Critics frequently charge (no link found) that while we on the Left are prolific in identifying reasons things must change, our prowess in actually bringing about change is less impressive. I thought it might be of theoretical interest, or at least of idle curiosity, to reflect on the means of effecting change. Let’s sit ourselves down with a cup of coffee and conduct a thought experiment concerning what might be done. Dare we contemplate something more than change? Something as grandiose as social transformation? Yes, I say. Why not? This could prove to be an intriguing exercise indeed.
There has been discussion in the economic blogosphere recently, from a left perspective, about the merits or otherwise of employing an understanding of Modern Monetary Theory (MMT) in debates over policy and efforts to transform the economic system. There is an interesting post, for example, by Dan at Pruning Shears (h/t Tom Hickey) suggesting that MMT might be a “dicey bet for liberals”. In reading this and similar arguments presented elsewhere, I find myself agreeing on some (though certainly not all) points, but differing in the conclusion to be drawn from them.
Regular readers will be aware that I would support either a basic income guarantee (BIG) or job guarantee (JG) as standalone programs, whichever happened to be on the policy agenda, but ideally would prefer a program that combined the positive elements of both into some form of ‘job or income guarantee‘. Much of my reasoning to date has been outlined in previous posts archived under the category Job & Income Guarantee. I won’t revisit those considerations in this post. The present focus is instead on which of the two programs — a BIG or JG — should be seen as primary.
Time for a music break. Proceed with caution if in the office or too seriously into economics to countenance such an outrageous waste of cyberspace. The economic content of what follows is arguably minimal. Arguably, it is not even arguable. As always with music breaks, your mileage may vary. It’s unavoidable. I’m sorry. And I feel your pain. Heteconomist has its own core set of musical influences, and it is virtually inevitable that these expose themselves from time to time. The good news is that it’s always possible to infuse the blog with new influences via the comments section. And, of course, if you choose not to click on the videos, no one will ever be the wiser. Perfect.
Sometimes supporters of a basic income guarantee (BIG) argue for the policy on the grounds that it would increase “incentives to work”. This conclusion follows from standard neoclassical labor-supply analysis. Irrespective of the correctness or otherwise of the argument – and, if correct, it probably does have some utility as a negator of frequent neoliberal claims to the contrary – it is important to keep in mind obvious limitations of the argument and to go well beyond it. Two limitations, in particular, spring to mind.
I very much enjoyed this talk in Adelaide by Steven Hail (first hour) and Q&A session with Steven and Phil Lawn moderated by Anna Milhaylov (following half hour). The talk was organized by the Mayo Branch of the Australian Greens.
It was suggested in the previous post that the notion of ‘value of the currency’ adopted in Modern Monetary Theory (MMT) seems compatible with Marx’s theoretical framework, provided it is acceptable in that framework to consider a state currency, and not only gold or some other commodity, as “true” money. As was explained in the post, currency value in MMT can be defined as the amount of labor time a worker must perform in order to obtain a unit of the currency. An advantage of this definition, if applied in Marx’s framework, is that it offers an explanation for the value of fiat currency that can be expressed in terms of socially necessary labor time.
In Marx’s theory, formulated in terms of the gold standard of his day, the value of commodity money is taken to be the amount of simple, socially necessary labor time required to produce gold. This treatment of the value of commodity money is consistent with Marx’s treatment of commodity value in general, which always represents amounts of socially necessary labor time. Since the value of the currency under a gold standard depends not only on the labor time required to produce gold but the rate at which gold is exchanged for currency, the question arises as to whether it is gold that is actually “real money” in such a system, or, rather, state currency, issued and exchanged at a fixed rate for gold, that is real money. If it is gold that is real money, Marx’s theory would seem to suggest that there is no value underlying fiat currency, since fiat currency takes zero (or negligible) labor time to produce. If, instead, state currency can be real money in Marx’s framework, then fiat currency can be conceived as having value in much the same way as currency under the gold standard. In either system, the currency is produced with zero (or negligible) labor, but obtaining a unit of the currency requires a definite amount of simple, socially necessary labor time to be performed by the non-government. From the non-government’s perspective, it is as if that amount of labor is required to “produce” a unit of the currency. There is no suggestion, here, that this would necessarily have been Marx’s view, or that there is necessarily strong textual evidence for it. But it is suggested that taking this interpretation enables Marx’s notion of the value of money as an amount of socially necessary labor time to be extended to fiat money.
Private and public exogenous expenditures have different impacts on the sectoral balances. The same rate of growth in income has varying implications for the domestic private sector’s financial balance (saving minus investment or, equivalently, income minus private spending) depending on the composition of the demand driving that growth. An increase in private investment pushes the private sector toward deficit. Even though the investment boosts income, saving will not rise as much as investment because of leakage to taxes and imports. In contrast, government spending adds income and saving for a given level of investment. An implication is that growth driven by private expenditure that occurs without compensating growth in government spending pushes the private sector into deficit except to the extent that net exports counter the effect.
Demands on time in the MMT community include (i) providing “simple as possible” explanations of “basic MMT” for public consumption and (ii) exploring theoretical and policy ideas informed by an understanding of those basics together with insights from related approaches to economics. Although the latter task is perhaps more enticing for those who have by now (mostly) absorbed the basics, and is certainly an area worthy of pursuit, the former task remains politically pressing and so equally deserving of time. It doesn’t matter what progressive policies, institutional reforms or plans can be devised if the public believes they are “unaffordable because the nation is bankrupt” or “impossible because capitalists won’t stand for them”. This indoctrination has occurred over decades and clearly many in the community are not freeing themselves of it easily.