Will MMT Become Part of the Problem?

If we needed evidence that Modern Monetary Theory (MMT) is open to different political viewpoints, it has been forthcoming lately in the blogosphere. In itself, this is a good thing. To be a useful framework for debate over policy and political alternatives, there needs to be an openness to different perspectives. From my vantage point, one effect of the emerging debates has been to reveal a seemingly large group who want to do less with MMT than the academic developers envisaged, while another (probably much smaller group) want to do more. Needless to say, I fall into the latter category. My concern is that MMT is at risk of becoming just another tool for those who wish to preserve the status quo.

Lately, I find myself somewhat distant from the worldview many (though certainly not all) MMTers seem to espouse. The debate over the job guarantee (JG) can serve as one illustration of what I have in mind. There are other examples I could have selected, but this one seems topical.

Recently, various right-wing arguments have been leveled against the JG proposal. Sometimes these reflect a form of Social Darwinism. Other times they reveal a faith in the efficacy of private markets that has no basis in anything established in economic theory. In responding to some of these arguments, one leading Modern Monetary Theorist wrote:

It sounds to me like much of the opposition to the JG is due to its “permanency”. A temporary jobs program is fine, many readers argue, but a permanent arrangement to absorb those that are periodically “released” by private firms into the pool of the unemployed isn’t considered necessary or efficient. I wonder whether some of the opposition rests on the mistaken notion that supporters of the JG want to offer a government job for life. The job, itself, is supposed to be temporary — a resting place that affords our fellow citizens the opportunity to continue to work for a basic income even when there is no demand for their services in the private sector.

Although I am sure I agree much more with Modern Monetary Theorists on policy than the right-wing critics, I must admit to finding this response almost as underwhelming as the criticism it is addressing. Increasingly, my impression is that the intention of many MMTers is merely to preserve capitalism. Part of this project is to increase the functionality of the reserve army of labor by maintaining “buffer stocks” of humans to be shuffled back and forth between JG and regular employment in a manner suitable to capitalists.

Later in the same comment, the Modern Monetary Theorist wrote:

There will be economic booms and the private sector will create millions of jobs during the upswing. But there will also be busts — Enrons, AIGs, bubbles, etc. — and millions will become unemployed. A JG is the impersonal mechanism that absorbs and releases workers in response to these endogenous cycles. We can (and should) attempt to limit the size of the JG by preventing the kinds of bubbles, failures, etc. that have avoidable causes (e.g. control fraud). But we will never eliminate the business cycle, I have not encountered a better way to deal with the resulting (involuntary) unemployment than the JG. I am open to suggestions.

The business cycle is tied up with capitalism. An end to capitalism could mean an end to the business cycle. So the claim that “we will never end the business cycle” amounts to a farsighted prophecy into the distant future of humanity, or perhaps a recognition that under capitalism we have no sustainable future. Considering many MMTers seem to place strong faith in the virtues of private markets, other than in the FIRE sector, perhaps capitalism forever is a good outcome in their minds?

Many appear to cling to misconceptions when it comes to the supposed merits of private markets and their alleged benefits in terms of allocation of resources and productivity.

In what sense can private markets be said to allocate resources in a way that reflects social productiveness?

Answer: In no meaningful way whatsoever. Assertions to the contrary are really nothing more than ideological blather until those making the claims mount a legitimate theoretical case.

Even if private markets worked as advertised, this would only mean that the pattern of demand for goods and services encouraged a particular allocation of resources that reflected the prevailing distribution of income. A different income distribution would generate a different pattern of demand, different sectoral outputs, and by implication a different evaluation of social productiveness. Unless the prevailing distribution can be defended, this is no useful evaluation of social productiveness at all.

But as the neoclassical orthodoxy understands, the presence of externalities means private markets cannot even deliver on this worthless promise. Nor do private markets encourage basic research, the real foundation of technical progress. To the contrary, private markets result in chronic underinvestment in basic research or anything with a public good element or positive externality. Apparently the preferred solution to this chronic underinvestment, for many MMTers, is little different to the neoliberal solution: socialize the costs and privatize the benefits.

Notions of “creative destruction” do little to strengthen the flimsy arguments advanced in favor of private markets. Any creation and destruction, to the extent it is the verdict of private markets, will simply reflect the prevailing distribution of income and be impervious to externalities in just the same way as the market allocation of resources in general.

In my view, it is time for those who embrace private markets for ideological reasons to present their theoretical case. Otherwise, the claims are just hot air.

At a time when the challenges facing society are so great – none greater than the environmental calamity we seem to be inviting – and the possibility of alternative democratic solutions and distributed leisure seemingly within our grasp, especially in view of likely upcoming waves of mechanization, the aims of many MMTers strike me as narrow. The focus seems to be almost entirely on how we can continue to tie our activities as closely as possible to the partisan interests of capitalists. This is a self-imposed constraint if ever there was one! For many, it seems that only when workers are excess to capitalists’ requirements or an activity is not directly profitable should there be an unfortunate resort to non-market activity, and even then the activity should be tailored to the private profit-making interests of the dominant class.

This is little different than the apologetic neoclassical presumption in favor of laissez-faire capitalism, in which private markets rule unless a specific market failure can be demonstrated.

We can do better than this. This kind of thinking does not do justice to the tremendous democratic potential open to us in a modern money system.

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40 thoughts on “Will MMT Become Part of the Problem?

  1. Pragmatism is always criticised from both sides – but the bridge needs building today not when we’ve worked out how to build them with spider’s webs.

    Such is the life of the engineer – to work out which compromises you have to make to get the thing working now, with the gear that you have today, rather than at some point in the future.

    MMT is economic engineering. You have to work with the level of thinking and training we have today – based upon forty years of neo-classical indoctrination and a school system that was out of date in the late Victorian era – and try and improve people’s lives with what we’ve got.

    Pragmatically it’s going to be a major push just to get some mechanism in place to guarantee an income for people as a right of citizenhood *even if* you promise their labour in return.

    The US political structure still hasn’t evolved to a state where they are prepared to sort out ill people as a matter of course – something the UK sorted 60 years ago.

    The subtle way to deal with this is to give every incentive to production to replace people with machines. That way the paradox of productivity becomes more and more acute with every passing year.

    Technology may change fast, but people change slowly. The 20th century shows what happens when you rush into advanced social experiments before society has evolved to cope – authoritarian nightmares.

  2. Neil, good comment as always. I agree about not trying to force change faster than society’s capacity to adapt. I also take your point about those in the middle copping it from both sides.

    By the same token, for those who are on the left, I think it is a mistake to try for too little change. Capitalism will once again be less vulnerable when recovery eventually comes. If little has been achieved in the meantime, or worse, we go backwards as appears possible in Europe, we’ll be less well placed than sixty years ago in terms of bringing about meaningful change.

    Having said this, I am not sure how many of the academic MMTers in the U.S. really are on the left, other than in the sense of being liberal Democrats. There seems to be an embrace of private markets that does not strike me as pragmatism but rather an ideological position. (There may be exceptions.) Not that this matters, of course, in terms of what MMT shows is possible in a modern money system.

    I suppose, current political realities being the way they are, we’ll be lucky if the actual policy prescriptions of the academic MMTers are not completely marginalized or distorted by right libertarians and authoritarian elements in the major political parties.

    I’m probably partly motivated to criticize from the other side as a counterbalance. Either that, or I’m an eternal optimist and think something really good could yet come out of all this.

  3. Part of this project is to increase the functionality of the reserve army of labor by maintaining “buffer stocks” of humans to be shuffled back and forth between JG and regular employment in a manner suitable to capitalists.

    I don’t think that’s a fair way of putting it, Peter. As we have seen in some of the recent debates, for a lot of capitalists the suitable manner in which to treat labor is not to shuffle them back and forth between regular employment and government employment. The manner most suitable to them is to shuffle them back and forth between regular employment and unemployment. Preserving a pool of unemployment – a punitive social exile and impoverishment into which the worker is always at threat of falling – serves the interest of employers by maintaining a permanent buyers’ market for labor exerting permanent downward wage pressure and permanent neutralization of worker bargaining power.

    From the standpoint of empowering and improving the standards of living of workers, there are so many things to be said for full employment programs like ELR or JG it is hard to list them all, but I think the reason MMTers have wanted to emphasize the buffer stock dimension is because they want to underline the role that JG can have in promoting price stability and their fellow economists understand the role of buffer stocks in price stabilization. The context here is a massive wall of orthodox mainstream opinion in macroeconomics that holds we must choose between full employment and price stability. So if MMTers are able to persuade their macroeconomist colleagues that we can get both, that will do much to clear the way for a fresh reconsideration of full employment programs.

    I’m not sure how to evaluate the idea that the business cycle is entirely an artifact of capitalism. It seems to me that the business cycle is primarily do to the fact that under any economic system in which there are large and complex systems of production, with some decentralization and localization of investment and production decisions, limitations on human knowledge and information processing will likely lead to periods of overinvestment and underinvenstment. Capitalism makes it worse to the extent that it eschews a significant role for public finance, governance and countercyclical stabilization. But I think when we add those things in we can only hope to smooth out the peaks and valleys, not eliminate them entirely.

  4. Dan: Yeah, my wording of the reserve army of labor comment seems too harsh now that I read it again.

    Regarding the business cycle, under capitalism activity can come to a standstill for the reasons you mention. Under a different system, activity does not need to stop just because errors are made such as over-committing resources. Activity just needs to be redirected. This process is disruptive in the extreme under capitalism because of private debt commitments, bankruptcies, job layoffs, etc.

    However, my main focus in this post concerns the faith many seem to place in private markets when it comes to the evaluation of social productiveness. I think people who take that position need to make their theoretical case, because a legitimate case has certainly not been made in the past. Many are quick to accuse the left of being “ideological”, but in my opinion this faith-based pro-market mantra is ideology pure and simple.

    Incidentally, I loved this comment you made in one of the long threads at pragcap. I must confess I had been reading that thread – a very good thread – before writing this latest post. The liveliness of that thread may have rubbed off on me and partly account for the harshness in some of the wording in this post.

  5. Nah just a post-capitalist perspective. Perhaps an anarcho-syndicalist perspective hence an earlier comment of mine that Peter seems to agree with the libertarians (and Peter notes for different reasons). So perhaps its an anarcho-capitalist vs. anarcho-syndicalist argument with Peter and them.

  6. I think I can out-kook you peter ….

    Long-term, the sun and the moon and the stars won’t be there – there goes our PS, FE and productivity.

    Short-term, the way our consciousness is constituted – we are stuck in the moment called NOW; the only moment we can experience. And yes, we can plan ahead, (although never seem to learn retrospectively) but ….

    How do we view this planet: is it a garden or a jungle, a factory, a war-zone, an orphanage, a prison, a playground, a classroom, a temple – a mad-house, a parliament, a place for stewardship, responsibility, care-taking; heaven or hell? Just because we lay down asphalt and concrete on some little patch, install some traffic lights and lock everybody up on it according to time strapped to their wrists, is that reality? Is that ‘our dreaming’ …

    Then there is us: the four questions everybody asks – where did I come from; who am I; why am I here; what will happen to me when I die?

    So, the ‘crown of creation’ doesn’t know anything about itself? Is that pragmatic …?

    Then there are all of the formulas and books, recipes in the world: THIS is what it is all about …

    At the end, we leave … like Alexander the Great, empty-handed – did we find what we were looking for? Look into the eyes of the dearly about to depart …! Our time is coming too, even though we don’t have time …

    There are a few things I know for sure: the human being wants to ‘feel good’; wants to feel peace and certainty; wants to be happy and content; to live a fulfilling life so that when the end does come, there is joy and gratitude, appreciation and knowledge, singing in the heart.

    And when the human being is happy, kindness rules – the mind follows; it never has been a leader. In my life, I have always had to attend to my basics first. Because of this, I see the people (just like me) of the world crying out for Peace. Maybe then the formulas can be placed in the context of our existence, this oh so brief time each has to find themselves and what they have always sought, and the ‘solutions’ become clearer.

  7. I wonder which camp I’m in. 😉

    Seriously though, I hang around policy circles from time to time. I’ve got a jobs program being proposed to the Irish government this month too — although they’re in hysteria mode over spending right now… so we’ll have to see where that goes.

    Anyway, seeing how policy works makes you very jaded and rather conservative. This has even led me to look into how the great policy shifts occurred in the 20th century (something I hope to start writing about soon) and the results are not fun.

    Two things appear to me to have driven progressive policy — I mean REALLY driven it — in the 20th century: one is war (or more specifically: the War) and the other is anti-communism. Not revolution. Not clever people (although these were taken on after the fact). Not even a real shift in ideas (again, after the fact). War and anti-communism. Everything else was secondary.

    We have neither. Nor will we have either in the coming future. That means standard policy channels are the only way to go. Well, roll up, people! Because once you see how it works — even in a small and desperate country like Ireland — you’ll either run a mile or understand that you have to tone it down. Try anything else and you’ll be politely asked to leave!

  8. I’m aware that MMT is essentially reformist and that discussion of alternatives to capitalism are outside the scope of those blogs. But we are where we are, and advocating reforms that will benefit working people in the interim are worth the effort. Granted, the chances of lasting reform would be greater if the economy were to collapse.

  9. P.S. Someone is going to nail me to the wall for not mentioning trade unions. I think these can broadly be thrown in with war and anti-communism (especially anti-communism). Seriously, the trade unions never appear to me to have had a lot of power — although they were a useful institution when the time came around, they were largely led by the nose. They were also disposed of the moment they started showing any power that wasn’t truly conducive to the Movement of History (i.e. in the 70s and 80s when they triggered a wage-price spiral).

  10. Philip,

    I think you’ve left out one other major contextual/causal piece, namely prolonged periods of weak economic outcomes/high unemployment such as the 1930s and, I think, currently.

    Speaking from a Canadian perspective, that’s when Conservatives (!!) created the Bank of Canada (and as Marc Lavoie points out, it is probably the central bank that, institutionally, most closely approximates MMT understandings), our public broadcaster, marketing boards, pension schemes, you name it (public health care came later but it too was rooted in the real depression-era experiences of many of its chief protagonists).

    Yes, there were powerful communist movements/labour unions afoot. Yes, war loomed. But they were all in some sense driven by that much bigger causal arrow of poor economic outcomes. Throw in a dash of new radical ideas and the bottle (as in “spin the bottle” — just realize that some may not get that allusion) can point in a progressive direction, even in a very difficult political/policy environment (I’ve spent 11+ years in and around Canadian federal politics/policy and so have some considerable empathy with your position).

    Now I recognize that periods of economic difficulty can easily push the bottle the other way — we don’t have to look much beyond fascist movements past and present to see that — but but but… and this relates to Peter’s initial post, the set of MMT ideas can open our minds to the very possibilities that Peter worries might be foreclosed by so much of the debate.

    If it says anything, MMT says that the constraints most see as somehow external — as unalterable as the laws of gravity — are in some deep sense, the products of our own (admittedly flawed) thinking (abstracting from power relationships for a moment). In short, money can be our servant rather than our master. That’s a pretty powerful idea, one that not coincidentally animated an entire political movement in Canada called Social Credit which gained currency also in the Great Depression (and afterwards).

    At a minimum, it opens up the mind to possibilities that are otherwise foreclosed. Personally, I hang onto that when I, as you, worry a bit about the taken-for-granted nature of our current capitalist relations in the MMT debate.

    All the best to everyone here and thanks to Peter for the great blog.

  11. Terrific comments, everyone!

    Philip, good thoughts. It has often struck me how unions were overpowered once TPTB decided to make it so. Not to take away, at all, from the real courage and tenacity shown, for example, in the miners’ struggles in the UK. But the political power we are all up against is daunting.

    Regarding what is possible, I see different people’s roles as different. Those in policy circles can only attempt what is realistic. Tenured academics to some extent need to conduct “respectable” research programs. But for those of us on the outside, our purpose can be to help change what is possible by trying to contribute in whatever small way we can to the building of a mass movement. Don’t get me wrong. I agree with Laura that it is important to support reforms that benefit working people, even when they fall short of what we are really working towards.

    jrbarch: Not kooky, magnificent! What a poetic comment. Thank you.

  12. I see a JG as a union for the unemployed.

    I think broadly speaking that Neil Wilson, myself and Philip Pilkington are on the same page.

    Getting a JG as envisioned will never happen but that is why we must ask for the idealised form as that is the starting position of any negotiation.

    Other suggestions I’ve seen make it seem like they’re partially making a cup of coffee, they put the coffee in but don’t bother adding the hot water.

  13. Somehow, this discussion reminds me of Eduard Bernstein…

    And I mean this in the best possible way.

    (I know, a bit cryptic)

  14. @ Arun DuBuois

    No, I really don’t think the GD played as much of a role as progressive mythology would have us believe. Yes, some reforms came in. But real economic restructuring came in WWII (together — not coincidentally — with huge deficits). I have absolutely no doubt about this.

    This goes a long way to explain the tepid reaction to the coming depression. This is not without precedent. FDR et al did not do as much in the GD as we think. Yes, they did jobs programs etc. but this was a different time: 25% unemployment and people literally starving etc.

    It was the War that did it. That’s when Keynesian policy became ingrained. You can read Keynes himself on this. He recognised it fully.

    Then all the additions after (Marshall Plan etc. but also War on Povety) were largely sold as anti-communist measures.

  15. This is all reminiscent of when the left and right were angry with Roosevelt’s New Deal. The left was upset because he saved capitalism. The right because the solutions were “big government.”

    Here is what I see playing out:

    1) Another financial collapse is eminent.
    2a)More govt stimulus will be required.
    2b) Just like the time before, stimulus will be badly allocated, badly timed, and badly sized. The final nail in the demand management coffin. Sounds preposterous, but then just look at the eurozone.
    3) Blood on the streets / rise of ugly extremist politics

    The biggest issue to ordinary folks with the Job Guarantee (JG) is ideological. Government can’t be part of the solution, don’t even try, road to serfdom is paved on good intentions. Obama had one big shot at stimulus and that was it for him politically. It didn’t matter that his advisers were telling him that another larger round of stimulus was needed. The left feels evermore naive advocating govt solutions to big social problems when they witness their own party fail to solve problems and often make them worse. They hold onto ancient memories of govt putting a man on the moon to justify their faith that govt can do big things successfully.

    The alternative to govt planning of course is private planning, which every reader of this blog is aware of capitalism’s congenital defects. What we need is the people, via govt, to have a moderate sized victory to restore faith in collective action.

    The Job Guarantee ideally would bring involuntary unemployment to zero. Children will wonder why we were so cruel to allow a large segment of the society to feel inadequate and impoverished. It solves the size, allocation, and duration problems inherent to gimmicky stimulus. By decentralizing the JG administration, it makes the program corruption resistant, and removes a justification politicians use to reward their campaign donors and socialize losses of big businesses. It restores some dignity to people’s lives, lowers other social costs involved with being unemployed. It satisfies those believe unemployment benefits foster a culture of laziness. It promotes price stability, businesses don’t lose as many customers in a downturn and can hire people that weren’t idle for months during the recovery. We know from Argentina’s experience people automatically transition to the private sector once the economy recovers and it restores people’s faith that govt can make things better for the average man. This opens the door a little for future incremental changes progressives would like but couldn’t achieve because of broad based market ideology such as universal health care, environmental protection, shorter work week etc..

    A better world is possible.

    1. http://www.cfeps.org/pubs/sr-pdf/SpecialReport2005-3.pdf
    2. http://www.cfeps.org/pubs/wp-pdf/WP43-Tcherneva-Wray.pdf
    3. http://www.cfeps.org/pubs/wp-pdf/WP41-Tcherneva-Wray-all.pdf
    4. http://www.levyinstitute.org/pubs/wp_519.pdf

  16. Great blog here! Great comments! What a hornet’s nest the JG stirs up. I see MMT as the full-employment, full-productivity, full-whatever macroeconomic theory. It can be that because once you admit that there’s no government budget constraint, that the only constraints are inflation and real resources, then unemployment is a choice. Many critics, seem to be saying not just that the JG is unworkable/bad/inefficient, and I broadly agree, though for philosophical not economic reasons, but that full-employment macroeconomics is unworkable/bad/inefficent. That is to say, we’re going to smooth the cycle and fix the private sector’s balance sheets with MMT, but when inflation picks up, and everyone agrees it will when unemployment hits 5-6%, we’re going to pull back. NAIRU MMT, if you will. And if you define NAIRU as 5% that’s not going to hurt so many people. The long-term unemployed figure will be below 1% and we can live with that. But is that a stable figure? As the unemployed become isolated from the workforce, don’t they become a less effective buffer, pushing NAIRU higher ? Doesn’t continuing technological change and the rise of the service sector fundamentally reduce the need for workers, at least workers in capital-intensive industries with access to horizontal money ? Does this push NAIRU higher ? If taking away the JG (or something else like it that allows you to add NFA from the bottom) means all that MMT gives you is the status quo with 50% better control of the business cycle then I’m out. If that’s not the case, then prove it! Otherwise, let the Great MMT Schism of 2012 begin.

  17. jms: Welcome. You make a good point about the NAIRU. As you may know, Bill Mitchell wrote one of the early papers on hysteresis. Here is a link to one of his posts on the topic:

    Redefining full employment … again!

    I am yet to see a serious argument from the right against a JG. They have a very mystified view of markets. The only serious theoretical attempt to investigate the idea that private markets are good evaluators of social productiveness was carried out by neoclassical economists, particularly the general equilibrium theorists. Those economists would not make the kinds of claims for markets that are frequently heard in the public debate, even if favorably disposed to markets on the whole. The reason is that the results of their work do not justify such claims.

  18. Yes, I’ve read a lot from Bill Mitchell on NAIRU. I couldn’t agree more. It seems to be constructed on an entirely ad-hoc basis. You can’t measure it but if inflation ticks up and you’ve still got 6% unemployment. Well, gosh, that must be the new level. The idea DOES seem to be that market outcomes are inherently right so reinforcing market outcomes i.e cutting taxes can be nothing but fair and apolitical. But I could imagine a zero-government MMT. Everyone uses nothing but horizontal bank money with a central bank injecting the vertical money to fill the leakages to savings. Zero taxes, zero government spending. I think it might actually work but how could you ever say that deciding who receives the manna from on high wasn’t political.
    I don’t particularly like the JG but I think it may, just may, be necessary to give MMT the flexibility to respond to anything that hits it. You want the flow of money to the corporate sector to increase – infrastructure. You want the flow of money to the middle-class to increase – tax cuts. You want the flow of money to the bottom 20% to increase – JG. And if not a JG, a BIG, a JIG, or something else. I wouldn’t go so far as saying that critics don’t have reasonable MICROECONOMIC arguments against a JG but the MACROECONOMIC arguments seem incredibly weak.

  19. Good thoughts. Yes, for those who prefer small government, a low tax/low spend approach can be implemented. If the non-government wishes to net save, there would still be a need for a budget deficit to keep the number of workers in the JG (or alternative program) relatively small, but this could be done through low taxes and low spending, as you say. From a right-libertarian perspective, this would allow the business cycle to play itself out while minimizing the impact on workers. The way I view this is that it is capitalists who make the profits, so they are the ones who are meant to be taking the risks, not workers.

  20. The general arguments seems to be

    – efficiency. We exactly how efficient is it to have 14% of the working population paid to watch low quality TV programmes, spend money and generally become unhealthy and depressed?

    – some nonsense about inflation. Which is easily dismissed since increased private sector investment would generate exactly the same inflation pressures in the second order spending. If ‘The Great Moderation’ has taught us anything it has shown that we can have massive endogenous expansion with very little inflation.

    – removal of struggle. A few commentators mention unemployment as a motivator (!). “I respect struggle and think it helps people to some extent”. Yes to climb over the bodies of others they’ve pushed out of the way. We see it every year in the New Year sales. Perhaps we should attempt to asphyxiate the unemployed since Maslow shows that generates much greater struggle than mere starvation and homelessness.

    The struggle should be businesses fighting to employ someone – not the other way around. Jobs can be eliminated to balance a market. People can’t – or at least shouldn’t be.

  21. @jms.grmwd — Hi!

    > Many critics, seem to be saying not just that the JG is unworkable/bad/inefficient, and I broadly agree, though for philosophical not economic reasons, but that full-employment macroeconomics is unworkable/bad/inefficent. That is to say, we’re going to smooth the cycle and fix the private sector’s balance sheets with MMT, but when inflation picks up, and everyone agrees it will when unemployment hits 5-6%, we’re going to pull back.

    Not sure I understand this correctly, but I think MMT rejects this idea. MMT does not agree that inflation will necessarily pick up when unemployment gets “too low”.

    This is how the story goes (if I understand MMT correctly): Imagine a high unemployment environment (in a capitalist society, I might add, since we’re in heteconomist land 🙂 ) — say 10%.

    A reasonably MMT-aware government would probably increase deficits in various ways to stimulate the economy. General aggregate demand stimulus. That would (hopefully?) reduce unemployment levels quite a bit — but yes — at some point inflationary pressure would start building up — say 5%.

    I guess this is what mainstream calls NAIRU. (MMT rejects the concept of unemployment being natural in anyway, and argues that full employment and price stability goes hand in hand — so the term “NAIRU” is rejected. I’ve seen Bill Mitchell call it the “inflation barrier” though.)

    Ok, so if deficits in the form of general aggregate demand stimulus are increased further, unemployment could be reduced — but not without inflationary impact.

    But (arguably) there is a better way to deal with people that are not hired by the private sector than to leave them in unemployment — namely to offer a JG employment. That way you could achieve full employment without inflationary impacts. I’ve tried (pretty hard..) to explain it all here: http://mmtwiki.org/wiki/Full_Employment_along_with_Price_Stability (feed-back appreciated)

  22. Hugo: jms can correct me if I’ve misinterpreted, but in the passage you quote he is characterizing the arguments of those who adopt the NAIRU concept. He disagrees with the reasoning underlying it, as you do. He’s saying that hysteresis means the NAIRU can keep moving about, even though it is supposedly meant to be determined solely by supply-side factors. In other words, demand conditions impact on NAIRU, contrary to the notion that it is purely supply determined.

    I really liked the clarification for the inhabitants of heteconomist land. We speak a different language here (hetenglish). 🙂

  23. The main issue I have with NAIRU is that it states that the economy can’t get any better than that, so tough on anybody left out.

    So why do they think they can get away without compensating those people left out fully?

    Surely once you’ve hit the systemic limit anybody left over and left out are victims of the system design.

    It makes you wonder why the ambulance chasing lawyers aren’t sueing somebody for compensation.

  24. PeterC, you just answered a question about the NAIRU/inflation barrier that I’ve been grappling with today though it does mean I need a much better understanding of hysteresis.

  25. I agree, MMT with a JG can break the link between unemployment and inflation. Or at least the case is very convincing. But to be honest I want MMT without the JG. It seems to me that the number of people working to actually produce the physical necessities and comforts of life is small and getting smaller fast. In order to give everyone the chance to purchase some of those things we’ve constructed a baroque superstructure (marketers, advertisers, salespeople, lawyers, managers, financial intermediaries etc.) over the top of the productive economy. But as time goes on, the fiction that everyone can be employed that way becomes a little more threadbare. In that sense I do believe in a natural rate of employment. Simply because it keeps getting harder and harder to find a place in the superstructure for the average joe to produce the particular kind of added value that can be converted to profit. Now the JG can solve the problem, I don’t deny that. There’s still plenty of social value to be added and the government can certainly employ people to add it without worrying about profit or loss. But to me the JG enshrines further the notion that work = income and that’s the way it has to be. I wonder if that doesn’t lead somewhere we don’t want to go or at least slows us down on the road to somewhere better. With free time and income security people are going to add social value all by themselves. The JG allows us to preserve the weird capitalist make-work superstructure and catch the people who fall through the cracks but is that the best we can do? I honestly don’t know but that’s why I can’t get enthusiastic about the JG. Yet without it I don’t see MMT as inherently changing the status quo on the employment question simply because, politically speaking, the voting public seems willing to accept any level of ‘natural unemployment’ the PTB want as long as they justify it with the inflation bogie. One would like to think that when the central bankers and treasurers of the world abandon the government budget constraint to go MMT and “save capitalism” they’ll re-examine all their sacred cows. I just have a feeling that NAIRU, the vertical Philips curve in the long run, rational expectations etc. etc. may be tougher to kill then that. So maybe I have to support the JG after all. Plenty of time to think about it. Not expecting to see that choice appearing at the ballot box anytime soon!

  26. What irony! I’ve repeated the JG critics argument but in reverse.
    JG = public sector bureaucracy = boondoggling
    private sector job = corporate bureaucracy = boondoggling
    Value – ain’t it subjective!

  27. jms, your position seems to be quite similar to mine, in that I agree we can make a transition to more free time as mechanization becomes more widespread. It is not that we wouldn’t be doing socially productive things in our free time (as well as enjoying leisure) but that, as you say, income could increasingly be separated from labor time. Long term, there seem to be others here who also share this perspective.

    The difficulty is in the transition. There is a difference between involuntary unemployment (people getting more free time when they would prefer otherwise) and a voluntary reduction in employment (e.g. through the implementation of a JIG). In the latter case, those receiving the basic income guarantee would not be unemployed, because they would not be counted as actively seeking employment for a wage or salary.

    It is the transition problem that led me to suggest the JIG, rather than a JG or BIG in isolation, since a JG appears to be a backward step in terms of making this transition (even though it would be a forward step in most ways) and a BIG in isolation would force the transition on many before they were necessarily ready for it.

    Not sure if you noticed this earlier post (and really good discussion):

    Implications of a Purely Mechanized Economy

    It is the first thread here that involves a consideration of some of these issues.

  28. Senexx – tried to explain the hysteresis stuff that happens with an unemployment pool (but presumably not with s JG pool) here:

    mmtwiki.org/wiki/Full_Employment_along_with_Price_Stability#Inflation_Fighting_Effect

    Let me know if it needs clarification or so.

  29. I took a look at the the other thread. Our positions are very similar. At some time in the future when literally everyone is in the service sector selling each other back rubs or yoga classes don’t we just eventually look at one another and say “This is ridiculous. You like yoga. I like yoga. Why don’t we just form a yoga club and do this as friends.” Or even without relying on sci-fi future technology, what’s the target productivity level that we have to reach before we can say, “Well done humanity, you’ve come a long way. Time for the four day work week.” I guess that we can think ourselves lucky that we ever even got the five day week. I believe that it was an unlikely coalition of rabbis and unionists that fought for it in the U.S. first. Just think, if the Jewish sabbath had been on Sunday like the Christian we might still be working six days. In theory I like the idea of JIG but in truth I don’t think society is ready to offer any level of income to someone who can work and doesn’t.

  30. Peter C,

    I absolutely love your website. Nothing more needs to be said in that vein.

    I posted this over at Traders Crucible and thought I’d share it here-

    Whether the ‘founders’ consider JG ‘core’ or not makes no difference to me.

    The inherent strength of MMT is its descriptive elements. I dare anyone to refute that. MMT is not widely known or accepted. I came from a more fiscally conservative mindset when I discovered MMT so it won’t surprise anyone that I ‘side’ with Cullen on this. I’m not full on anti-JG (I think a JG-lite would make a great safety net) but my view of this is what I consider ‘my prescription’ as I consider the JG a prescription in general.

    I write this because I hope that those who do support the JG can realize that, as a person with a fiscally conservative mindset, if I had been learning MMT and straight off the bat a ‘core element’ of it had been a massive program to employ via the government I may never have continued further down the rabbit hole, so to speak.

    I’m writing this here as opposed to anywhere else because I think TC has a great mindset for the goal of ‘marketing’ MMT. I’m writing this in the hopes that all those great minds out there who understand MMT and support the JG come to realize that if you present MMT with JG as a core element, on one level you have done yourself a diservice. Even if you think it is, there will be more converts and a quicker conversion if the marketing is done specifically with only the descriptive elements. And does that not, in the end, make it easier to implement the JG if that is your prescription?

    As an example- there was a commentor over on Cullen’s site today who stated that he had been reading the site for sometime, fully appreciated what Cullen had done and thanked him for his help in understanding MMT. He went on to explain that he can no longer support MMT because it has been made clear to him by the recent JG debate there that he had beend ‘duped’ by the ‘founders’ and went one to make all sorts of comparisons to socialism and even communism.

    That’s an extreme example (he’s gotta be old, a nutbag, or both). But its not an uncommon reaction (especially in a country like the US) to be adverse to something like a Jobs Guarantee at first sight. Even more so if the person does not already understand the descriptive elements of MMT. Please, everyone lets talk about the JG as a prescriptive element of MMT. And if that doesn’t cut it for you, call it a prescriptive element that currently is currently the only idea presented to acheive price stability. I fear that otherwise, we might shoot MMT in the foot before it gets a chance to do some real good.

    -Everyone have a great weekend!

  31. @ Dunce Cap Aficionado

    You’re probably right as far as the U.S. goes. But I’m more interested in selling MMT in Australia where the JG could be sold as giving everyone a fair go. The concept of the “fair go” has real populist power, much like the “American Dream” in the States. It might even make MMT more popular over here. Certainly get it into the public eye where sectoral balances and endogenous money won’t.

  32. Very interesting post, Magpie. Thanks. I’m reading more of Bonhoeffer’s writings in the link you provide in the post. The section on folly that you focus on seems relevant right now in more ways than one.

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