Constructive Remarks on a Promising Beginning

The Modern Monetary Realists have put up a new website to help disseminate a correct understanding of monetary operations to a wider audience. Regardless of any differences they may have with Modern Monetary Theorists, their main goal of educating the public is a worthy one. I do think, though, that their handling of a few points in an introductory post need some tweaking. I offer this in the spirit of helping to move the discussion forward. For brevity, my focus will be on points of difference, but this should not obscure the fact that there is much more in both Modern Monetary Realism and Modern Monetary Theory with which I agree than disagree. I will simply refer to the two groups as Realists and Theorists. I am not strictly in either group, but consider myself closest to the perspective of the Theorists.

 
Value of the Currency

The Realists state their key differences with the Theorists in their introductory post. Four points are highlighted. Their disagreement with the chartalist explanation of state money is touched on in point 2.

Viewed in terms of the Theorists’ definition of currency value, the Realists appear to mix up productivity or living standards on the one hand with value and viability of the currency on the other. It is true, as the Realists correctly stress, that real resources, including labor, are prior to taxation, and there would be no point taxing if the non-government did not already possess some resources. Even so, members of the non-government always possess at least some resources, even if only their own capacity to perform labor. The value of the currency, as defined by the Theorists, is the amount of labor time it takes to acquire a unit of the currency. Or, looked at from the reverse angle, it is the amount of labor time that can be commanded with a unit of the currency. Clearly, the level of productivity has no bearing on the amount of labor time that is commanded by a unit of the currency.

Certainly, productivity affects how much real stuff is produced with that commanded labor time – and is a key economic issue – but it is a concern that is separate from how much of the currency it takes for the government to transfer some labor services to the public domain, or, for that matter, how much of the currency it takes for private-sector employers to employ a certain amount of labor.

Pointing out, as the Realists correctly do, that there is a prior issue of government legitimacy backed by the people does not alter this point. If productivity languishes and real living standards decline, there is a likelihood that one set of politicians will be replaced by another set without there being a change in the currency in use. If the rot continues, despite changes in government administration, the legitimacy of the system itself might come into question. Even then any systemic change could conceivably occur (though not necessarily) without a change in the currency.

But the legitimacy of the state and viability of the currency are not necessarily affected by productivity. In principle, it would be possible for the value of the currency – which is a monetary measure – to remain, say, a dollar per minute of average labor time while productivity plummeted year after year. The government and private-sector employers would still be able to command one minute of average labor with every dollar outlaid, but the output made possible by this would be in decline. This would be a bad situation, but the problem would be the declining productivity, not the value of the currency.

Equally, productivity could increase strongly year after year while the legitimacy of the government, currency or system itself came into question. Mass unemployment, extreme inequality, civil unrest, incessant war or any number of other political factors could undermine the legitimacy of a government or system itself. Yet, in principle, a dollar might continue to command one minute of average labor time. As long as this were the case, the currency would remain operative as a means of commanding labor time.

In other words, it is not that productivity is unimportant. It is just that it is a separate consideration from value of the currency. Productivity relates to alterations in potential real living standards. Value of the currency is a monetary concept that relates to the difficulty in obtaining it. (For more on the above considerations, see the last two sections of this post.)

Now, it may be that the Realists would prefer to define the value of the currency differently than the Theorists. They may have a definition in mind other than the amount of labor time required to obtain it. This possibility may be implicit in past remarks they have made concerning their notion, yet to be elaborated, of Full Productivity. If this is the case, I think it would be beneficial, in moving the discussion forward, for the Realists to spell out their alternative definition of currency value and their reasons for it. Or, if this is not yet possible, it would be helpful at least to make explicit the alternative definition of currency value that they have in mind. This would help to clarify the points of disagreement.

 
The Supply Side

The Realists are concerned that the Theorists ignore supply-side issues relating to productive potential (point 4 of the introductory post). This may partially misconstrue the nature of the Theorists’ macroeconomic theory, which emphasizes output, employment and price stability while at the same time remaining compatible with other heterodox (e.g. Post Keynesian) explanations of technical progress, productivity and microeconomic issues.

There is widespread agreement across all schools of thought that there is ultimately a supply-side constraint on the economy. A key debate in macroeconomics is over whether there can be a long-run demand constraint that usually comes into play prior to the supply-side constraint being hit.

The neoclassical macroeconomic orthodoxy supposes that in the long run only the supply-side constraint is binding. This view depends implicitly on the supposed existence of an automatic tendency to full employment induced through the price mechanism. This (usually only implicit) assumption cannot be justified by appeal to neoclassical theory, since well known results in general equilibrium theory make clear that no such automatic tendency can be shown to exist other than in a single commodity world or similarly extreme simple case. If orthodox macroeconomists recognize this issue at all, they usually appeal to a supposed empirical relevance of the supposed full-employment tendency. But this claim is exceedingly weak, resting on the redefinition of full employment to correspond either to “natural rate” unemployment or the NAIRU. Even then, it cannot be claimed that the economy automatically tends to an invariant (supply determined) natural rate or NAIRU, since the rate of unemployment supposedly corresponding to these measures are redefined in response to persistent alterations in actual unemployment that themselves reflect past levels of demand.

The Theorists, of course, along with Post Keynesians, reject the supposed automatic tendency to full employment, or indeed a supposed automatic tendency to any particular level of output and employment. Output, for them, is demand determined, including in the long run. Normally, other than by fluke, the economy will hit demand constraints well inside the supply constraint.

The Theorists certainly do not deny the importance of productivity and technical innovation, although these aspects are the focus of other complementary areas of heterodox economics. But even here, demand factors are important, and not independent of the supply-side factors. Strong demand, high employment and rising wages create a strong impetus for technical innovation as a means for firms to slash costs and economize on labor. Fiscal demand management that maintains levels of output near capacity are complementary and conducive to technical progress.

The orthodox preference for a sole reliance on so-called microeconomic reform or labor-market deregulation loses any appeal it might have if output is demand determined and persistently far below potential. Any efficiency gains that might or might not obtain in particular cases are minor compared to the forgone output caused by the economy operating well below capacity. I say “might or might not obtain” because there is no convincing theoretical basis for supposing such policies have systematic effects on the overall performance of the aggregate economy.

Even if in particular cases a microeconomic policy can be shown to be beneficial, the benefits will not be compromised either by appropriate generalized deficit expenditure or the introduction of a Job Guarantee. Such policies do not prevent relative price movements or save unviable private firms from bankruptcy. The policies simply help to ensure that potentially viable production does in fact take place while at the same time creating a strong impetus for technical innovation.

Any disagreement I might have with the Realists on this point should not be overstated. I feel certain that they are well aware of likely interdependencies between demand and technical innovation and that their influences are broadly Post Keynesian rather than neoclassical. My main purpose in this section has been to point out that the Theorists do not discount the importance of technical progress. It is just that their emphasis, in macroeconomic theory, on demand determined output and employment does not contradict these insights but to the contrary is highly compatible with them.

 
Coercion

There still appears to be a feeling among the Realists that the Theorists view coercion as in some way justifying government intervention in the economy. This is not the Theorists’ argument. There is coercion in the tax obligation, but there is no suggestion that this is what justifies government intervention. Rather, the argument is that the coercion explains how the government is able to transfer some resources from the private to public domain. It explains, rather than justifies, the way in which the tax obligation enables the government to command some resources.

There is certainly no suggestion that the coercion in the tax obligation implies authoritarianism rather than democracy backed by the people. For example, Wray wrote in 2003 (hat tip to Scott Fullwiler):

For our purposes, sovereignty can be defined as the ability to impose tax liabilities, although in the past the ability to impose fees, fines, tithes, and interest was more important than imposition of tax liabilities. Clearly, these payments are not voluntary at the individual level, although in democratic nations tax liabilities are at least in theory imposed by consensus. It should be emphasized that this ability to impose liabilities on the population does not presuppose an autocratic or fascistic State. Even the most democratic of states impose taxes, indeed, it is somewhat paradoxical that the social democratic states (Scandinavian nations, for example) tend to impose relatively larger tax liabilities than do more oligarchically controlled states (the US or Japan).

My own view is that taxation is coercive, but less so than the likely alternatives (e.g. sole reliance on brute force), short of society progressing to a level in which all cooperation can be purely voluntary.

 
The TC Rule

Michael Sankowski has put up an early post on what he calls the TC Rule. I think it is premature to subject the TC Rule to close criticism until its rationale and underpinnings have been elaborated in more depth. It is a proposed fiscal rule, partly informed by empirical regularities that in principle could be modified over time to reflect the latest evidence. The theoretical underpinnings seem unclear at this stage. The suggestion is to target a particular deficit to GDP ratio based on the degree to which actual rates of unemployment and inflation exceed their targets, accounting for population growth. The unemployment and inflation rates are political choices. Sankowski suggests a rate of 4 percent as appropriate for both targets.

It seems to be the view that policies informed by a correct understanding of monetary operations would enable a target rate of unemployment that is below the current orthodox estimates of the NAIRU.

From my perspective, if 4 percent unemployment is to be deemed acceptable, an unconditional basic income would be morally required. If not, I don’t see how this approach is much of an improvement on the preferred stance of the current orthodoxy. It gives up a little price stability for some reduction in unemployment, which in itself I have little problem with, but in doing so is likely to be inferior on both counts (unemployment and inflation) to the Job Guarantee proposal of the Theorists. The Realists touch on their objection to the Job Guarantee in point 3 of the introductory post.

 
Debate Over the Balance of Payments Constraint

In my view, the Realists (and others such as Ramanan) are providing a positive service in raising the external sector as an area for discussion (point 1 in the introductory post). Although at this stage I am not convinced that the criticisms are anything more than a framing issue, in which different economists are electing to compartmentalize various political challenges and realities in different ways, neither have I managed to convince myself that the critics do not have valid disagreements that go beyond mere framing. A long discussion has been taking place in a recent thread, which I am still in the process of reading through closely. I would be interested in seeing a response from the Theorists to the critique of Ramanan and the Realists, or be pointed to any responses that might already exist.

For quite some time now, Ramanan in particular has been criticizing the Theorists’ perspective on the external sector. From an outsider’s perspective – and, when it comes to Modern Monetary Theory, an autodidact’s perspective – it does not seem to me that his arguments, now supported in some sense also by the Realists, have been clearly and properly addressed. It appears, instead, that critics have been, in effect, banished from the larger MMT blogs not by force of argument but simply an appeal to authority. I am open to the possibility that the Theorists have a convincing answer to the criticism, or even that it already exists somewhere (if so, I’d appreciate the relevant links), but I am not left with that impression at the moment. Judging by the comments of other non-academic commentators on the various blogs, I get the impression my uncertainty on this point is not unusual.

 
Concluding Remark

I hope the Realists will take this post in the spirit in which it is intended. I am reticent to criticize either the Theorists or the Realists when we all have so much in common. But I think debate is the most effective way to push the conversation forward. Realists should certainly push back with whatever counter-criticism they deem is warranted.

Lastly, I wish the Realists all the best in disseminating the understanding of monetary operations shared by both Theorists and Realists. The more this understanding takes hold, the better life can be for all of us.

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129 thoughts on “Constructive Remarks on a Promising Beginning

  1. I am very suspicious that one should classify labor as a resource.
    It puts humans in the class of things. Things are assumed to be irresponsible whilst humans are assumed to be responsible… well, at least for some people… Therefore, classifying humans as resources is tantamount to assuming humans as irresponsible. “Economics without politics” !-) and all that stuff…

    On “value of a currency”, I would note that the expression “value of currency” is to be taken with care. A currency is a tool to map “entities” to values, ie, numbers. “Value of entities” expressed as numbers in a currency is clearly a function from “entities” to numbers and a well-defined one. Talking about the inverse relation involves the inverse of a function that may be not well-defined.

    With this caveat, I would suggest that the “value of a currency” is independent of productivity “inside borders” as the unit of currency buys the same amount of time of capability to produce labor, in a statistical sense. Yet, as this does not happen “across borders”, productivity may very well be relevant.

    Indeed, something that it seems me is lacking in MMT is a model for exchange rates.

  2. Very insightful thoughts, PG, as always.

    Regarding thinking of labor as a resource, I agree. Personally, I am also suspicious of thinking of nature as a resource. But in MMT and most other approaches to economics, and in capitalism itself, labor is constructed in this way, so it is necessary to recognize this when explaining the logic of the MMT position.

    Regarding the value of the currency being independent of productivity “inside borders”, I agree, but would argue that the relevant border will only be crossed when the tax obligation becomes unenforceable, if currency value is defined as the labor time required to obtain it, which is the MMT definition. As I mentioned, if the Realists have an alternative definition in mind, and I think they might, they can explain it.

    It seems clear to me that if the tax obligation is enforceable, the currency will remain viable in the MMT sense that there will be some demand for it and the government, at minimum, will be able to transfer some resources from the private to public domain. It is a sufficient but not necessary condition. The viability of the currency could only be lost, in this sense, if the tax obligation became unenforceable.

    Given this proviso, the inverse will also hold. If it takes 1 minute of labor time on average for a worker to obtain $1, it will also take $1 to command 1 minute of labor time.

    Exchange rates, and their significance, concern the external sector and here, like you, and like Ramanan and the Realists, I remain uncertain of the Theorists’ response to the critics.

  3. Not very relevant here maybe, but there is something I’d like to mention.

    You wrote –

    > The value of the currency, as defined by the Theorists, is the amount of labor time it takes to acquire a unit of the currency. Or, looked at from the reverse angle, it is the amount of labor time that can be commanded with a unit of the currency.

    You’ve said this numerous times lately. I’m not sure this is quite correct though. I don’t think that’s how MMTers see it – at least not if stated generally like that.

    Would be better if Scott could comment, but I’ll try to give you an idea of what I mean.

    A number of a-priori assumptions need to be specified before they would concede, I believe. In my understanding, the story usually goes something like this:

    The currency issuer is a monopoly supplier of base money (much like a water supplier could be a monopoly supplier of drinking water).

    As a monopoly supplier, they *could* decide to set a fixed price. They would then let the quantity of what is supplied float, as demand (at the given price) fluctuates. This is called a “price rule”.

    For example, a monopoly currency issuer could fix the price of the currency to gold. If it did so, then the value of the currency would be the amount of *gold* required to acquire it – not labor.

    The currency issuer would have to purchase all “idle” gold offered at the set price. Conversely, it would also provide gold for currency offered at the set price. Buffer stock, blah blah.

    Of course, gold could be bought and sold at the market at other prices as well (perhaps there could be processed gold of different qualities out there?).

    But again, if the monopoly currency issuer has selected to use a *price rule* and to fix the currency to plain old raw gold, then *that* sets the “value of the currency”.

    Correspondingly, with a JG in place the plain old raw gold would be replaced with “JG labor hours” in the above discussion.

    OK, I’m not sure how this is relevant to your post.. Why is the value of the currency imporant at all? But still, I’ve wanted to say this.

  4. Hi Hugo. I always appreciate your input.

    Here are a few quotes from MMTers. Tcherneva:

    For example, if the state required that to obtain one unit of HPM [high-powered money], a person must supply one hour of labour, then money will be worth exactly that – one hour of labour (Wray, 2003b: p. 104). Thus, as a monopoly issuer of the currency, the state can determine what money will be worth by setting ‘unilaterally the terms of exchange that it will offer to those seeking its currency’ (Mosler and Forstater, 1999: p. 174)

    It is certainly true that the government could specify that a quantity of gold or some other commodity is required in exchange for a unit of the currency. But MMT is concerned with a modern monetary system. Under a different system things could obviously be otherwise.

    (As an aside, from the perspective of Marx, and perhaps MMT, I’m not sure, defining the value of the currency in terms of gold under capitalist social relations does not really alter anything significant in terms of currency value. It would simply mean that the socially necessary labor time required to produce gold would become what was required to obtain the currency. I say “perhaps MMT” because in the next quote provided below there is mention of money growing on trees making currency value the amount of labor time required to harvest trees. So perhaps even here the logic holds.)

    Note that Wray and Tcherneva have explicitly criticized the Basic Income Guarantee proposal on the grounds that it would undermine the value of the currency. The reasoning is that it would then take zero labor time (“at the margin”) to obtain a unit of the currency:

    As we explained in the subsection on price stability, the value of the dollar is determined on the margin by what must be done to obtain it. If money ‘grew on trees,’ its value would be determined by the amount of labor required to harvest money from trees. In an ELR program, the value of the dollar is determined on the margin by the number of minutes required to earn a dollar working in the ELR job—six minutes in our example above. Assuming that BIG provides an equivalent payment of $20,000 per year to all citizens ($10 per hour for a normal 2000 hour working year), the value of the dollar on the margin would be the amount of labor involved in retrieving and opening the envelope containing the annual check from the treasury, divided by 20,000. Obviously, the purchasing power of the dollar in terms of labor units would be infinitesimally small under a universal BIG scheme. Again, as we said above, this is the logical conclusion of the inflationary process that would be set-off by implementation of such a BIG program—it might not happen overnight.

    Mosler also made a similar remark about a BIG in a recent exchange in the blogosphere:

    The currency is defined by, at the margin of need, what you must do to obtain it from the issuer.

    So if you can get a living wage from the issuer for doing nothing, there is nothing that can stop the currency from being worth nothing once it heads in that direction from an accelerating flight to BIG.

    This is not a convincing argument. Unemployment benefits already exist in numerous countries without requiring labor time in exchange, and the value of the currency has not been destroyed. What matters is the average, not marginal, labor time. This is not a major disagreement with MMT. It just eliminates some strange conclusions that otherwise can be drawn by thinking in terms of the marginal case. Changes at the margin, like any other changes, will have their influence through their impact on the average.

  5. “It explains, rather than justifies, the tax obligation enables the government to command some resources.”

    Peter I would point out that in the case of the US, many external entities seek to obtain USD balances, and as the US govt does provision itself with foreign sourced goods to an extent (e.g. structural steel for bridges, etc..), the US govt is able to obtain this part of it’s provision without any tax obligations. Here is the latest spreadsheet that provides the evidence of this phenom:

    http://www.treasury.gov/resource-center/data-chart-center/tic/Documents/mfh.txt

    (Look at Japan slight hiccup Mar/Apr with tsunami, then right back on track)

    These balances should hit the $5T mark right on time at the end of April of this year (approx $50B/mo rate).

    I think the tax obligation explains well the govts ability to command some resources internally here in the US, and in a broader sense why the USD would be “valued” internally, but logically cannot explain the phenom evidenced in the above spreadsheet as those external entities obviously fall outside of the jurisdiction of US tax laws.

    So this desire to obtain USD balances by foreign entities is at best irrational, or at worst more likely imo evidence of a global systemic “corruption” and/or “exploitation” if you will, that is transacted primarily in USD balances.

    Ramanan’s points wrt the external sector are well taken by myself also, but Ramanan is approaching this with a view that somehow the global system is “objective” or “rational” if you will in my view. I interpret Ramanan’s main question as pertains to the US Treasury Dept’s spreadsheet I linked to above as: “Can that spreadsheet balance just keep going up forever?”

    This is not a “scientific” question of economics in my view. Or one that is best analysed and answered by a “scientific” investigation, unless the “science” is psychology.

    Resp,

  6. Good comment, Matt. Yes, I agree, the MMT explanation is in terms of internal demand and domestic value of the currency, not the exchange rate. The MMTers are explicit on this point, too. I should have been clearer in that respect.

    An external demand for the currency does follow from the fact that some people, though not everybody, must pay taxes in that currency, but the MMT explanation of the domestic value of the currency is not intended to explain the determination of the exchange rate.

    Interesting thoughts also on the external sector. Thanks. I’m still keeping an open mind on that issue.

  7. One of the advantage the right has is that their pitch is emotional in content. They really *feel* that the application of fire and brimstone will improve things.

    In contrast a grey and analytical approach is not going to move anybody.

  8. In my view external imbalances can be attributed mainly to differences in savings ratios. Current Account Surplus countries like Germany, China, Japan all have a high savings ratio in common while deficit countries exhibit the exact opposite behaviour.

    The CAD can be viewed as a flow which adds to an existing stock of Claims on the deficit countries wealth (which is represented by its output and assets). As long as real value is preserved (there’s no hyper-inflation) and claims-to-wealth ratio is held steady, CAD is sustainable in my view.

    A surplus country, by definition, cannot save as much as it wishes in its own currency but rather accumulates claims on other currencies. If that happens in the form of official FX reserves or private wealth is a matter of FX policy of the surplus country (China accumulates official FX reserves while German private sector accumulates euro claims of the periphery which get recorded as deficits in the corresponding NCB accounts with the Eurosystem).

    Current Account crises (although i am only aware of fixed exchange rate ones) can be explained by a fall of the claims real value (inflation episode) or an increase in the ratio of the claims-to-wealth (for instance a war episode which destroys wealth and output or a large enough persistent CAD compared to output and asset values). Obviously, the risk-free interest rate set by the Central Bank plays a crucial role on preserving (or lowering) the real value of these claims.

  9. Very good post, I made a very similar case to Cullen in the comments on his blog: http://pragcap.com/i-am-in-favor-of-full-employment Sadly, I don’t think it was enlightening for either of us. Cullen is still against the JG because it is “big government” and that turns people off to MMT, along with MMT’s attention to problems with the private sector relative to benefits of it.

    I am still working out the determinants of the domestic value of money and it seems macroeconomists have been unable so far to come up with a model for exchange rates and empirically test it. I think John Harvey has done the most MMT/PK work on this.

  10. Thanks for your thoughts, Tschäff. I read your exchange with Cullen with interest.

    I agree on exchange rates. They seem complicated and I doubt there can ever be a completely satisfactory explanation of them.

    To me, domestic value of the currency is much simpler when defined in terms of the labor time required to obtain it. This does not mean that the value of the currency can’t be affected, both directly and indirectly, by various factors. For example, the strength of organized labor can influence wage rates and therefore the value of the currency. To the extent productivity improvements provide room for non-inflationary wage increases, these too can indirectly enable alterations in the value of the currency if organized labor is effective in bargaining for such wage increases. However, notice that this indirect channel would have an effect different from what I suspect the Realists have in mind. Any money wage increase made possible through collective bargaining in the context of productivity improvements would reduce the value of the currency even though a unit of the currency might purchase more real goods and services than it could before. I discuss some of these effects in Value of the Currency.

    If the value of the currency is defined in terms of the labor time required to obtain it, productivity improvements, in themselves, will not affect the value of a currency unit. But they will of course increase the goods and services all the currency in existence can buy. I think it is the latter effect that the Realists may be hoping to capture in their conception of currency value. Personally, I don’t think it would be the right way to go, because I think other measures attempt to represent this (e.g. price-deflated GDP), but I will read any explanation the Realists provide with interest.

  11. Peter,

    I made the following comments at the MMR site on the TC Rule – but they appear to have gone to “moderation heaven?”

    I would also use targeted unemployment to extend UI – in other words, UI gets extended indefinitely until unemployment hits 1% above the target unemployment.

    Further,the target unemployment should be closer to what is considered structural unemployment. NAIRU used to be 3%, became 4% then 5%, and now is what? I believe that latest numbers are coming close to 7%. So obviously the whole NAIRU methodology and thinking is faulty.

    Again, if your inflation target is 4%, and you say that the last time unemployment was 4.5%, there was little inflation, then I would contend that your target unemployment rate has to be lower – probably down at the 2-3% level.

    Also, if we take the extension of UI,to the levels I suggested below, that would lead to a deficit of 15.5% of GDP or about an additional $1.25T –The addition UI cost would be an additional $50B. An annual per capita grant to the states of $320B or $1000 per capita would do the trick.

    So as per Beowulf,

    FICA Holiday $850B

    My suggestions
    Continued UI $50B
    Grants to states $350B

    These should have an extremely stimulative effect on the economy.

    Personally, I think that frictional employment is probably really only at the 1% or so level. There is no reason for employer to be laying off employees other than those expressly hired for “temporary work.” And those that are hired for “temp” jobs should really be paid at much higher levels than those that are “permanent” hires. The reason for that is very clearly seen in the “consultant” market – they are temp workers of a kind — and get paid much higher rates (for the time they work) than permanent employees.

  12. All the criticisms are straw men, in my view. Sorry to be a broken record on the “you’re misinterpreting us” point, but it is what it is.

    1. You (Peter) addressed the value of the currency part well.

    2. The suggestion that we ignore the supply side is in fact just jaw-dropping. As you note, there’s a lot of heterodox stuff there already–we’ve generally filled in the monetary operations side, which would seem to be obvious. The fact that we haven’t built a theory of everything or haven’t addressed everything in our blogs or research shouldn’t be equated with the idea that we ignore or have no use for parts we’ve left out (which is a common misrepresentation of our views). In fact, my own views on productivity are nearly identical to theirs, and I’ve held these views for many years–but I do research on central bank operations, so why would I go into how the supply side of the economy works?

    3. You dealt with the coercion point well already.

    4. Regarding exchange rates, their position seems to me to take our position to the extreme and then argue that we are being extreme (in fact, I might even suggest most of their anti-MMT points do this). If it appears that we don’t address this head on anymore, it probably has more to do with the fact that we generally tire of repeatedly addressing misinterpretations. If you don’t get it after we’ve explained it X times, you probably won’t. At any rate, we’ve never said flexible FX enables the govt to do anything it wants–we’ve said it creates more policy space than not having them. And we’ve always said that fleixible FX without debt denominated in own currency isn’t good enough. And we’ve always said that floating exchange rates, uh, float, and that can be problematic in some instances–such as when a particularly important resource (e.g, oil) must be imported, which then obviously suggests some sort of limit to the policy space the flexible fx policy is providing.

    5. We’ve been very clear that there is a necessary choice between an employed buffer and an unemployed one. The JG is not the only policy choice, but it’s the one we prefer, obviously. But we’ve NEVER said that “a Job Guarantee (JG) is a necessary component of any monetary system” (that’s copied and pasted from their “about us” page, btw). That statement just boggles the mind, frankly, as it’s such a completely ridiculous interpretation of our views.

    Thank you for your even-handedness, Peter, not that I’ve come to expect anything else from you.

  13. Peterc,

    Thanks for mentioning my name again.

    I have debated this with almost all the Neochartalists at length but in my opinion they simply won’t change their opinion because changing it will be self-destructive 🙂

    I am done with discussing with them on this and I wouldn’t like it to be put this across to the Chartalists as something I (in particular) am looking answers for. It’s simply not a matter of emphasis and framing in view. I once said in a comment at the NEP that the Chartalists are chasing a mirage!

    I generally don’t talk of this these days in their blogs but since you sometimes present yourself as having views independent of them and also since you mentioned my name there, I was inspired to argue. Also surprisingly, I had positive responses for the first time (One exception being the commenter Sergei who agreed on many points I made before). But thanks for hosting. I’ll surely will debate when someone again starts discussing this.

    It’s not something new I suddenly realized one day and started posting it in the blogs. There is good research on the constraints brought from the external sector initiated by one Nicky Kaldor.

    What others find the most interesting in modern monetary theory is the sectoral balances approach and the Chartalists learned it from Wynne Godley who himself was painfully aware of the constraint. In fact in the 1970s, the Cambridge Economic Policy Group (which included Francis Cripps and Nicholas Kaldor in addition to Godley) led the revolution against Keynesianism in the UK (though they were themselves Keynesians).

    However, the Chartalists’ inspiration is in my opinion a half-reading of Godley’s work.

  14. For example, if the state required that to obtain one unit of HPM [high-powered money], a person must supply one hour of labour, then money will be worth exactly that – one hour of labour (Wray, 2003b: p. 104). Thus, as a monopoly issuer of the currency, the state can determine what money will be worth by setting ‘unilaterally the terms of exchange that it will offer to those seeking its currency’ (Mosler and Forstater, 1999: p. 174)

    I’m not sure where Pavlina was going with that, but no state I can think of sets a universal requirement for the particular amount of labor that must be supplied for one unit of the currency. Even under a fully ramped up job guarantee program, and one that paid only a single uniform wage, only a fraction of the population would be exchanging labor for a government wage. So the government would surely influence the value of the currency through the job guarantee, and set a floor monetary price for labor. And that along with other government monetary actions might succeed in enhancing price stability. But the government surely wouldn’t be able through those means alone to set the price level.

  15. Scott F said:

    But we’ve NEVER said that “a Job Guarantee (JG) is a necessary component of any monetary system”

    I was also very puzzled when I read that on the new site. MMT describes the modern monetary system that actually exists in places like the United States. But the United States has no JG. Therefore, a JG is clearly not a necessary component of any monetary system.

    It’s odd that they have felt the need to declare some new approach to differentiate themselves from MMT, but that their of statements the points on which they differ have turned out to be so vague.

  16. Peter,

    I do have to take issue with this point you made–“It appears, instead, that critics have been, in effect, banished from the larger MMT blogs not by force of argument but simply an appeal to authority.”

    What appeals to authority are you speaking of? As I suggested above, our views are rather clear on this matter–when they are not being obfuscated by others (both supporters and critics, in fact), which happens frequently.

    It seems to me, in fact, that it’s the opposite–MMT’ers are supposed to accept the criticisms (which, as above, I would suggest are based upon extreme interpretations of our views) based upon repeated appeals to the work of Kaldor, Thirlwall, Tobin, Godley, and so forth.

    A few comments above this one there is yet another appeal to Godley and Kaldor. It is also implicitly suggested that somehow because we don’t agree with everything Godley said that our views that were in line with his are also suspect. And whether we are interpreting Godely correct is something we’ll never know for sure, as Randy has noted more than once that Godley eventually accepted that Randy was right; so someone–Randy or MMT critics–is clearly not being true to Godley on this matter, but I don’t know who for sure, nor do I really care. Randy in fact rejects some of the views of his own teacher, Minsky, on government debt; by the logic of some of our critics, then, I suppose we aren’t Minskyan enough, either.

  17. “And whether we are interpreting Godely correct is something we’ll never know for sure, as Randy has noted more than once that Godley eventually accepted that Randy was right;”

    Clearly flat out wrong. As Cullen quoted Randy in print here

    http://pragcap.com/wp-content/uploads/2012/01/wg.png

    I don’t go into appeal to authority, just quote some some quotes which I find insightful but the point of this comment is to get this clear.

    The point here to appeal -if that’s the right word – was to point out what I am saying is nothing new.

    I do also think Peter isn’t correct about the appeal to authority.

  18. Unemployment benefits already exist in numerous countries without requiring labor time in exchange, and the value of the currency has not been destroyed

    2 points. Using our own Country Peter, Australia requires exchange of labor time for the work experience phase (formerly work for the dole) on unemployment benefits and that is at the choice of $20 flat extra or no change to the benefits. And our benefits are close to half the living wage – around 12k.

    I cannot speak to other countries but based on what I wrote above I do not see much merit in your counter-argument.

  19. Just found the passage I was referring to, but must admit it refers to household debt, not external balance. So, yes, Wray and Godley always disagreed. Sorry. Ramanan is correct there.

    Thanks, Ramanan, for your own even-handed comment at the end at 11:02pm. Appreciated.

  20. TR: I think John Harvey has done the most MMT/PK work on this.

    John and Randy are friends, and I suspect Randy’s views are close to John’s, although I have consulted with either of them on this.

  21. Scott: Thanks very much for clarifying matters.

    On re-reading, the “banished” and “appeals to authority” sentence is poorly expressed and, seeing Ramanan’s comments (thanks, Ramanan) unfounded. By appeals to authority, I was not referring to the academic MMTers, but some of the comments by others, which at times seemed a bit aggressive without seeming to explain the position.

  22. Peter, Your posts on the JG, BIG, JIG and related matters have been wonderfully clear and well-written, and I’ve enjoyed every one of them, including this one. I also compliment everyone on the discussion here which is a fine exchange on some serious cognitive issues.

    I must take issue with one thing, however.

    “For brevity, my focus will be on points of difference, but this should not obscure the fact that there is much more in both Modern Monetary Realism and Modern Monetary Theory with which I agree than disagree. I will simply refer to the two groups as Realists and Theorists. I am not strictly in either group, but consider myself closest to the perspective of the Theorists.”

    I very strongly disagree with your easy granting of the MMR group’s own branding of their disagreement with MMT. They carefully framed that branding for political effect in the MMT community and beyond.

    It says two things. First, that within the group of researchers and writers who share the MMT view of modern monetary “operations,” the MMR people are the “pragmatic” “realists” devoted to the facts, who other people can deal with, while the rest of the group agreeing on the monetary narrative of MMT are “idealistic” “impractical” and “ideological” — mere “theorists” who cannot be trusted in the area of policy recommendations because they are “unrealistic,” as evidenced by their advocacy of the JG; who do not stick to the facts, and who cannot be reasoned with because they are ideological.

    And second, this branding is an attempt to claim that the MMR group’s views are neither “political” nor “theoretical,” but only “factual and “descriptive”, while the MMT “theorists” are “ivory tower” academics who are much more “political” and much less concerned with facts, and who are much more “prescriptive” than the realists.

    I know that your distinction between “theorists” and “realists” was just a convenience for you, and that you in no way meant to imply the characterization I just gave above in distinguishing between the two approaches. Nevertheless, in putting the distinction the way you did you are reinforcing MMR’s branding of the disagreement, along with their framing of it, and are therefore reinforcing the bias in exchange between the two groups, that the MMR writers would like to see reinforced and that has as far I can tell, has absolutely no basis in fact.

    From where I sit neither approach is more “theoretical” than the other. Nor is either approach more or less devoted to the facts as far as anyone can tell at this point.

    Nor do I see one approach as more ideological than the other, or one approach more “pragmatic” than the other from the point of view of proposing policy solutions that are likely to work. Nor do I even grant that the MMR group’s developing political positioning relative to the larger political system is more pragmatic than the MMT position.

    It may prove to be so. But that assumes that the larger political realm will change only incrementally from its orientation in the recent past and currently. And that, in turn assumes, that the OWS and other protest movements which have yet to hit their peak will be successfully repressed or deflected by the 1%.

    I am not ready to grant those assumptions. I think we are entering a time of substantial social and political changes which have only begun to run their course. And that the political orientation and narrative of MMR may be a poorer fit for the dynamics of that time, than the political orientation and narrative of MMT which can easily fit within a larger Second New Deal narrative that is beginning to take shape and gain strength.

    What is clear however, is that Cullen, Carlos, and Mike may be much more attuned to the marketing and political atmospherics of the debate, than many who have commented here are willing to recognize. Everyone here wants to maintain civility and good fellowship and is reluctant to criticize or to prematurely evaluate the views of the MMR group, or to suggest that there are serious political and value differences between the two groups.

    But whether or not my views seem plausible to you, or whether you find the MMR orientation more “pragmatic” isn’t really the issue. The issue, instead, is one of fairness. For reasons I outlined above, it is not “fair” for MMR to characterize itself the way it has, and at the same to characterize MMT the way it has both explicitly, and by implication. It is not only not fair. It is downright disingenuous!

    Is “Full Productivity” any less “theoretical” than FE at a living wage with PS? Excuse me, but I don’t think so. In fact, I think the opposite. And as Peter has pointed out above, the MMR group’s treatment of FP to date isn’t even “theoretical” yet, since their view of this idea remains unspecified. Also, is FE at roughly 2% UE (Bill Mitchell’s specification) more “theoretical” than Mike’s target of 4% UE? Again, I don’t think so!

    Are the MMR ideas about these things any less “political” than the MMT group’s ideas on the subject? Is MMR really “economics without politics”? If anyone really thinks that, then I have a bridge to sell them. But in the meantime my own view is that MMR is profoundly political and is opposed to the Second New Deal orientation that more and more seems characteristic of MMT. In fact, I think MMR reminds me very much of a moderate Republican orientation, not far different from that which characterized Richard Nixon’s Administration.

    So, to get back to the most relevant point here, Peter. I don’t think posts about MMR and MMT which intend to be “neutral” and “unbiased” ought to grant the MMR branding of differences between MMT and MMR as you did all too easily by naming MMT people the “theorists” and MMR people “the realists”. That kind of labeling may not be pejorative where you and I and many of us here are coming from; but it certainly is pejorative is the mainstream media, in much of the blogosphere, and in politics.

    So, I’m not going to assent to the MMR labeling in any particular. MMR is not economics without politics; it’s not non-ideological, it’s not non-theoretical, and it’s not non-prescriptive.

    If this wasn’t apparent enough from Cullen’s series of post on this subject. It was certainly made very clear from Mike’s opening post which is everyone of these things in some degree.

    So, please do find a way to label the two positions differently. Perhaps FE – MMT and FP – MMT would be a good way of doing it, or perhaps New Deal – MMT and Modern Republican MMT would do it. Or we can leave it to more imaginative people than I.

    But whatever we do, let’s agree to use labels that don’t start off by so blatantly granting the characterization of one side by the other in making the distinction as “the theorists” and “the realists” does. That’s just not a fair way way of framing the disagreements, and it won’t support the fair critical comparison of the two views that I’m sure we’re all looking forward to.

  23. Scott,

    “At any rate, we’ve never said flexible FX enables the govt to do anything it wants–we’ve said it creates more policy space than not having them.”

    Have you managed to show that the central bank can avoid becoming lender of last resort in a foreign currency.

    One of the key elements of MMT is that the central bank has a dilemma in the domestic policy space in that it can choose to target the policy rate or it can choose to target the quantity of reserves (and therefore allow domestic banks to go bust due to illiquidity) but it can’t do both.

    It seems to me on the FX side that the central bank must target quantity for the fairly obvious reason that it can’t make more foreign currency and more than it can make coal.

    And the consequence of that choice is that it has to be prepared to put a domestic bank dealing in FX into administration due to lack of foreign liquidity. Which sort of suggests that a sensible regulation design would make sure the FX trading arm and the domestic clearing bank are separate legal entities.

  24. Joe: I may have overcompensated in this post after my last one, which, though I tried hard to be polite, was taken as a personal attack by many commentators (though not Cullen) at pragcap. I agree with pretty much everything you have written in your comment. Actually, I think it would make for a great standalone post. Have you considered putting it up at Daily Kos or Corrente?

    My (perhaps misguided) idea was to avoid anything, such as the naming issue, that might distract from the other aspects of the post. With the previous post, I made the mistake of including a short section on political perspectives and this allowed people to focus entirely on this and ignore the economic arguments that followed. For this reason, I decided to take the name MMR at face value, on the grounds that this group can call themselves what they want. But I agree that it may be conceding too much.

    I should also add that your intellectual and educational background likely puts you in a much better position than I to discuss the naming issue. You expressed it much better in your comment than I could have done.

    As you may be intimating, my choice may also reflect my lack of awareness when it comes to strategic political campaigning. Recently, this has been brought home to me in other threads concerning the naming of alternatives to our current social system. This shortcoming is evident here, too, where “Realism” does not strike me personally as more positive or negative than “Theory”, but of course you are correct that for the general public, who we are trying to communicate with, that is probably not the case.

    I will make one observation. If, as you sense, and I agree, we could be entering a period of meaningful change, “Realism” may not necessarily prove to be as appealing a description to many people as might have been the case prior to the crisis. Although the term has positive connotations, it could also be seen as defense of the status quo at a time when people are looking for more.

    However, I take all your points. I’m not sure what the alternative is regarding how we refer to MMR. It seems there is a fine line between giving too much ground uncritically and referring to it in a negative way. Your suggestion of MMT and FP may have merit. “Full Productivity” is not a negative label, although I suspect it would be a harder political sell than Full Employment and Price Stability, which may be a fairer reflection of the policy differences between the two groups.

  25. Neil,

    “One of the key elements of MMT is that the central bank has a dilemma in the domestic policy space in that it can choose to target the policy rate or it can choose to target the quantity of reserves (and therefore allow domestic banks to go bust due to illiquidity) but it can’t do both.”

    As I wrote many years ago, it can do both if it sets the target rate equal to IOR, which note is exactly what the Fed did.

    Regarding the rest of your comment, I would agree that it comes down to regulation to avoid/reduce systemic risks, and in the event that fails, ultimately taking over failed institutions. I don’t know that this necessarily affects the central bank’s policy space to set its interest rate target and allow fx to float, though.

  26. Here is my response to Joe (Letsgetitdone) Firestone’s comment on MMR and MMT, originally posted at Mike’s.

    Agree again, Joe. The assertion should have been that that they were not interested in doing macro, which they stated they don’t, only describing monetary operations.

    The whole matter is framed in a typically right wing way that seek to marginalize and discredit the left. And I don’t think that they see this, even though it is transparent, with MMR emphasizing supply side and MMT demand side. MMT is in the Post Keynesian tradition, and MMR is kicking off in the neoliberal tradition with low taxes and low spending to increase investment and a buffer stock of unemployed to control inflation with definition of unemployment higher than it needs to be to conceal this inefficiency of needlessly idle resources.

    It is typical of the right to complain that the left is “big government” and bringing in the normative, while it is “small government” and entirely positive. As critics like Noah Smith have pointed out, the normative presumptions of the right are just left unstated.

    While I regard all of the participants as friends, and this won’t affect that, I think that they made a serious faux pas and agree that it needs to be called to attention in order to set the record straight.

    However, I also think it is good development, because it makes clear that there is a right wing and left wing to this, since the monetary system can be used to effect different policy choices. If the GOP were following MMR and the Dems MMT, then the country would be better off than it is now. This is the natural way for the dynamic to develop, since monetary economics and macroeconomics serve policy. So I suppose this was an inevitable development.

  27. Let me add this for clarification. Ultimately I disagree with both MMR, MMT and every other economic solution based on labor commodification, which I reject absolutely in principle and only recognize it as a stage through which humanity must pass in unfolding it inherent potential.

    I agree with Peter Cooper that both MMR and MMT, and most of the rest of economics as they are pursued are deeply flawed in accepting the tradition begun by Smith and Ricardo of labor as a commodity.

    As Marx observed in criticism, this is just the extension of Hegel’s master-slave dynamic in which one is free and treated as human and the other is unfree and not treated as fully human.

    This results in enormous social, political, and economics problems that can never be resolved under the present Smith-Ricardo approach, which only an adjustment of feudalism in the direction of greater freedom for the bourgeoisie and complete freedom only for the ruling class.

    Until this deep flaw is corrected, humanity cannot move forward and take the next step in its development. Other solutions will be palliative at best, and none will last onslaught in those in control of the political process and guide it to their advantage.

  28. Thank you, Peter and Tom for your replies to my post. And thanks also for the suggestion that I promote it to a post, Peter.

    I’ve thought about doing that, but lately my series on MMT and the Job Guarantee has been focused on MMT new, and has, perhaps been a diversion from my larger role in advocating for certain economic policies and for the transition from a movement towards plutocracy to a movement back towards liberal democracy and the role of a platform like the IVCS in that transition. But I’ll give the idea some more consideration, and see if I can’t get the post out of the muck of an internecine was within MMT and into the broader perspective of pretty basic differences in political orientation relevant to the larger society. Perhaps I can quote parts of your own replies in making that transition.

    Moving more to your replies, I agreed with many of the points you both made. On this:

    “I will make one observation. If, as you sense, and I agree, we could be entering a period of meaningful change, “Realism” may not necessarily prove to be as appealing a description to many people as might have been the case prior to the crisis. Although the term has positive connotations, it could also be seen as defense of the status quo at a time when people are looking for more.”

    I think this is a really good point. Just as what is more “realistic” and “pragmatic” varies with the times and their changing, the appeal of those terms also varies. The “pragmatism” of the Obama Administration hasn’t worked to deliver either recovery or justice. And expressions like “the perfect is the enemy of the good,” may have run their course as effective slogans, since every time they’re use “the perfect” they refer to, is usually just “good,” while the “good” they refer to is just some smokescreen for maintaining the movement towards plutocracy.

    So, I think there’s a lot of complex feedback and reflexivity going on here. Since we’re still in early days of the change “realists” vs. “theorists” may favor the spread of MMR, but as things get worse, if there’s a collapse in Europe, for example, and we suddenly hit a new downward spiral, then proposals to use the Government to cut unemployment to 4% and inflation to 4% through tax cutting and revenue sharing alone may not be as attractive as ones guaranteeing FE with price stability through the addition of a JG program, and, if necessary much higher taxes on the wealthy, along with price controls, breaking up the big banks, jailing the control fraudsters, creating Medicare for All, or a National Health Service, and generally putting a stop to the neoliberal insanity.

    Tom:

    “The whole matter is framed in a typically right wing way that seek to marginalize and discredit the left. And I don’t think that they see this, even though it is transparent, with MMR emphasizing supply side and MMT demand side. MMT is in the Post Keynesian tradition, and MMR is kicking off in the neoliberal tradition with low taxes and low spending to increase investment and a buffer stock of unemployed to control inflation with definition of unemployment higher than it needs to be to conceal this inefficiency of needlessly idle resources.”

    It is pretty transparent, but I do think they see it. Cullen is very alive to the political and marketing aspect of what he does. And has frequently written about the marketing contributions he’s made to MMT. He rarely talks about Bill Mitchell’s stuff and has been pretty reticent about Stephanie, and Pavlina’s work. He clearly hasn’t been comfortable with the New Deal orientation of Randy’s work. Never mentions Jamie Galbraith favorably or gives much attention to Bill Black, Michael or the work of some of the younger MMT people. Also, he’s clearly gravitated to the Trader bloc within MMT and tends to stay away from the academic side except for some Randy cites and a good deal of attention to Scott’s work.

    I’m not prepared to opine anything about Mike’s views on the the range of MMTers, except that he’s very oriented toward Warren, as opposed to others also and he’s also often written about the marketing aspect of MMT.

    Finally, Carlos kept his identity secret from the general MMT community for a long time as if he was concerned that the political orientation of MMT might hurt him on the real world work side. Now, he feels free to reveal who he is, most probably, I conjecture, because he thinks he can defend his MMR involvement as moderate Republican economics, not far distant from many of the positions that were perfectly respectable during the Nixon Administration, about which he is an expert.

    “It is typical of the right to complain that the left is “big government” and bringing in the normative, while it is “small government” and entirely positive. As critics like Noah Smith have pointed out, the normative presumptions of the right are just left unstated.”

    I know it’s incredible that they feel free to seriously assert that they’re not being normative and theoretical when from my perspective they seem as normative as can possibly be, and oppressively so as well.

    I received a bit of insight into this in an exchange on J. P. Hochbaum’s MMT, Heterodox and Dissident Economics on values. In response to an exchange on relativism, Mike Sankowski expressed the view that one can only assess economic value once one accepts an economic system of some kind. So, he was implying, that the value of economic consequences is relative to the economic system one subscribes to and the further implication is that we cannot assess values objectively across systems.

    What he didn’t say, of course, is that this means we cannot assess values objectively at all since the choice of the basic assumptions underlying a system isn’t itself justifiable, and therefore from Mike’s point of view is “subjective.”

    So, in the end, I think the position of the three MMR “founders” is political to the core, and that, at bottom, they both know it and think that it must be this way, because at the foundation of everything there isn’t any objective value; only political power and value positions that must just be embraced and not exposed to critical evaluation.

  29. A further comment on the impossibility of “economics without politics”.

    The answer to the question: does the State spend or receive taxes first? is construed in MMT (and MMR) in the following way, (I’m not sure that I’ll be 100% exact).

    The State enforces a tax liability on citizens to be discharged on a given currency.

    How can the citizens discharge the liability if the currency does not exist? They cannot, therefore it logically follows that the State must spend for the citizens to be able to earn the currency to discharge the liability. Right?

    Wrong, if this is taken as of logical necessity. Because there is another possibility: the State can refuse to spend, charter banks to issue currency as loans and require citizens to take loans in order to pay taxes.

    This is not a theoretical possibility. Very practically, this is what goes in the EZ since its inception.

    So, even the answer to the very simple question “does the State spend or receive taxes first?” cannot be answered imagining that humans are the equivalents of molecules in a gas or a liquid.
    Plainly and simply the answer is: it depends on the political option taken.

  30. So many moving parts:
    1. “For this reason, I decided to take the name MMR at face value, on the grounds that this group can call themselves what they want. But I agree that it may be conceding too much.”
    So we CAN’T call ourselves whatever we want? That’s kind of offensive. Well, whatever slave name you give us, just make sure it easy to spell.

    2. “their position seems to me to take our position to the extreme and then argue that we are being extreme”
    No we’re taking your position to its logical conclusion and presuming that you’re being logical.

    3. “If the GOP were following MMR and the Dems MMT, then the country would be better off than it is now.”
    Even though I’ve never asked Cullen or Mike their politics (I suspect Mike is a Democrat), if I may paraphrase Barack Obama; there is no Blue state economics or Red state economics, there is only sectoral balance economics!

    4. Ramanan, you will sit at the right hand of the father.

  31. PG, final settlement of all transactions that are not intra-bank takes place either in the currency held as cash or in in the currency as reserves in the interbank settlement system. Both forms of currency can only be issued by government. So it does not really matter how the government arranges to get the currency used by non-government as long as it is the monopoly provider of it.

    Banks can only make loans, and loans create deposits. Banks cannot create currency, which only comes through the currency issuer as the monopoly provider. I believe that in the EZ, things are just a bit more complicated, but the same principle of state money applies through the ECB.

  32. Peter,

    Thanks for your fair and honest critique. Unfortunately, I think the comments water down your assessment in what has become a persistent trend in MMT arguments. They appear to have no argument aside from pulling the politics card or claiming that no one (except the founders) understands their arguments.

    I am disappointed that MMTers keep defending their position by claiming that we are playing politics. I’ve shown on several occasions that my political views are centrist. http://pragcap.com/i-am-in-favor-of-full-employment/comment-page-1#comment-98791

    Now, I know that everything looks “right” when you’re as far left on the political spectrum as many MMTers are (like Bill Mitchell http://bilbo.economicoutlook.net/blog/?page_id=2), but this is the very worst kind of straw man.

    As for the “straw man” arguments. Yes, my statement that MMT says the JG is a “necessary component” was unfair and poorly worded. Then again, the consistent MMT refrain regarding the JG is “there is no alternative”(or as Warren says, the “base case”) so this is one of many poorly communicated topics. Up until recently, there was broad confusion about the JG’s necessity to MMT, but Bill Mitchell drew that line in the sand so it’s become pretty clear that the JG is “central” to MMT. MMTers who now claim it is not “central” or “necessary” to the theory are misleading readers.

    The productivity argument will need to be discussed in a full post, but I will note that hyperinflations tend to revolve around a decline in productivity so the linkage is not as cut and dry as Peter communicates.

    We never said MMT “ignores” supply side. I said the EMPHASIS is clearly not on production. We all know most of the research focuses on filling in aggregate demand holes and supporting the pvt sector via various forms of govt intervention. Yes, MMTers claim that MMT is consistent with any size govt, but the academics almost universally favor a govt that is much more involved in the economy. I believe MMT sits on the opposite side of spectrum from Austrians in this regard and the constant political rebukes we are seeing here and in other stories are PRECISELY the same kinds of weak arguments we see from hard right Austrians. This is a dangerous tactic as MMT will be increasingly viewed as the same sort of political entity that the Rothbards are in the Austrian camp.

    As for production and consumption, B Mitchell has flatly stated that a country need only import production consistent with the general MMT belief that imports are a benefit and exports a cost….

    The BOP argument is as weak as ever as Ramanan clearly demonstrates on a regular basis. No straw man there. Just the facts.

    I’m not really interested in getting into another pissing match, but I think that Marc Lavoie really nailed MMT when he said this:

    “While criticisms and counter-criticisms are healthy in a scientific setting, neo-chartalists occasionally seem to over-react to criticisms, blasting away even people that are essentially on their side.”

    Well said Marc, well said.

  33. Tom,

    I believe your answer is correct, and that it is a good illustration of why the state theory of money is not equivalent to the tax-driven money theory. The key point is the government as monopoly issuer of the currency. The government maintains that monopoly is various ways.

  34. Dan, the government as sovereign currency issuer has a monopoly over the currency. However, in order to induce the public to exchange the currency for goods with the government so as to move private resources to public use, a private sector liability has to be created that can only be extinguished with the public sector’s liability, .eg., taxes, fees and fines imposed by the state. As Warren Mosler says, state money is a tax credit.

    While banks as public-private partnership are allowed to participate in currency distribution through the lending process, they cannot create currency themselves. They have to get currency for final settlement in the private sector from government. This is part of the intermediary function of banking.

  35. Cullen and beowulf: Thanks for chiming in. I especially look forward to future elucidation of the Full Productivity idea.

    beowulf: Yes, of course you have the right to call yourselves whatever you want. I should have been clearer in my comment. Joe’s point, as I understood it, and with which I agreed in my comment, was that I had conceded too much by not questioning the impression that one approach is realistic and the other is not, which I exacerbated when I abbreviated the names of the approaches to “Realists” and “Theorists”. As I mentioned, the main reason I didn’t touch on this consideration in my post was to reduce the likelihood of sidetracking any response to the post.

  36. However, in order to induce the public to exchange the currency for goods with the government so as to move private resources to public use, a private sector liability has to be created that can only be extinguished with the public sector’s liability, .eg., taxes, fees and fines imposed by the state. As Warren Mosler says, state money is a tax credit.

    Tom, I don’t see why this has to be true as long as the government has other means of establishing the official government currency as the common medium of exchange. Once it is the case that a government has succeeded in establishing a currency it controls in common use. then the government can acquire goods and services by offering to pay money for them. People will then want the money, and be willing to exchange goods and services for it, because they will be confident that they can take the money and exchange it for other things as well. The central fact here, I think, is that the government has the ability through various means to establish the public currency as the standard means of payment throughout the society, and universal instrument for settling all debts, of which the tax debt is only one. The chief means are the system of contract enforcement, debt enforcement and debt resolution – which are fundamental and ubiquitous functions of government – as well as the general power to make and enforce laws.

    Governments also have the ability to prevent the development of alternative currency systems by simply making such systems illegal. If somebody tries to create one, the government will shut it down. Since people will always want a currency system, the power to shut down rivals is itself is sufficient to explain the existence of government monopolies over currency systems. Almost everyone will resort to and rely on the public system if the public assures, by employing the power of its government, that there are no private alternatives available.

    If the point of issuing the currency is simply for the government to provision itself, then it can provision itself directly by simply requiring the producers of various goods and services to deliver those goods and services directly. It can say, “Mr Shipbuilder, you are required to deliver one ship to such-and-such a spot by such-and-such a date.” If it also decides, when receiving the ship, to issue a “ticket” of receipt, and then requires that that ticket be paid to another government office, that is not in itself going to create a secondary market for those tickets. It’s just an inessential further bookkeeping measure.

    The government can create some secondary market for the tickets by issuing amounts of tickets to the deliverers of the goods and services in excess of the amounts those deliverers need to pay their own tax liabilities, and then by imposing a head tax that requires delivery of tickets by others to a pay office – even those people who have not provided goods and services to the government. That kind of move seems to account for the creation of various historical currency systems. But I don’t think it does quite as good a job of explaining the acceptance and vibrancy of the public currency in a system like the current US system, since we have few taxes of the “head tax” variety.

    Note that for the public sector to have the power to reliably accumulate goods and services from the private sector via taxation, other than by means of voluntary public spiritedness, the public sector must already be very well provisioned with the whole usual governing apparatus of courts, police and the tools of law enforcement. So I don’t think one can appeal to the power to create a currency as the explanation of the power to provision, since the power to create currency doesn’t exist until the government is already well-provisioned.

    So I am inclined to think that while the power to impose tax obligations on its citizens is one of the important tools that governments use to sustain a vibrant and universally accepted currency and preserve a government monopoly over currency issue, it is neither necessary for such a government monopoly to exist nor sufficient in itself to account for the public currency monopolies that actually do exist.

    I would also suggest that almost everything important in MMT is based on the existence of a government currency monopoly, and on understanding the institutional rules of the banking system, payments system, and treasury operations that the government has actually built around the administration of its currency – and not on any theory of how the monopoly came into existence. For example, the ability of a government to create a “buffer stock” of employed government workers under all economic conditions, no matter what the level of private sector employment, and to use that buffer stock to influence the price of labor and stabilize prices overall, depends only the fact that the government has a currency monopoly, and thus does not have the budget constraints others do, and can practice functional finance. It doesn’t depend on the specific mechanisms by which the currency monopoly is enforced.

  37. My takeaway from the past couple weeks is that writers from both sides should strive to have the even-keeled tone PeterC exemplified in this post.

    Otherwise, both parties are going to construe any critique as an unfair, emotionally charged attack, regardless of any valid points that might have been made.

  38. wh10, I think the MR people have not striven for the even-keeled tone you called for and their continued attempt to position both MMR and MMT in the way that they have is harmful to the political possibilities of MMT in the future. If we care about the issue of an unemployed vs an employed buffer stock, and if we believe, as I do, that everyone has the right to work at a living wage, then our objective should not be to adopt an even-keeled tone toward our MMR friends and colleagues. It should be to point out the assumptions they are making and the consequences of those assumptions, in contrast to the MMT assumptions and likely consequences.

    We owe to the unemployed to do this, and we also owe it the need for more justice in a society that has seen very little of that for the past 20 – 30 years, and sees very little but injustice and unfairness in its economic aspects.

  39. “No we’re taking your position to its logical conclusion and presuming that you’re being logical.”

    If you actually did that then there would be no reason for me to say otherwise. But, alas, that is not the case, in my view. We’ll have to agree to disagree, I guess.

  40. Cullen, I just want to add something on the political aspect, which I hope won’t offend anyone. I understand (now, at least) that you guys are centrist, not that it would have mattered to me if you were on the right.

    I think the reason the political aspect comes up is that the term “realist” in MMR seems to have at least two aspects to it (correct me if I am wrong). In one sense, realism refers to an attempt to keep the descriptive/positive and prescriptive/normative separate as much as possible in disseminating the ideas. In another sense, realism seems to refer to a focus on policy reform that is thought to be achievable given present political realities.

    Some commentators are taking issue with the depiction of MMR as a purely positive approach in contrast to the more normative MMT. I share their position that neither approach to macro as a whole can be purely positive, but also agree with you that the descriptive can largely (not completely, but to a large degree) be considered separately, as both MMR and Scott Fullwiler’s descriptive/prescriptive dichotomy suggest. Some commentators also argue that this depiction of one approach as positive and the other as normative may give MMR a strategic political advantage in the sense of supporting various policies. This is why some took issue with my uncritical acceptance of the term “realism” in MMR. That is, it was argued that I should have subjected this framing to scrutiny in my post.

    Having said that, I shared your confusion over the openness of MMT to alternative theories and policies. You may recall that, in previous posts, I argued similarly to you that since the monetary understanding provides space for competing theoretical and policy (and political) perspectives, it would be more palatable to people of all persuasions, which is a big plus in terms of disseminating the ideas. In this respect, I am sympathetic to the MMR view that the monetary understanding can be taught more or less on its own and that this in itself would be providing a tremendous service to the general public, who would then be better placed to make their own judgments on policy.

  41. Joe- by all means, if that is your purpose. All I am saying is if one’s goal is to develop constructive dialogue without the potential of luring either party into emotionally charged tangents, it might be necessary to go to great lengths to stay even-keeled and cautious in tone.

  42. “The BOP argument is as weak as ever as Ramanan clearly demonstrates on a regular basis”

    I have yet to see Ramanan or anybody else demonstrate anything that is operational or systemic regarding the alleged constraints.

    Repeating an assertion does not make it so.

    The BOP argument is exactly the same as neo-classicals saying that the government needs to fund its spending or else Bad Things Will Happen(tm)

    Or people saying a Job Guarantee can’t work because Bad Things Will Happen(tm).

    Going for any extra policy space opens yourself up to arguments that Bad Things Will Happen. That is the classic political fear reaction to anybody putting forward something new.

    The status quo is always more comforting.

    MMT, as I see it, looks for policy space in three areas

    – in domestic spending by appealing to the argument that the economy will quantity expand rather than price expand. However the degree of price friction is not clear and even those advocating solely slashing taxes need to work out what they’re going to do when faced with a price spike and genuine inflation

    – in the external sector by allowing exchange rates to float. The degree to which you have to manage that float is not clear and again you have to work out what you’re going to do with a price spike or an import flood.

    – in the employment sector by ensuring everybody has an income and something to do. The degree to which that helps maintain stability in the run up to NAIRU is unclear and you need to work out what to do about supply side exhaustion – given the the employment market is really a collection of many markets any of which could exhaust at any time.

    I think MMT has shown that there is space to be grabbed for anybody brave enough to go for it, but it is not crystal clear how much there is and what the dynamic feedback will be.

    But all that suggests to me is that you need to take a softly, softly approach when implementing the strategy, and always have a plan to cover your downside.

  43. Senexx, regarding your comment of 11:16 PM, I said some countries, not Australia. The fact that my observation applies to some countries is all that is required to make the point.

    Work for the dole in Australia is a relatively recent development. An observation that payments in the past were made without the value of the currency plummeting to zero would also have been sufficient to make the point.

    I am simply suggesting that the marginal case does not determine the value of the currency. The effects of the marginal case will operate, like the effects of all other cases, by influencing the average labor time required to obtain the currency. Higher benefit levels or more universal payments will reduce the average labor time requirement more, holding tax levels constant, and result in a greater reduction in the value of the currency. But tax levels need not be held constant. MMT is open on the appropriate size of government.

  44. Ive been to the new site and intend to continue. I think the debate between the two MMT groups is mostly healthy and I look forward to seeing how they flesh out their “Realism” a little more, but I do have one concern. If MMR is simply going to be MMT from the supply side, why should we expect that to be any different from our “supply side” fetish the last thirty years? Havent we all seen first hand that supply side economics is mostly a ruse. The only reason we were even able to consider supply side policies is that the 50s 60s and most of the 70s gave us such a strong middle class that households could afford the private debt fueled economic growth of the 80s 90s and 00s. Now thanks to supply side policies the workers are losing bargaining power, buying power, political power and have mostly unrepayable debts to banks to show for it…… which I think was part of the plan all along (not that Cullen, Beo and Mike endorse this).

    How can new supply side thinking be better. Dont we have the capacity to produce more than all the world needs already? Certainly more than every American needs, which should be our focus. What good is production without a customer to purchase it? Seems we are lacking customers not producers. I dont see anyway out of this from the supply side.

  45. Dan, the basic principle behind giving the currency value is creating an unavoidable need to obtain it. Taxes, fees and fines do this in an obvious way, since they are backed up by the coercive power of the state. According to Warren, as I understand him, without a need to obtain it being created that is absolute, the currency can lose value and hyperinflation can result. Under ordinary circumstances the things you mention would like be sufficient, but perhaps not in extremis when there was currency aversion. But without an absolute need to obtain the currency or else forfeit freedom and property to the state, an extraordinary case might be hyperinflationary.

    Something like this pertains internationally with the reserve currency. There is a very strong need to hold it in order to participate in the global economy. But it is not an unavoidable need unless the issuer of the reserve currency issuer backs it up with force and requires it for settling international transactions.

  46. Dan: I would also suggest that almost everything important in MMT is based on the existence of a government currency monopoly, and on understanding the institutional rules of the banking system, payments system, and treasury operations that the government has actually built around the administration of its currency – and not on any theory of how the monopoly came into existence.

    This is true, but MMT has been presented as a comprehensive system with a Neo-Chartalist theory of money following Knapp, an articulation of monetary economics along the lines that Wynne Godley laid out, a Post Keynesian macro theory strongly influenced by Hyman Minsky, and a policy instrument based on fiscal policy resting on Lerner’s functional finance. Of course, one can pull out bits and piece, or go back to the originators of the pieces, but that is not MMT and I submit it is confusing to attach the MMT label to it. There is a lot of theory in MMT as well as description of operations, and also application as a policy instrument based on a fiscal approach that emphasizes maintaining effective demand in the face of non-government saving.

  47. I just think that it is rather telling that all this developed coincident with John Carney’s interest in MMT, except for the parts of it he did not like.

  48. Tom, I’ve been reading a lot of Knapp recently, and his theory and its definition of the central concept of valuta money, he seems to put more emphasis on what he calls “apocentric” payments – payments by state to others, than on “epicentric” payments – payments to the sate.

  49. Tom,

    This didn’t start with Carney. I know, because it started in the comments on my website between Scott and myself several weeks before the Carney pieces were written. Scott got heated and called me an ideologue for pointing out that the JG could contain unknown risks to living standards and here we are. There were no politics from the start. Just a rational questioning of an unestablished policy position. At the time, I was still under the impression that MMT contained a descriptive and prescriptive aspect, but the truth of its political leanings came out in the following weeks as Bill and the others drew the line in the sane. So let’s stop trying to pin this on Carney or anyone else’s politics. If anyone is playing politics here it’s the JGers who have very clearly taken an optional policy proposal and embedded it smack dab in the middle of a superb monetary theory.

    http://pragcap.com/the-politics-of-mmt/comment-page-1#comment-90703

    Peter,

    We’re not using the term realism to portray something that is more politically palatable. We’re using the term realism to emphasize the operational REALITIES of the monetary system. Long time readers of my work know that I don’t sell politics. I don’t care what you do with your understanding of the monetary system. It’s up to the public to decide. What I disagree with vehemently though, is mixing policies into an idea of how modern money works and then claiming “there is no alternative”. Pardon That’s simply not true. There are other alternatives. And we’ve discussed some of them (like the Vickrey idea, which I admit is likely just as politically untenable as a JG is). So, it’s not about framing a political debate. To me, it’s always been about getting the public onboard with understanding how the system works. They can do with it what they want. It’s not our role to force policy on the public. It’s our role to educate people about how the system works so that our constitutional republic can do the decision making. That’s why we’ve arranged the new site as is. The front page is going to be 100% educational. No politics. No proposals. Nothing. Just discussions teaching people about how this all works. The blog is separate and will contain opinions. But as I’ve said before, you’ll never see one of us claim that a policy option is “central” to understanding our approach.

    Thanks as always for keeping the discussion tempered.

    Cullen

  50. “Gers who have very clearly taken an optional policy proposal and embedded it smack dab in the middle of a superb monetary theory.”

    A superb monetary theory based on a similarly ‘unestablished policy position’ based on the quantity expansion of an economy.

    And therefore has similar ‘risks to living standards’.

    So ‘what works’ really depends upon your prejudices.

    And this is for the fairly simple reason that we can’t find out ‘what works’ by experimentation as we would do in other sciences. At least not until somebody gets the reins of power.

    So we’re in the same position as the theoretical physicists were before the LHC was built.

  51. I think that’s a bit unfair to pin this on me (“Scott got heated and called me an ideologue for pointing out that the JG could contain unknown risks to living standards and here we are”). You’ll notice 19 minutes later I retracted that statement–twice, since I did it again a few hours later. Perhaps you didn’t mean for that to sound as I interpreted it–if that is the case, my apologies, but regardless I don’t see why a point I retracted rather quickly (again, two times) should be brought in as if it merits any sort of significance to the debate.

    Also, I don’t agree that we don’t separate descriptive/prescriptive. Neither does Warren, as he has noted several times already. Bill largely took back his statements on this matter a few days later, in my view at least, when he pointed out that everyone is in favor of a buffer stock, it just depends on which one (descriptive)–we prefer an employed one (prescriptive). Yes, that particular policy view has been central to our research, but that doesn’t change the prescriptive/descriptive nature of our approach. You can say it how you like, obviously, but note that I and others do not agree with your characterization, so it is at least not an undisputed point.

    I do agree, however, with Joe’s point that even a descriptive approach is necessarily normative–all of my research into the details of monetary operations are based on a particular approach to doing such investigations based upon systems theory.

  52. Yes Neil. But we won’t get the reigns of power if we can’t even convince the public that the govt just debits and credits bank accounts. I admire the JG thinkers for thinking large and forward. But we have to remain congnizant of the fact that if the public doesn’t even understand the basics then there’s no way they’re going to understand something like employment buffer stocks. I think that some of us forget at times how remarkably complex all of this is. If you want to teach a man to throw a javelin you have to first teach him how to walk on two legs. MMT hasn’t even taught the public how to walk yet, but we’re jamming the javelin in their face and it’s rightly scaring them away. So, they never even learn to walk in the first place and instead continue crawling around in the mess that is neoliberalism….

    Let’s stop fighting each other and start aiming some of this energy at the mission at hand. It’s going to be a long fight. We won’t agree on everything along the way, but we are all headed in the same direction….

  53. Thanks for clarifying that, Cullen. Debate clears up points like that otherwise be erroneously assumed. It seemed to me that this blossomed into a right-left thing when John came along. But I see now that it had been developing before that.

    At any rate, while the debate hopefully will go forward as objectively as possible, people are naturally going to see it in the context of policy implications, which are necessarily political choices.

    For example, MMT catches heat from the right center for liberal policy implications like the JG and from the far right as promoting big government and unsound money. MMT also catches heat from the left for perpetuating the status quo, with a few liberal sops to make it palatable. MMR can expect to be similarly pigeonholed as not left enough for the left and not right enough for the right.

    The monetary economics (SFC modeling and sectoral balances) that underlies both MMT and MMR consciously and all other economic school unconsciously or semi-consciously is based in accounting identities so it is politically neutral. But as soon as economic theory enters by interpreting the possibilities of this knowledge of operations, then so do policy implications and also political disagreements.

    I have no personal stake in this, since I am not qualified in the field to assess anything but the simple and obvious, and I am also opposed to the present approach to economics, which think is philosophically unsound, especially ethically. I wish both sides well, and recognize that adoption of any approach based on correct monetary economics will improve existing policy.

    But the he point is to make a good case of what one believes to be correct economically and let it stand the test of debate.

    However, you say above, Cullen, that MMT is not in agreement with the mainstream on the meaning of full employment. That one of building blocks of MMT that makes it a new paradigm for doing economics. That is a feature in my view. not a bug, and I am concerned that MMT will simply take the easy way out and define away full employment, as the mainstream has done.

    Bernanke is now saying that high employment is due to structural reasons rather than cycle, so the “natural rate” needs to be calibrated up from 4-6% to 6-8%. That’s just avoiding the issue. Mike is using a figure of 4% (based on what?) in his TC rule. That concerns some of us that MMR many be avoiding the full employment issue by following the mainstream in defining it away.

    Please don’t take that as an attack on MMR or any of the contributors to it. I realize that your position is still in development, and so it is premature to criticize it at this stage. But it is advance warning of a potential objection that you can expect from MMT and the left in general if MMR develops along these lines. The choices one makes in formulating an economic approach will inevitably be assessed relative to a wide spectrum of norms, including political ones.

    As I have said, I assess economics on the basis of philosophical norms, and on this basis I am quite convinced that no economic system based on existing assumptions, such as labor as a commodity, infinite growth based on infinite resources, and an absolute right to private property (therefore collection of economic rent), can lead to a global system that is sustainable socially; hence, it will not be sustainable politically.

  54. Cullen, why do you think JG would be politically unattainable?

    I would say providing all willing but unable to work with a job should be an easy sale. Also universal health care covered by the public sector – easy sale; also free education from elementary school to the university and no more student loans – easy sale.

    If only voters knew how their monetary system works.

    Governments exist to make everybody better off, otherwise what’s the point?

    It is a shame that in US today people can die or go broke because of health or dental problems. Have you noticed how many Americans have no teeth?

  55. Correction: “I am concerned that MMT will simply take the easy way out and define away full employment, as the mainstream has done” should have MMR instead of MMT. But I guess that was obvious from the context.

  56. Scott, I am not “pinning” this on you so I am sorry if you take my comments as such. I think you’re brilliant and I’ve told you that before so it’s not my intention to pin anything on you. If anyone is to blame for starting all of this, it is me. I accept full responsibility for it. But I don’t think that what I’ve done is necessarily wrong because it highlighted a real issue within MMT.

    Joe, Pavlina, Randy and Bill have all made statements regarding the JG’s centrality to MMT. Even Warren calls it the “base case”. Honestly, I am surprised there’s this much confusion about the policy within the highest level MMT thinkers. No wonder we’ve been going back and forth about this for a month now….

    Personally, I hope this debate helps to evolve MMT and perhaps even make the JG possible one day. What I do know, is that the work we’re all doing means the world will be a better place if it gets enacted sooner rather than later. JG or no JG….

  57. Scott: “Also, I don’t agree that we don’t separate descriptive/prescriptive. Neither does Warren, as he has noted several times already. Bill largely took back his statements on this matter a few days later, in my view at least, when he pointed out that everyone is in favor of a buffer stock, it just depends on which one (descriptive)–we prefer an employed one (prescriptive).”

    Scott, I have been arguing that the buffer of employed as the preferred buffer is not prescriptive even though it is choice, in that it can be demonstrated to be the most efficient economically and also the most effective in achieving the “holy grail” of macro, FE & PS, which other economists believe to be impossible due to inflation effects of rising employment, that is competition for workers drives up labor costs, resulting companies to raising prices to maintain margins.

    This explains the MMT ELR proposal as a buffer stock of employed and a floor wage that acts as a price anchor as an integral aspect of MMT as a macro theory rather than a normative choice simply based on a preference for full employment. Once one objectively takes into account the huge inefficiency of unnecessarily idle resources, it makes no economic sense not to choose this solution based on opportunity cost.

    Am I wrong in arguing this way?

  58. “We won’t agree on everything along the way, but we are all headed in the same direction….”

    I don’t believe we are headed in the same direction.

    This approach is definitely what I would call a ‘fork’ based on a greater belief in the merits of individualism over social inclusion.

    So it’s a political move based on belief in a different philosophy and you have to expect that philosophy to be held to account by people on this side of the fence.

  59. Well Neil, I am sorry you feel that way. Just bear in mind that when you “account” for us that MMTers are the ones that are taking a far left position. You are the ones way out there on the political spectrum so this whole attempt to frame us as some rogue right wing supply side (that was funny btw) of MMT will be the easiest thing I’ve ever debunked in my life. And it will be a position that will resonate with most Americans when I frame it as it actually is.

    I don’t think you do MMT a service by constantly highlighting the fact that you think this is a political debate. It will make you appear the exact opposite of Rothbardian and will only push the public away. The difference between you and the Rothbards of course, is that the Rothbards probably have a fighting chance in American politics (sad as that may be). It’s worth keeping in mind. I know MMTers don’t think the theory needs to adapt to public perception, but that doesn’t mean public perception doesn’t matter…..

    If you want to build the JG up then you need to do that by convincing the public that the policy is right and not that those who don’t support it are “misunderstanding” it or too political to support it. That’s not going to help your case. Just an honest opinion….But what do I know?

  60. CR: MMTers are the ones that are taking a far left position.

    ROFL

    Cullen, that is a joke that most non-Americans will appreciate but only a few Americans.

    Do you realize what a far left position that is the mirror image of Rothbardianism would be. Hint: Rothbardianism is anarcho-capitalism.

    A far left position would be one that begins with “anarcho-,” like anarcho-syndicalism or anarcho-communitarianism.

    There is virtually no far left position visible in the US. Most of the “left” in the US would be considered center-right elsewhere.

  61. Tom,

    Do you realize that the majority of Americans will say a 30MM person employment program is socialism? Imagine Pres Obama announcing this bill tomorrow. He’d be voted out of office so fast in November that heads would spin. You might not think it’s a very big govt program, but I think you’re underestimating the way most people perceive this program and the extent to which it has held MMT back. I attribute my success disseminating MMT in large part to the fact that I’ve understood American politics and I explain MMT without ANY policy attached to it.

    I think you’re underestimating the extent to which the JG is seen as politically motivated. Then again, you can’t even sell a pragmatic centrist like me on it. Good luck with anyone to the right of me! I’m trying to be constructive here and offer you the perspective of someone who has done as much as anyone in succeeding to sell MMT to the world. but some people seem intent on putting up a barrier and saying “Cullen and the MMRists are the bad guys now and we need to vigorously attack them!” I disagree with that stance and agree with Lavoie who says believes the MMTers should embrace even those who are not totally in paradigm, but come close, because everyone else is WAY the hell outside of paradigm and we need all the allies we can muster….

    Cullen

  62. Full employment even of the JG type is is not a far-left position. It’s currently not very popular. But for decades it was a mainstream aspiration of the political establishment. The Humphrey-Hawkins bill included a provision for setting up a JG labor buffer stock program, although the provision was never implemented.

    These things can go in cycles. As the generation that had experienced the searing misery of the Great Depression passed from the scene, people began to neglect full employment politics. But full employment as political priority can make a comeback. In the end it is a plan to move millions of people from public assistance to public employment. I fail to see why that can’t appeal to a broad swathe of the public.

    The only thing standing in a way public sense that “we can’t afford it”. But MMT offers the tools to understand why that’s wrong.

  63. I don’t understand why self-described centrists don’t want to accept the common sense view that a country in which there is mass unemployment is punching well below its weight in terms of its overall productive output. I also don’t understand why they are averse to moving millions of people from public assistance, unemployment insurance and private charity to a paying and productive job.

    I understand where some on the far right acquire this resistance. They are bigots who think that all of the unemployed are worthless, stupid and lazy black and brown people who can’t produce anything with their labor that offsets the cost to the rest of us of employing them. But I don’t think that accounts for the centrists. The latter I think just have some stubborn mental habits, reinforced by a reluctance to break out of the pack and defend anything politically novel or innovative.

  64. I agree with Cullen people in the MMT camp are vastly underestimating how widespread opposition to the JG would be in the United States. Not underestimating by a few percent, but by 10s and 10s of percent.

    Explain the JG: “It’s a guaranteed job from the government.” Simplest possible explanation, and it’s a frackin’ loser. I didn’t choose the unfortunate name, let me assure you. And there was a reason they used to obscure the meaning with ELR.

    This is a loser even before we get to the problems with a gigantic program bigger than the U.S. military in terms of the number of people.

    Dan, I fully agree, it used to be almost mainstream when I was 10 years old. But I’m 44 in a few days. The JG is so far from political reality in 2012 it’s not even on the map.

    At MMR, we’re offering the best path MMT will ever get to getting a reasonable discussion of how to use the operational realities of sector balances and money.

    Feel free to attack away, I don’t want to stop anyone from what they feel is right. This is a free world after all. Feel free to call me stupid and evil, but don’t be surprised when I hit back.

  65. “that MMTers are the ones that are taking a far left position”

    I don’t think its a far left position to look after the interests of some six million people – which is what 4% unemployment represents in the US.

    I make that 60 of your largest football stadiums full of people without any prospect of something to do or an income.

    How many children rely on those people?

    There are five million who want work here in the UK on our maximum measure and that is causing serious questions to be asked of government.

    Yet that would be considered ‘full employment’ in the most powerful economy on the world?

    If that’s the case then the US is definitely going through its Edwardian period.

  66. Cullen, I agree with Scott. Your 6:15 PM comment is excellent.

    Thanks also for clarifying the thinking on the choice of realism in MMR.

  67. “Bernanke is now saying that high employment is due to structural reasons rather than cycle, so the “natural rate” needs to be calibrated up from 4-6% to 6-8%. That’s just avoiding the issue. Mike is using a figure of 4% (based on what?) in his TC rule. That concerns some of us that MMR many be avoiding the full employment issue by following the mainstream in defining it away”

    Both MR and MMT need to focus on hammering home the point that this is a “Balance Sheet Recession”. Cullen and others have talked about this at length but it needs to be front and center. It cant be structural if its all related to “numbers on a spreadsheet”. We need to push hard the idea that this is NOT people not being trained in the modern economy, NOT people choosing leisure over work and NOT people demanding too much pay for their participation….. its very simply ….. some very misguided and uninformed people thinking we have run out of money

  68. The question is whether professional economists, which the MMT economists are, be advancing what they are convinced on the basis of their research is an optimized solution, or should they be guided by political “realism.”

    In my view, a professionals in a field should advance the knowledge they have reason to think is state of the art and pushes out the envelope. Doing less would be unprofessional and in my view unethical.

    I left mainstream academic philosophy almost as soon as I got out of grad school, during which time I realized where the politics of the field headed one. I chose to teach in an alternative university, a choice which excludes one forever from being taken seriously in the mainstream academic world. But even there I found that I was constricted by the academic universe of discourse and framework, so after a few years I left to work independently in the way I wanted on the things I was convinced were most important. I felt a breath of fresh air as soon as I walked out the door. I was no longer living a lie.

    However, if you want to move a single piece down the board in a conventional setting, then emphasizing understanding of monetary operations alone will work, since once “affordability” is shown to be chimerical, it can be used on the right to fund the military industrial complex and unlimited war, and on the left to fund all kinds of social programs. Both sides will love it if they can bring themselves to actually get it.

    The people that will object to it are the sound money people and the fiscal conservatives. They already understand the potential fiat money and are committed to preventing its use insofar as possible. They will do their best to shred any attempt to advance the use of the potential of fiat money, painting it as fiscally irresponsible and trumpeting all the bad things that will happen. And don’t expect liberals and progressive not to notice how fiat can be used to advance expansive social programs, either. They will very likely discover the JG on their own. And don’t expect the monetarists to suddenly get religion and roll over for the new kids on the block. They are already doing everything in their power to marginalize heterodox ideas.

    BTW, Steve Zarlenga and the American Monetary Institute are way ahead of MMT politically even though they are way to the left of MMT with direct issuance. They already have a bill in the House sponsored by Dennis Kucinich. Maybe they are onto something?

  69. Neil: “Yet that would be considered ‘full employment’ in the most powerful economy on the world?”

    This is the nub of it, and it’s not just employment. Have you looked at global statistics lately? The US is winning a race to the bottom for developed countries and is beaten on some stats by emerging countries.

  70. http://www.foreignpolicy.com/articles/2012/01/03/2_hire_everybody

    I think the MMRers might be the ones who are behind the cultural curve a bit here. Try to remember that the predilections of the trader community are not those of America as a whole. A very significant number of Americans hate Wall Street and hate the financial sector.

    51% of Spanish youth are unemployed. If Europe continues to tumble, the idea that MMT needs more mainstream marketing will seem laughable.

  71. “In my view, a professionals in a field should advance the knowledge they have reason to think is state of the art and pushes out the envelope. Doing less would be unprofessional and in my view unethical.”

    ^This. I am tired of being held hostage by the Right because no one wants to rile them up – holding a flag in one hand and a gun in the other, shooting at anything (and I do mean anything) that moves. Therefore we should cater to this small, but LOUD minority, because who wants to be on the receiving end of THAT? When the Right adheres to principles, they are heroes; when the Left does, they are clearly Socialists. When the 2008 GFC crisis happened primarily due to financial deregulation and massive tax cuts for the wealthy as the average household went heavily into debt, that should should have been the end of their strategies because it clearly didn’t work. But they doubled down and claimed we didn’t deregulate enough (across industries this time) and that “job creators” need even more tax relief. And to hell with everyone else. “It’s not going to be our fault YOU will choose to breathe air and drink water that we are going to majorly profit from.” Mostly though, I am really tired of being “marketed” to:

    http://www.google.com/imgres?imgurl=http://proactvoice.files.wordpress.com/2011/04/reaganomics-trickle-down.jpg&imgrefurl=http://thepragmaticcenter.com/essay/middle-class-economics-vs-trickle-down-economics&h=424&w=526&sz=31&tbnid=uA85hEdQYrylZM:&tbnh=81&tbnw=100&zoom=1&docid=9aLnGSTiEUsmEM&hl=en&sa=X&ei=qa0wT8_JG-OQ2QX94MDSBw&ved=0CDQQ9QEwAw&dur=501

    So kudos to anyone who is standing up when everyone else is sitting down while defending the status quo that doesn’t include everyone ELSE for fear of being called an anti-capitalist and un-American. Because that’s not the right answer anymore.

  72. The way I look at it is MMR focuses on sectoral balance economics and is pragmatic about which fiscal/monetary/exchange rate policies the govt uses to achieve its goals. I think MMT is certainly on the right track but prematurely pigeonholes a single solution (which, I suspect, predated MMT) to eliminate unemployment, relieve poverty, reduce income inequality, regulate both AD and price stability and who knows what else.

    The Humphrey-Hawkins bil set the full employment goal as not more than 4% (by U3 scale). Of course it should be as low as possible. I’m a big fan of Bill Vickrey who wrote, “The last time we had in peace time, what I would consider an acceptable level of employment, was in 1926 when it is estimated that unemployment in terms of the currently used definition was about 1.8 percent for the year as a whole.”
    http://findarticles.com/p/articles/mi_hb6413/is_n1_v22/ai_n28645797/

    We can get to 4% unemployment and 3% inflation (also in Humphrey-Hawkins) with fiscal and/or monetary policy– we last did this 12 years ago (and to 4.5% 5 years ago). .
    But to get it lower than that…. I don’t think you can’t push unemployment south of 4% without jumping on inflation with both feet, in particular, cost-push inflation. Vickrey’s gross markups market (described in article above) is the best idea I’ve seen to do that.

    I guess my opposition to JG as macro policy is that since its unnecessary to get us to 4% and insufficient to get us lower than 4% (since it does nothing about cost-push inflation), why is this the hill to shoot the horses and fight it out on foot? The only way a JG is likely to ever be enacted (perhaps at the state level) is to call it workfare and pitch it as welfare reform. So start there and then start upselling it from sea to shining sea. :o)

  73. Ok, we’ve reached a boiling point in terms of our misunderstandings. Let me put a final nail in the coffin, so to speak, on the issues both MMR and MMT faces.

    First of all, MMT had no choice but to describe the economy through its descriptive component. What needs to be said first is that the MMT founders came from the post-keynesian/heterodox school of thought. They of course do not accept the positive/normative distinction. So of course I was shocked that MMT, coming from those areas of thought, was splitting itself implicitly between a positive and a normative component. What Cullen has done as a non-academic is accept this distinction, through no fault of his own but through the fault of the MMT’ers who went this route to describe the theory. I wouldn’t say its a huge deal, but it can be a big deal. The reason of course, Cullen, is that neoclassical economists of course accept the positive/normative distinction and label their studies as positive economics, and any policy proposals that stem from it are separate…the normative aspect. The problem is that each side will argue that they are describing “what is” and it will just be a big pissing match. What separates MMT from neoclassical economics, on the other hand, is that we have social goals and social PROBLEMS in mind. The very fact that we describe “what should be” is also what attracted a lot of MMT fans, because they know about our social problems.

    To be honest, MMR shouldn’t even have a name, now that I think about it. Do we label how a leather sofa is actually made a name? It’s honestly silly, which is why the split with MMT was completely silly, I think you guys put too much emphasis on Bill Mitchell’s words.

    Another thing that needs clarifying is the political viability of the JG. There is a reason why MMT’ers want to keep the JG alive, other than the reasons peter mentioned in a previous post. We like it BECAUSE it is politically viable. Let me explain. Politics in the United States makes progress through a process political scientists label “incrementalism”. Only in times of crisis can a president and congress pass something that would never pass during good or decent times. The JG is a one vote thing, once it passes, ITS IN! Instead of JG we could actually do a bunch of other things, but they involve more than one vote…and because politics is typically done through incrementalism…yeah, good luck getting all that stuff passed. So the very reason you three argue against the JG is the very reason we support it. Yes, we know that it would never pass in non-crisis times, but in crisis times it only has to get through congress ONCE. This is what we are counting on, that the next time it comes around that more people will know about it and it will be a national issue, with luck. With regard to this more than anything else, I hope my post has resolved this issue.

  74. wh10, You said:

    “Joe- by all means, if that is your purpose. All I am saying is if one’s goal is to develop constructive dialogue without the potential of luring either party into emotionally charged tangents, it might be necessary to go to great lengths to stay even-keeled and cautious in tone.”

    Right, but I was questioning whether the purpose of constructive dialogue ought to be prioritized over the value of advocating for FE. That is, I was raising a specific normative question. Why would I raise it? Well, Cullen certainly did that in prioritizing FP in pursuit of prosperity over FE in pursuit of public purpose. So, raising the question of a different prioritization demands both criticism of that choice and fair comparison of the two alternative value theories.

    In my view that’s “constructive dialogue.” But approaching that dialogue by bending over backwards not to criticize the alternative value theory being proposed isn’t being “constructive.” It’s just ignoring a part of MMR that doesn’t deserve a free pass when it comes to criticism and evaluation.

  75. The correct approach for anybody rejecting an employment buffer stock is to immediately drop onto the alternative – which is a full income guarantee.

    Only once the full income guarantee is in place – and thus ensuring that the primary expansion of the economy benefited everybody – would you then adjust taxes to get to maximum output.

    That has been the approach taken by the Post-Keynesian critics of the MMT style job guarantee, where they propose alternatives including direct subsidy of private sector jobs and universal pensions.

    The approach where you cut taxes first and then you quietly forget about those systemically excluded once the party is in full swing already has a name and has no need of a new one.

    It’s called Thatcherism.

  76. Deus-DJ, I liked much of your comment above, but this”

    “So of course I was shocked that MMT, coming from those areas of thought, was splitting itself implicitly between a positive and a normative component. What Cullen has done as a non-academic is accept this distinction, through no fault of his own but through the fault of the MMT’ers who went this route to describe the theory. I wouldn’t say its a huge deal, but it can be a big deal. The reason of course, Cullen, is that neoclassical economists of course accept the positive/normative distinction and label their studies as positive economics, and any policy proposals that stem from it are separate…the normative aspect. The problem is that each side will argue that they are describing “what is” and it will just be a big pissing match.”

    isn’t really the problem. For me there are a number of problems with the MMR approach. But perhaps the biggest one is the acceptance of the positive normative distinction. In philosophy the power of that distinction was at its zenith in the 1930s. Since that time, it has come under increasing attack and, in my view, it is no longer academically respectable to seriously contend that the distinction is viable.

    Though, Cullen, Mike, and Carlos may disagree, I don’t think, frankly, that they know much about the weight of the literature that argues against any possibility of being able to create purely descriptive and normative semantic networks. Claims that one could do that mostly went out in philosophy with Logical Empiricism in the 1950s and 1960s. The philosophers may be wrong about this, of course. But the failure of the MMR people to even discuss why they think the distinction is viable in the face of that work, just isn’t intellectually respectable.

    One thing about MMT, it’s built and detailed and serious criticisms of the dominant neo-liberal paradigm. But the challenge of MMR to the dominant view in philosophy that the fact-value distinction cannot be maintained is not argued. It is just assumed and asserted without any indication that the dominant work in philosophy has been considered or even recognized.

    The latest from the MMT group is that the MMR site will have its prescriptive material on its blog and its descriptive material in a separate section of the site. Good luck with that separation! But please remember this values come into scientific decision making in a number of ways including the selection of problems to be solved, the selection of concepts and variables to be used in description, the selection of hypotheses and theories to be considered as serious alternative solutions to the problems, and the selection among the serious alternatives as to which of these have survived attempts at refutation. Values enter into each of these decisions but are rarely made explicit. I guarantee that when the MMR posts dealing with “pure description” appear a close reading of them will find no difficulty in uncovering the value judgments that entered into the various selection processes influencing those posts.

    Now I am not saying that the values of MMR people will directly bias their testing of alternatives or their weighing of what the data show. But I do think it will not be hard to show, as it has not been so far, that their descriptive analyses are very far from being value-free.

  77. Cullen, this:

    “I am disappointed that MMTers keep defending their position by claiming that we are playing politics. I’ve shown on several occasions that my political views are centrist. http://pragcap.com/i-am-in-favor-of-full-employment/comment-page-1#comment-98791

    is debatable on a number of grounds. First, I’m afraid that whether you’re centrist or not is in the eye of the beholder though I’m certainly not saying that you can’t call yourself a “centrist” if you want to. Of course, you can, but similarly, I am free to agree or not to agree with that characterization.

    Second, even assuming that you are a centrist, that label doesn’t imply that you’re not playing politics or are not political. Centrists are just as political as leftists, or rightists or any other kind of -ists and they can be just as extreme in their adherence to their ideology as anyone else. On this issue I’ll point out that most of the austerity mongers in the world right now are neo-liberals who believe fervently in austerity and also view themselves as centrists.

    Thirdly, it’s generally recognized by people these days that the left-right spectrum is not a very good way to describe political attitudes right now, because there are other dimension that are every bit as important. One, of course, is the authoritarian-libertarian dimension. Another is the corporatist – humanist dimension that we see expressed in the OWS rebellion. So, even assuming that you’re a centrist on the left – right spectrum as it is defined right now, that doesn’t make you a centrist on the other dimensions as well. I think, in fact, that you have a complex political position. But I also think that it is definitely a political position, not a non-political one, whether or not it can be easily associated with either of the major parties.

    I think the same is true of both Mike and Carlos, and that to describe them as either Republican or Democrat isn’t very informative at all. To understand them, and each of us, one really has to pay attention to detail. But the bottom line is that each of us is still political and that any claim that our economics is without politics is pure fantasy.

  78. Joe, Cullen recently put up his Political Compass test result after my earlier post on MMR in which I perceived the group as in the right-libertarian quadrant. As he points out, the result indicates centrist.

    I agree with your basic point, though, that we are all political.

  79. Here is the thing about that test. I tend to be a person that has “strong” opinions on…well, everything. When I take that test again and eliminate “Strongly Favor/Strongly Disfavor” to “Favor/Disfavor” (or whatever the less strong choices are), I am about as smack-dab in the middle as you can get. The irony is that all our Presidents in the US (including Obama) are clearly on the right. Which just goes to show you how in-line they are which the general populace. Cullen has more political compatibility with Dennis Kucinich than with our current president.

  80. Beowulf, I don’t believe that MMTers suddenly decided to go to war and shoot the horses over the JG. The JG was only one of several issues that are routinely discussed in the MMT writings and blogs. Most of the discussion on the blogs these days seemed to be about a lot of other familiar topics: austerity and deficits; the European crisis; sectoral balances, tax holidays, etc. But then the JG came under attack from several fronts at once, and those who believe in it simply defended themselves and their ideas.

    But if branding is the sole concern, I recommend “full employment economy”. Although I don’t believe the policy substance is any different, terms like “buffer stock”, “last resort” and “guarantee” have a combination of paternalistic, pessimistic and dehumanizing associations for a lot of people.

    I believe that, in the United States at least, it is better to rely on traditional conceptions of a social contract in supporting full employment, since these contractarian ideals have deep roots in our intellectual and political culture. In the context of work, one application of the contractarian ideal is to say that a democratic society is based on an implicit compact among its members, in which each person’s entitlement to a share of the benefits produced by the society is earned by their participation in the society to the best of their abilities. We have an obligation to provide an opportunity for everyone to earn their way in the society, because we want to empower democracy and give all of our citizens the opportunity for full social participation as an adult democrat equal, sharing the work burdens which make our prosperous and free way of life possible.

    You raise an important theoretical issue: that’s whether there is such a thing as the NAIRU, and whether the Phillips curve tradeoff has any deep theoretical basis. Part of the MMT approach, as I understand it, is to provide a theoretical basis for skepticism about “yea” answers to these questions.

  81. “Yes, we know that it would never pass in non-crisis times, but in crisis times it only has to get through congress ONCE. This is what we are counting on…”

    I don’t think Naomi Klein wrote The Shock Doctrine to be a How-to manual.

    Also, it neglects the fact that spending programs are funded by annual appropriation bills.
    So a JG only has to get through Congress once, this year. and then once next year,, and once the year after, etc. By contrast, unless they have a specific sunset date, tax code provisions roll on automatically into the indefinite future (there are excise taxes from the Spanish-American War still on the books).

  82. Trixie,

    What you imply is that people who are centrists have weak opinions, and are therefore quite “wishy washy” and will go whichever way the wind blows!

  83. As a philosopher I can verify Joe’s assertion above that the fact-value, positive-normative, and descriptive-prescriptive distinction is now recognized as erroneous carried, especially when to the extreme. For example, Ludwig Wittgenstein’s The Eurocrats do appear to be moving toward a more elegant, modulated austerity, though.(1921) was picked up by the Vienna Circle and used to develop Logical Positivism, which LW made clear was not his intent, nor was it the purport of his book. He later published Philosophical Investigations (1953) showing how the complexity of the logic underlying language-use obviates making any such hard and fast distinctions. Since then, cognitive scientists, such as Antonio Demasio have also shown on empirical grounds why this is so, based on the way the brain functions. (See Descartes’s Error: Emotion, Reason, and the Human Brain (1994).

    The implication of this is that people often think that they are being objective when they are simply mistaking their own norms for descriptions while not realizing it. We see something like this demonstrated perhaps most vividly in religious arguments, where people conflate tradition and dogma with fact in spite of evidence to the contrary. But it affects everyone in a much deeper way, since the framework of a worldview is constructed of norms, many of which a framed descriptively, and every one has a worldview, since this is an essential aspect of language-use in that it underlies a universe of discourse.

  84. I think Beowulf raises a very important issue. And I think all MMTers and MMRers (I really think this whole thing is a storm in a teacup) should bear it in mind.

    Getting a one dollar transferable tax credit is the same as getting a dollar bill But a tax credit can become a part of the tax code, and does not have to be appropriated every year.

    Thus UI could be funded purely by tax credits. We could also pass a law that made all tax credits transferable. Further UI extensions could be made automatic as long as the U-6 is above a certain target rate. UI then effectively becomes a BIG as long young labor force entrants have access to the programs of the type suggested by the Modern Monetary Theory Trader – Why Not Use What We Already Have (instead of a JG?) and 1,2,3,4 More on the Job Corps

  85. Cullen @6:25 . . . .no worries at all. just seeking clarification. I thought (and hoped!) that my initial interpretation might be wrong, which was my reason for commenting in the first place.

  86. I don’t think there’s any confusion among MMT economists about presciptive/descriptive. Advocacy of the JG is prescriptive; that there is a choice to make is descriptive. That there is advocacy of the JG is “core” to MMT economists, as much or more than anything else; that is the point that Bill and others made. What was confusing perhaps was Bill’s suggestion that an individual “supporter” couldn’t be “with us” if he/she only supported the prescriptive aspects of MMT. I would grant that the MMT economists possibly do not all agree on that point since some of us appear to have a “bigger tent”-view than others do.

    The JG is a core policy prescription over the long haul, though it was well recognized early on that this was far less likely in the past few years to get much traction compared to, say, a payroll tax holiday. I think that prior to the last few months anyone doing a statistical analysis on our blogs would find the JG well down the list of topics covered, though certainly not absent. While we have certainly unapologetically led with the JG in our academic research, I can’t see how anyone could possibly argue we’ve done this on our blogs (again, not that we’ve tried to hide it, either).

    Finally, as others have noted here, the positive/normative dichotomy has been “dead” for several decades academically. It is generally only people not trained in the philosophy of science or sociology of knowledge that do not know this. Neoclassical economists are at the front of the line in this respect as they have essentially abandoned any attempt to train their Ph.D.’s in this area. Consequently, their textbooks continue the cycle of enabling poor methodological understanding and contributing to the continued belief in the positive/normative dichotomy among lay people. UMKC, on the other hand, is one of the few that are very deliberate about training graduate students in these areas.

  87. Hi again everyone. I am not sure why people are still hung up on our political positions. It’s a waste of time. As is the argument over what we name MMR. If we want MMR to be called the “Joe Firestone Theory” then I’ll blast it out over pragcap which dominates google searches and the internets will handle it from there. These are pointless discussions.

    Scott, I am not so sure that you are correct there. I think Pavlina best summarized the gen 1 MMT positon:

    “A number of MMT supporters from the blogosphere have argued that MMT has a descriptive and prescriptive part and, more recently, that the Job Guarantee program (JG) falls in the category of prescriptions and that it is not as essential to the MMT project as the description of the operational realities of modern economies.

    The argument is that once we have understood how sovereign governments fund themselves and how the banking system operates under different currency regimes, then we can pick from a menu of policy options that the monetary regime affords, depending on our individual political preferences. Some MMT followers have claimed that they would prefer tax cuts to spending due to their more conservative leaning, while others still seem unconvinced that full employment is possible or even desirable. By contrast, most first generation MMTers have made the full employment objective a salient feature of our work.

    Though clearly there is an aspect of MMT that is purely descriptive, I have always considered this division between the descriptive and prescriptive part of MMT to be a fundamentally flawed dichotomy. ”

    http://www.neweconomicperspectives.org/2012/01/whats-mmt-about-anyway-and-is-job.html

    That’s pretty cut and dry if you ask me. Now, if MMTers want to very publicly reject the JG as being the “base case” or “central” then that’s a different story, but I think the situation is clear. MMTers take the monopolist argument, say it causes unemployment and fill in the employment need via the JG. As Pavlina says, that’s MMT. And it’s “flawed” to say otherwise. The JG is a central piece of the theory. In fact, it’s a large part of what makes MM THEORY to begin with. The only way to remove the JG is to do what we’ve done and very specifically state that the JG is not a “central” component. So, maybe you’re a MMRist? 🙂 Just kidding of course.

    Best to everyone. I’ve been heated at times in recent weeks and said things I regret. We’re all doing important work here and no matter where it all ends up, the world will be a better place even if a few of our ideas end up impacting policy.

    Cullen

  88. On Peter’s comment:
    http://heteconomist.com/?p=4262&cpage=2#comment-45931

    Peter, days gone by I was a pretty good interdisciplinary behavioral social scientist, particularly good at methodology with some mathematical modeling and a good deal of background in measurement scales. When I see something like the political compass test, my BS meter always goes through the roof. Why? the framework is two-dimensional, but people are not two dimensional in their thinking and the two dimensional framework can’t possibly account for much of the variation in the statistical data underlying the scale. I’d be surprised if the two main dimensions account for any more than 35% of the variation in the data. I also don’t think the scales used in the study are ratio scales or even interval scales. The social scientists in back of them may pretend that the underlying factors generated from the data form interval scales, but without consistency tests of mappings, strong reliability, and validity tests correlating the psychological test data with eternal independent measures, no validity can be claimed for these measures.

    Briefly Cullen just picked up something ready to hand that would say he was a “centrist,” without providing much information about the question of whether this is political or not.

  89. Thanks Tom @ http://heteconomist.com/?p=4262&cpage=2#comment-45982 There’s so much literature backing this up, that it’s really not funny when people start asserting the Fact-Value dichotomy. Even Hilary Putnam’s against it these days. But I wrote this piece as part of a larger effort early in the 1970s ad even then the lay of the land in philosophy was pretty plain: http://www.kmci.org/media/Against%20The%20Fact-Value%20Dichotomy.pdf

  90. “tempest in a tea cup”? Yes.

    The MMT economists are functioning chiefly as academics and blogging on the side. They are providing the necessary academic basis. Their primary focus is functioning in academia. Academics don’t directly influence many beyond the periphery of academia, although economists do attract some financial following if their work has application to those involved in markets.

    The MMR people are not academics and do not plan to publish academically, although they could conceivably decide to publish professionally in their fields of expertise. The MMR people address chiefly those in the financial world. Among the MMT people, Warren and Mike Norman address the financial world also. This is a specialized field of interest that will not have great impact on ordinary people.

    Then there is another cohort like myself who come to this from the side of politics and who disseminate these ideas in a water-down popularized way around the net. There are actually a whole lot of these people, and many of the them aren’t on the MMT blogs unless they are using different name. And there are very different degrees of understanding of MMT floating around. I would imagine that will happen in the case of MMR also.

    So it’s happening in a variety of ways. We should all focus on the group that we are able to reach without getting too hung up in non-essentials. For example, the MMT populists often get things wrong to some degree, but it’s arguably better that we are doing what we are doing than not doing it at all.

  91. Cullen and I agree about the JG being part of the MMT core. But asserting that it is, “removing it”, and declaring a separate approach isn’t the way to remove it from the MMT core if one objects to it. The more traditional, but more difficult way to do this would be to produce good critiques of the JG proposal as a means for creating FE at a living wage with PS. Cullen’s offered some arguments in this direction. But I think his arguments are very far from refuting the MMT proposition that along with full payroll tax cuts and State revenue sharing at an appropriate level the JG will drive unemployment down to the frictional level of roughly 2% without demand-pull inflation. Of course, for full PS to result, MMTers have pointed out that the JG must be supplemented with other demand-pull and cost-push inflation-fighting policies.

    But whether or not this is true, I do think it’s clear that all that needs to be done to get the JG out of the core is to test it and find that it doesn’t work. A priori arguments based on highly questionable microeconomic considerations and personal impressions won’t and shouldn’t do the trick.

  92. “I think you know that funding for JG provisions can be legislated using automatic renewal provisions.”

    In theory, yes. In practice, it requires supermajority approval in the Senate to overcome budgetary rules designed to thwart the creation of new entitlements. Otherwise it would be funded in the annual Labor-HHS-Education appropriations bill. I

    Remember too, it is generally only people not trained in the philosophy of science or sociology of knowledge that… get elected to Congress.
    :o)

  93. Cute as always, Carlos, -:) But, note that I did assume a wave election. One reflecting a crisis in the country, and perhaps one powerful enough even to get people elected who will use the “constitutional option” to restore majority rule to the Senate. It’s not really hard to do mechanically or constitutionally. Whether it gets done will depend on how close people are to taking direct action if Congress doesn’t act. Wait a little. A little European collapse, a few insolvent big banks, another tanking of the stock market and a sudden spiraling of unemployment on the heels of this sort of thing and all of a sudden both the “constitutional option” and the whole MMT program may seem vastly preferable to the alternative of martial law.

  94. The question is one of macroeconomics, not politics. First, is it possible to achieve and maintain FE & PS in such a way as to reduce UE to the level of frictional (1-2%)? As far as I am aware, MMT is the only theory that shows how to do this, in that it is the only one that guarantees a job offer to anyone willing and able to work, thereby meeting the definition of employment. Those able to work who are unwilling to accept the standing job offer are voluntarily unemployed and prefer leisure.

    The question then becomes whether the solution is feasible macroeconomically (not politically — that question come later and there are two answers, either yes or not yet). If it is feasible, that is, the economic modeling withstands rigorous peer scrutiny, then the question becomes whether it is the most efficient solution available.

    If yes, then the question becomes whether it is effective wrt policy. i.e., does it preclude more highly prioritized policy objectives? Notice that this assessment involves norms in setting priorities.

    If effective, then the question is what it would take to implement it ASAP as economic policy. If it cannot be implemented ASAP, then a campaign is mounted to gather support for implementing it subsequently.

  95. Beowulf, if we are going to be concerned with the super-majority, or a GOP-dominated House, we might as well all forget about getting any proposal based on “Keynesian economics” passed and just wait for the revolution.

  96. Nah, Clonal. My point is to take that test with the appropriate amount of salt. It´s nothing to be used as ¨proof¨of anything when it´s convenient and to dismiss it when it´s not. Nothing to see here and certainly nothing to make a big ¨to do¨ about. Initially, it was a simple observation. And a well grounded one at that before it exploded into something else.

  97. Scott, I have been arguing that the buffer of employed as the preferred buffer is not prescriptive even though it is choice, in that it can be demonstrated to be the most efficient economically and also the most effective in achieving the “holy grail” of macro, FE & PS, which other economists believe to be impossible due to inflation effects of rising employment, that is competition for workers drives up labor costs, resulting companies to raising prices to maintain margins.

    This explains the MMT ELR proposal as a buffer stock of employed and a floor wage that acts as a price anchor as an integral aspect of MMT as a macro theory rather than a normative choice simply based on a preference for full employment. Once one objectively takes into account the huge inefficiency of unnecessarily idle resources, it makes no economic sense not to choose this solution based on opportunity cost.

    Am I wrong in arguing this way? [TomH 6Feb 6:34 PM]

    This seems to be a very simple and straightforward summation of MMT JG theory which TomH has mentioned a few times – would be very interested in a reply Scott or pointer??? Thanks …

  98. I think some weakness in the MMT JG position comes in when we use the term “buffer of unemployed”.

    Implementing a buffer (of anything) implies some sort of system authority is taking a positive action to establish a buffer and directing that it be filled with the chosen & valued buffer “stock” when certain conditions are triggered. Doing nothing is not a positive action.

    Currently the political policy of the authorities is to do nothing when an individual is facing loss/lack of employment, not ‘establish a buffer stock of unemployed’, this logically doesn’t make sense to describe a policy of apathy and disregard in this positive way.

    So use of this term, which is suggesting that “doing nothing” is “doing something”, leaves the MMT position of use of the JG as a “buffer” to establish Maximum Employment and Stable Prices WEAK and perhaps wide open for misinterpretation and/or a designation of being optional.

    It’s not a “buffer of unemployed” (it logically can’t be) it’s just “unemployed”.

    Resp,

  99. I support a job guarantee or employer of last resort policy, but I am also skeptical of the buffer stock reasoning in some of the MMT theorizing in support of the job guarantee. The idea of a buffer stock for some product, as I understand it, is that the government or some other dominant player buys up stock when the price is falling down below the desired floor price, to keep the price at the floor, and then sells off stock when the price threatens to shoot past the desired ceiling, in order to drive the price down. I suspect this is unworkable in the labor market via a genuine job guarantee for two reasons:

    1. Politically, it would be very hard to

  100. continued:

    1. Politically, it might be very hard to release people from the JG pool of government employees so as to bring the price of labor down. People aren’t soybeans. They vote.

    2. The government JG employees will have to be kept at low wages to be able to generate sufficient downward pressure on wages during the anti-inflationary “release” stage.

    That’s why I tried to defend a full employment economy on other social, moral and economic principles in my recent post at New Economic Perspectives.

  101. Matt, in effect choosing to disemploy people to control inflation, which is what NAIRU and Taylor rules do, involves creating a buffer stock of unemployed in econo-speak.

  102. Joe, if your theory assumes a wave election of likeminded congressman, then there’s nothing to debate politically since we’re assured to be (as Kang would say) “always, whirling, whirling, whirling towards freedom!”

    Tom, there’s no supermajority requirement for budget reconciliation bills, that’s how Clinton passed his tax hikes and Bush passed his tax cuts. In both 1993 and 2003, the Senate was split evenly and the vice president broke the tie.

  103. Matt,

    Actually, the NAIRU model is all about, explicitly, making sure there are enough people unemployed to ensure inflation doesn’t rise above the target. There are all sorts of statements from policymakers particularly at the Fed to the effect that they use a NAIRU model.

    For instance, the statement from 11/16/99:

    “Despite tentative evidence of a slowing in certain interest-sensitive sectors of the economy and of accelerating productivity, the expansion of activity continues in excess of the economy’s growth potential. As a consequence, the pool of available workers willing to take jobs has been drawn down further in recent months, a trend that must eventually be contained if inflationary imbalances are to remain in check and economic expansion continue. ”

    That’s basically saying that the buffer of unemployed is getting too small for price stability, so policymakers will act to ensure that doesn’t happen. That is, the point is that it is the buffer stock of unemployed that is necessary for price stability in the Fed’s view.

    I would suggest you are confusing micro policy with macro policy when you write “Currently the political policy of the authorities is to do nothing when an individual is facing loss/lack of employment, not ‘establish a buffer stock of unemployed’, this logically doesn’t make sense to describe a policy of apathy and disregard in this positive way.” Your position relates to micro policy, whereas the buffer stock relates to macro policy, and, as above, the concept of a buffer stock of unemployed is clearly at work in the minds of policymakers when there is concern about inflation.

  104. Joe, thanks for explaining some of the limitations of the Political Compass test. Your strong interdisciplinary background comes through in your writings. Trixie, in one of her interesting comments, also noted a weakness in the test.

    Political Compass coming in to the discussion was my doing. Cullen simply did the test because I had brought it up, by way of clarification, which I appreciated.

    Great discussion, everyone.

  105. beowulf said:

    We can get to 4% unemployment and 3% inflation (also in Humphrey-Hawkins) with fiscal and/or monetary policy– we last did this 12 years ago (and to 4.5% 5 years ago). .
    But to get it lower than that…. I don’t think you can’t push unemployment south of 4% without jumping on inflation with both feet, in particular, cost-push inflation.

    There are examples of low unemployment and low inflation. Not that countries are directly comparable. But it is possible – even without a JG! And, in the Swiss case, even with low domestic growth. Japan’s numbers are probably similar.

    http://www.tradingeconomics.com/switzerland/unemployment-rate

    http://global-rates.com/economic-indicators/inflation/consumer-prices/cpi/switzerland.aspx

  106. PeterC,

    A very balanced set of observations.

    I was waiting until the discussion subsided a bit before bringing in my two cents worth.

    Commenting on the coercion thing. I haven’t read all posts and it’s possible this has already been said, but I have the feeling that the aversion to the state coercive power in taxation is due to a misunderstanding.

    I am sure not all Realists share this, but at least some of them appear to imagine that this power is tantamount or at least leaves the door open to a SWAT team breaking into their bedrooms at 2:30am, shouting and pointing automatic weapons and LED torches at you; I would like to assure them that it is not.

    It’s more akin to the coercion applied to enforce that drivers stop at the red light, do not exceed their speed limits, or drive on the right or left side of the road.

  107. Tom and Scott thanks.

    Here is a Wiki on this:
    http://en.wikipedia.org/wiki/Buffer_stock_scheme

    This wiki identifies 2 schemes, a single price scheme (which I think would be similar to the MMT JG) and a dual price scheme.

    It seems to me though that the NAIRU people are not using either scheme.

    “When the price drops close to the floor price (after a new rich vein of silver is found, for example), the scheme operator (usually government) will start buying up the stock, ensuring that the price does not fall further.”

    The NAIRU people are not buying up anything. They are not a “scheme operator”, they do nothing. They allow the price to collapse (think real wages).

    So it perhaps is ceding a point to the NAIRU people before the debate even starts and granting them unmerited favor to say that they are “maintaining a buffer stock of unemployed”, they aren’t doing anything.

    This NAIRU is a textbook ignorant moron Libertarian policy, ie “more freedom (sic)”; ie “we’re too stupid to understand the operation of these systems so we recommend for ourselves and everyone else we do nothing”.

    I would think that the NAIRU documentation does not include references to Buffer Stock Schemes . We may be giving them too much credit right from the start. Indeed this wiki says:

    http://en.wikipedia.org/wiki/NAIRU

    “Others, such as Abba Lerner (1951, 1967) and Hyman Minsky (1965) have argued that a similar effect can be achieved without the human costs of unemployment via a job guarantee, where rather than being unemployed, those who cannot find work in the private sector should be employed by the government. This theory replaces the NAIRU with the NAIBER (non-accelerating-inflation-buffer employment ratio).”

    So if this is to believed, it looks like the NAIRU people dont have a buffer of anything. The buffer concept came after NAIRU and is outside of NAIRU.

    Resp,

  108. magpie: I am sure not all Realists share this, but at least some of them appear to imagine that this power is tantamount or at least leaves the door open to a SWAT team breaking into their bedrooms at 2:30am, shouting and pointing automatic weapons and LED torches at you; I would like to assure them that it is not.

    Not sure that this completely the case. Ask any of the individual sovereignty people when they attempted to assert it by not filing taxes. Yes, they do come after you with guns drawn at a certain point. Obviously, that is not a threat to most people, but it is a very strong coercive threat that is exerted now and again if only to prove the point. The government can do this and this is the bottom line on tax obligations wrt state money.

    What the state theory says as interpreted by MMT economics is that the coercive power of the state to compel citizens to meet their obligations to the state as a matter of law is a necessary condition for avoiding hyperinflation, because there will also be a need to obtain the currency to pay taxes. IIRC, Warren has stated this several times recently.

    The state theory of money is based on the need of the state to create a market in which it has extraordinary purchasing power to move private resources to state use, so that the state does not have to obtain the medium of exchange elsewhere, i.e., become a currency user instead of the issuer, which has bankrupted many rulers.

    The question is about necessary and sufficient conditions. The state theory of money holds that the coercive power of the state to require non-government to obtain the money issued by the state in order to meet obligations to the state is necessary for state money. A lot of people will just refuse to allow the state to transfer resources to itself for essentially worthless tokens. There are a lot of people in the US that refuse to do so in various ways, even resorting to barter. But the US taxes barter too as if it were a monetary transaction. There is no way to live in the US having to obtain state money to pay taxes.

    It is debatable whether this is a sufficient condition, however. In ancient times, state money was not generally used in day to day transaction. State money was specifically a tax credit and those with tax obligations had to obtain this tax credit for period payment. In this way the state could move resources to itself for the price it set as monopolist. So in this situation the condition was necessary and sufficient.

    Is it sufficient in a modern complex monetary economy? We can debate that. I would say that without attending to other relevant conditions, then domestic inflation and external devaluation are the risks to the value of state money.

  109. Matt, I believe that the Fed quote Scott provided shows that the Fed was aware that it was using unemployment as a buffer stock. Of course, no one defending NAIRU is not going to talk that way. Their party line is that unemployment rises because people prefer leisure. It’s transparently self-serving nonsense. Orwellian double-speak.

  110. Tom, my understanding is that tax enforceability is sufficient for state money though possibly not necessary (though in reality probably necessary as well). That is, if the tax obligation is enforceable, that is sufficient to ensure resources can be transferred to the public domain. It might or might not bring with it wide usage of the state money by the non-government, but that is not critical for the viability of the state money, which at minimum only requires sufficient usage to transfer resources to the public domain, and this is ensured by successful enforcement of the tax liability.

    It is conceivable that under special conditions coercion might not be necessary. Certainly for small communities of individuals, under the right conditions, monies can achieve transfer of resources without coercion.

  111. That is interesting, peterc. My impression was that it was necessary. Force implies necessity. Comply or lose your freedom and/or property. Many (if not most) people pay taxes only because they are afraid of the consequences. Even then there is a lot of tax cheating. Absent the threat of coercion, I doubt state-imposed money would be viable. So I would say it is a sine qua non.

    The reason I said that sufficiency is open for debate is that in a modern complex economy other factors seem to be involved in acceptance of state money as the exclusive unit of account in a complex economy. What I mean is that I don’t think that the issue that Cullen brings up can just be dismissed. He is certainly not unique to him. I have seen quite a few people bring up this line of reasoning. On that score, it needs to be met. There is huge resistance to theory of state money based chiefly on force.

  112. peterc, the problem with making coercive force only a sufficient condition is that other sufficient conditions are possible, so that it would be possible to have state money without coercive taxation. That is the argument of opponents of Chartalism. That is why I believe that the Chartalists argument rests in coercive force being a necessary condition.

    A necessary condition might not be sufficient, so that other factors would have to be present in addition to coercive threat as a necessary condition. In a modern complex economy that might be arguable. If one wished to rebut this, it would be necessary to show that coercive force is necessary and sufficient in any case.

  113. I think people make too much of the issue of coercion, its everywhere in all walks of life and in all functions.

    Without it at all, in the lay use of the word, there would be anarchy and chaos.

    It’s only idealist libertarians, perhaps right-libertarians to make a distinction that think such a thing and thus I don’t think much of them.

    Left-libertarians I’m still working out.

  114. People in the US will think: x

    Fallacy of composition perhaps?

    I’m not saying it is but according to wikipedia this fallacy is closely related to one called hasty generalisation. (personally I doubt this hasty generalisation one exists as an official fallacy) but that is what we’re doing here.

    A decade or so in Australia we had a Prime Minister that educated us on economics (he was incorrect on lots) but is there no such sort of leader in the US?

    I think some MR have not read widely enough on the buffer stock literature as I see no confusion between the various statements, just differing levels of how to get an employed buffer stock. 99% of that is via Bill Mitchell what I’ve read and that includes practically every PDF he has posted over the last 2.5 years, more recently I have read NEP and their PDFs and I see no conflict. Unlike Scott, I don’t even see Bill’s clarification of buffer stock or not as taking words bad – I see it all as entirely consistent.

  115. Tom, thanks for your responses.

    My understanding is that the MMR group agree taxes are important (perhaps necessary?) but insufficient. I’m pretty sure chartalism is saying tax enforceability is sufficient but not necessary (i.e. that other factors could be sufficient), but I’ll happily stand corrected on that if an MMTer or yourself can set me straight.

    This is how I see it. Whether or not people think there are great things to be had by trading in the government’s money, that is immaterial to the question of whether the government can create sufficient demand for its currency to transfer resources as desired from the private to public domain. If there is a lump-sum tax, and it is successfully enforced, that will be sufficient. End of story.

    That does not mean the currency will be widely used, though in many cases it probably will. Maybe the disagreement is only because the MMR group are thinking in terms of widespread use and MMT is thinking in terms of, at minimum, sufficient use to transfer resources to the public domain. It would not ultimately matter if people transacted in other monies the rest of the time. The reason governments try to keep people doing so is because they have introduced consumption and income taxes, but if people used other monies for private transactions, the matter could be resolved by the government imposing lump-sum taxes.

    MMTers agree that once a currency is up and running, driven by lump-sum taxation, many other factors will come into play to encourage its widespread use.

    In terms of the (domestic) value of the currency, the MMT position is that it is determined by the scarcity of the government’s money relative to the enforced tax obligation. In a sense, successfully enforced lump-sum taxes determine the minimum scope of the currency (the minimum use). The government’s money will be used at least to that extent. If the government’s money were not used beyond that, the point of interest for other transactions would be the value of whatever money was being used. This would not impact on the (domestic) value of the government’s money. There would be fluctuations in the exchange rates between these different monies, but that has no bearing on the (domestic) value of the government’s money, which is what is relevant for dealings in the government’s money.

  116. > ” That does not mean the currency will be widely used…”

    Peter, this is very helpful! Makes lots of sense. Thanks!

  117. peterc, the way I understand the state theory argument as MMT economists put it, taxation is necessary and sufficient to give state money value. It is the sine qua non and the causal factor. Other factors come into play in determining how the state us used and what its purchasing power is.

    I also believe that the state money involved is the unit of account rather than the medium of exchange. For example, in the US use of barter or alternative currencies has to be converted into the unit of account for tax reporting. One cannot avoid taxation in terms of state money by avoiding its use as a medium of exchange, because it is the unit of account that is the criterion the government uses.

  118. “Other factors come into play in determining how the state us used and what its purchasing power is” should be “Other factors come into play in determining how the state money is used and what its purchasing power is.”

  119. Neil: I have yet to see Ramanan or anybody else demonstrate anything that is operational or systemic regarding the alleged constraints.

    I am very late to the party and have read only thus far but imho there is a very clear argument which, unfortunately, exposes the underlying and implicit politics of MMT. And as long as there is politics there will always be “agree to disagree”. This is imho the clear weakness of academic MMTers whose task is to educate, explain and then explain harder and even harder rather than resort to misrepresentations and existing literature. Anyways to the argument…

    International trade is effectively a barter system complicated with modern credit relationships. Accumulating trade imbalances represent inter-generational transfers of wealth and resources facilitated by these credit relationships. While we, our generation, can argue that we chose to sacrifice by exporting today for the benefit of our children tomorrow, there is no outright economic justification to the political position of permanent imports. This is pure political selfishness regardless of whether it is possible or sustainable operationally or systemically. Because it is NOT by definition sustainable once you include politics into the definition of sustainability. And this fact alone, regardless of whether coming from right or left, top or down, for any academic scientist in any science shall be as shameful as an outright lie. Because in reality it turns out to be a sweet politically driven lie more often than not exceptions notwithstanding. Just pump up some spending ahead of elections. And time still has to show us whether we have exceptions or not. I am less than sure that unemployed Americans think that they are an exception.

  120. ” there is no outright economic justification to the political position of permanent imports”

    There is.

    The political justification is that the other side is buying up your currency and hoarding it to reduce the amount of domestic activity that can occur. Which gives more space in your import market for their exports.

    Therefore accommodating that central bank hoarding via increased flows in the domestic circuit is a highly effective counter-measure to central bank mercantilism.

    Drain the other country of real resources and give them empty promises in return until they realise they gain no advantage from doing that.

    There is no intergenerational transfer because there is no guarantee that the foreign nation will be able to obtain real resources from you in the future. That is entirely down to whether you decide to let them have any or not.

  121. Neil: There is no intergenerational transfer because there is no guarantee that the foreign nation will be able to obtain real resources from you in the future

    Sorry, but you have to reconcile your liberal views on full employment and human rights with your … do not know how to call it … arguments that “they” should shut up and eat their own dirt.

    Your view of the world is too mechanical and dry even for an academic who are you not. Your models of behaviour assume away such factors as military wars and economic embargoes. We are not even talking some random country which starts with Z. Lets run a thought experiment and take USA and assume that tomorrow the government of USA will void all its financial obligations owned by China or foreigners overall which you seem to suggest. What do you think will happen? Do you think that USA will experience an abrupt decrease of living standards due to collapsing imports? IF yes then it IS already an inter-generational transfer which has *already* happened.

    But there is more to it. Do you think that other countries tolerate this? do you think they will line up for an embargo on USA also leading to a collapse of its export industries? What do you think will happen to the businesses and *assets* of Facebook, Microsoft, Google, Apple, Bank of America etc abroad? Does it constitute a transfer in your mind? Do you think a general economic chaos that such a decision of the US government can lead to will affect purely domestic american businesses.

    So is it really possible to void such a guarantee at a whim of politicians or you just live in a world of fancy theories? Is there really a free fiscal space of an otherwise sovereign country which has accumulated substantial claims of foreigners?

    Neil, you can not take such answers as “maybe”. Unless you can clearly and irrevocably say that there is no risk *at*all*, i.e. there is no even a theoretical scenario where anything outlined above can be conceived of, then you are talking inter-generational transfers. Because any risk requires capital. And capital is scarce.

    You have to reconcile your prescriptions in various economic fields. Either you are a liberal who cares about people and equality or you are not. But make it straight please. People are people everywhere. Even in China people have dreams and they want to work. Even assembling stupid iphones, which you want to consider as your benefit and their cost, in work-slave conditions at Foxconn. And they are competitive, i.e. more productive.

    I am not saying that you should favour foreigners more than your own citizens. But you should be consistent in your views, especially towards your own people. If you decide to import and run a negative trade balance which you enjoy, you should also have an exit plan which makes sure that kids of those who enjoy imports today are guaranteed from any possible loss (due to imports) they can suffer tomorrow. With no risk *at*all*.

  122. “Lets run a thought experiment and take USA and assume that tomorrow the government of USA will void all its financial obligations”

    Who said anything about voiding them?

    “I am not saying that you should favour foreigners more than your own citizens.”

    Good I’m glad to hear it. Then you won’t have a problem with what I’ve just said – other than to take it to the extremes that you have done.

    In case you haven’t realised that line of argument is called the ‘excluded middle’ and is a logical fallacy.

  123. Neil, you seem to miss the argument that as long as there is even a possibility of inter-generational transfer among your own population then you are in the political domain. And your economic views in this political domain are questionable especially against your views in the economic domain of employment. Do you say that you will enjoy imports as much as possible today and force … sorry … guarantee employment for everybody tomorrow to pay back through the quality of life for what you have consumed today?

    The fact that such transfer can happen between today and tomorrow, i.e. has any probability different from zero, is enough to say that your position is economically unfounded and politically biased. And this political bias does not dance with your liberal views unless explicitly stated. So next time you mention that you are waiting for somebody to demonstrate etc without any additional qualifications I will just read it as an explicit political position of opportunistic economic free-riding at the expense of future generations. And you have full right for such position.

    But does this whole topic sound to you like an ecological and environmental problem?

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