides. At a basic level this could even simply involve filtering existing orthodox/heterodox research for us laypeople, so that we don’t get tripped up when trying to approach issues that aren’t explicitly addressed in the available online MMT literature – ie. a strategy of saying “this research/person/idea is MMT-consistent, this isn’t”. Obviously this does happen already to a certain extent, but i think making this an explicitly coordinated third-arm strategy (alongside the operational descriptive element, and the political prescriptive element) would probably help to make MMT a more cohesive body of work

  • Nils

    Why does an individual have the obligation to spend wisely? I rather spend two nights a week more at the bar boozing than have the government buy another useless, expensive warship or throw a lavish G20 summit to the tune of 100m $ or so. It might help those who build the ship but I have no obligation to them. The government however, by taking my money, has the obligation to use it in a productive fashion or don’t take it at all. Unfortunately you never really see the government budget shrinking, there is always something else to spend on and a lot of it only benefits a very narrow set of people (=buying votes). If you are not in that narrow set you are out of luck.

  • Pierce Inverarity

    Which is Cullen’s whole point: MMT by itself is descriptive. The JG treads in prescriptive waters.

  • Ro

    Nils – if we accept under MMT principles that the taxation is not necessary to fund but rather generate demand for currency (which would feasibly only require a very small tax burden – RMM suggests local or state taxes would be sufficient), then the arguments about various forms of taxation cease to be about funding constraints and become more about other reasons – i.e. to limit the outer bounds of wealth inequality (income tax), or perhaps to discourage conspicuous consumption/excessive spending by the rich on superyachts etc (luxury good taxes or progressive consumption taxes), to internalize externalities (booze/cigarette taxes), to discourage rent seeking (land value taxes), to reduce financial volatility (tobin tax), etc etc. Under such logic the government never has to “justify” how it “spends” the money it takes from you, because those taxes serve a fundamentally different purpose.

    To that extent, the size of those taxes vis-a-vis the size of government spending programs will determine the size of the deficit. So you could have a number of different strategies to working out optimal size of both vis-a-vis the level of deficit/surplus required to keep full employment. These could included: 1) setting the maximum desired threshold for tax rates and varying the size of government spending programs according to fluctuating demand, 2) setting the maximum desired threshold for the size of government spending programs and varying the tax rates accordingly, 3) setting particular priorities for government spending and varying both the size of the funding and tax rates in order to achieve those objectives, or 4) setting particular priorities for tax programs and varying both the size of those tax programs and government spending in order to achieve those objectives.

    In addition to this, there is also a subsidiary discussion to be had about the various ways in which one might structure government spending. That is to say, while there may be a need for a JG to create a buffer in situations of a lack of aggregate demand, the size of this buffer depends on how much money you initially decide to inject/withdraw from the economy through government spending programs/taxes. So theoretically even within the various options described above one might wish to have very small permanent government programs with a high buffer stock, or alternatively very large government programs with a small buffer stock.

    And that doesn’t even begin to touch the surface of the debate over whether aggregate demand is better managed through interest rates vs. fiscal policy, although occasionally snippets of arguments regarding this pop up between people like RMM, Ralph Musgrave and the pioneering MMTers.

    Regarding your claim that you have “no obligation to provide support for shipbuilders” – i suppose that depends on whether you feel society has an obligation to ensure full employment. I find the argument that unemployment stems from the financialization of the economy rather than an inherent need for unemployment to be quite persuasive – do you ever really see, for example, a situation where you are trying to organize a birthday party/social event, and you tell people standing by offering to help to simply sit down and do nothing because they aren’t efficient enough? Perhaps if you’re frustrated and stressed, but usually you’ll assign them some task – perhaps quite small – that still net contributes to the overall project going on. Or to put it another way, there was no unemployment in hunter-gatherer societies.

    Re: your other point about spending on warships/summits and that there is always something to spend on – this is why i think it’s very important to have a serious conversation within MMT circles about the relative pros and cons of an explicit policy of government steering of investment, a la what is typically proposed by the J. Galbraiths Snr and Jnr. If we spent more time discussing what government “should” be directly investing in/what outcomes we want the economy to produce and less time trying to work out how to tread around the edges of the marketplace in order to let it achieve the highest rate of GDP growth possible regardless of what that GDP actually consists of, perhaps the public would have a more effective/direct/transparent evaluation metric to measure whether or not current allocation of government spending is actually useful or is simply wasteful.

  • Greg

    “People don’t like cheating. That is why conservatives think welfare is cheating. People getting an advantage without working for it.”

    I TOTALLY dont get this idea Adam. Its beyond bizarre to think getting whatever piddling amount a welfare recipient receives is an “adavantage” over someone else. If you think its such an advantage then why dont you take it? Its available for you too!

    And sitting around grumbling because these welfare people drive a car or have a cell phone?? They bought that car and cellphone from some “job creator”! The incompleteness of this line of thinking is just ………….bizarre.

    We never have to worry about everyone going on welfare because it simply doesnt pay enough. Too many people want more (which is good).

  • Wantingtoretire

    So, I am nothing without money…………….lots of it. Is this what freedom and liberty means to many Americans, having lots of money?

  • Wantingtoretire

    There are some sick puppies contributing to this posting